Treasury Department : ureau of Interna Revenue

Interna Revenue uetn

Cumuatve uetn 19 7-2
ULY-D C M R 19 7
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CI L TT NTION drected to the cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 19 7-2
ULY-D C M R 19 7
IN T IS ISSU
Introductory Notes I
Contents ...
Rungs Nos. 12581-12721
Ta Court of the Unted States, The, formery Unted
States oard of Ta ppeas 1-7
Income Ta
Part I ( . Interna Revenue Code and . 1938
ct) 9-1 2
Part n (1937 and 1936 cts) 1 3
Part I (1935 and 193 or Pror cts) ... 1
mpoyment Ta es 1 5-20
Msceaneous Ta es 205-206
state Ta es 207 209
cse Ta es, Stamp Ta es, etc 210-215
Msceaneous Rungs 217-333
Legsaton 33 - 352
Commttee reports 353-361
Inde 363-37
The rungs reported n the Interna Revenue uetn are far the nformaton of ta payers and ther counse as
showng (he trend of offca opnon n the admnstraton of the ureau of Interna Revenue; the rungs other than
Treasury Decsons have nne of the force or effect of Treasury Decson and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcrUr case rests- It s especay to be noted that (he same resut w not neces-
sary he reached n another case uness a the matera facts are dentca wth those of the reported case- s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung there can be no assurance
that any new case s dentca wth the reported case- s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any cue
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a
pertnent provsons of the aw and Treasury Decsons to a the facta n each case. These rungs shoud be used
ads n
These rungs s
made n the reguatons and Treasury Decsons pre-
t provsons a the aw and Treasury Decsons to a the facta n each
n studyng the aw and ts forma constructon as
vtousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
Revenue to pubsh a ratngs and decsons, ncudng opnons of the Chef Counse for the ureau of Incma
Revenue whch, because they announce a rarng or decson upon a nove queston or upon a queston n regard
to whch there crss bo prevousy pubshed rung or decson, or for other reasons, are of uch mportance as
to be of genera nterest. It t aso the pocy of the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons
of the Chef Counse for the ureau of Interna fevenne are not of genera nterest because they announce no
new rung or new constructon of the revenue taws but smpy appy rungs aready made pubc to certan
stuatons of fact whch arc wthout speca sgnfcance. I s not the pocy of the ureau to pubsh such opnons.
Therefore, the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of Interna
Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer or
empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 1M
For aae by Superntendent of Documents, U. S. Government Prntng Offce, Washngton 25, D. C
See back of tte for prces
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The Interna Revenue uetn servce for 19 8 w consst of
buetns ssued every other week and semannua cumuatve buetns.
The buetns w contan the rungs and decsons to be made
pubc and a Treasury Department decsons (known as Treasury
Decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury Decsons) pubshed durng the prevous 6 months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. G, for 2.50 per year; foregn, 3.75. Snge
copes of the uetn, 10 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy; Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and ncud-
ng December, 1921, as foows: No. 1, 30 cents; No. 2, 25 cents; No. 3,
30 cents; No. , 30 cents; No.. 5, 25 cents.
Persons desrng to obtan Saes Ta Cumuatve uetns for
uy-December, 1921, may procure them from the Superntendent of
Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 19 7, ncusve, may do so at prces as foows:
Cumuatve uetn.
Year.
Prce (cents).
Frst 6 months.
Second 6 months.
1922
1-1
1-2
0.30
1923
II-
n-2
30. 0
192
III-
III 2
50.50
I92S
I -
I -2
0.35
1926
-
-2
0.30
1927
I-1
I-2
0. 0
1928
II-1
II-2
35.50
1929
III-1
n-2
50,55
1930.
I -1
I -2
50.50
-I
-2
66.30
1932
I-1
-a
30,56
1933
II-1
II-2
30.50
III-1
III-2
50,60
1938
I -I
rv-2
60,50
-1
v- .
56. 5
1937-1
1937-2
60.50
1938-1
1938-2
60,50
1939
1939-1
1939-2
. 60
Part 1
50
Part 2
1
19 0
19 0-1
19 0-2
30.60
19 1
19 1-1
19 1-2
5,60
19 2
19 2-1
19 2-2
0,60
19 3 .
1. 26
1. 50
19 S
1.00
19 6
19 6-1
19 6-2
60,75
19 7
19 7-1
19 7-2
0,75
The astersk ( ) Indcates the suppy of that pubcaton Is e hausted.
1 ouse, Senate, and conference reports on revenue bs from October 3, 1913, to Revenue
ct of 1938, ncusve; and on amendments thereto.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-192 ), 60 cents; Dgest No. 17
(1925), 25 cents; Dgest No. 21 (1926), 15 cents; Dgest No. 22 (1925-
1927), 35 cents; and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 19 7-2, n addton to
a decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, empoyment, soca securty,
and msceaneous ta es, and egsaton affectng the revenue statutes,
as ndcated on the tte page of ths uetn, pubshed n the
uetns (19 7, Nos. 1 to 26, ncusve) for the perod uy 1 to
December 31, 19 7. It aso contans a cumuatve st of announce-
ments reatng to decsons of The Ta Court of the Unted States,
formery Unted States oard of Ta ppeas, pubshed n the Interna
Revenue uetn Servce from uy 1 to December 31, 19 7.
Income Ta rungs are prnted n three parts. The rungs n
Part I are prnted as Part I, (Interna Revenue Code) and
(Revenue ct of 1938), the aw headngs correspondng wth the
sectons of the Code, as amended, and the 1938 ct, respectvey, and
the reguatons headngs correspondng wth the secton headngs of
Reguatons 111 or 103 and the artce headngs of Reguatons 101.
Rungs under the Revenue cts of 1937 and 1936 are prnted as Part
II, the aw headngs correspondng wth the secton headngs of those
cts and the reguatons headngs correspondng wth the artce head-
ngs of Reguatons 9 . Rungs under the Revenue cts of 1935 and
193 or pror cts are prnted as Part III, the aw headngs corre-
spondng wth the secton headngs of the Revenue ct of 193 and the
reguatons headngs correspondng wth the artce headngs of
Reguatons 86.
Rungs under Ttes III and I of the Soca Securty ct and
under Subchapters and C, Chapter 9, of the Interna Revenue
Code n force pror to anuary 1, 19 0, are pubshed under artce
headngs of Reguatons 91 and 90, respectvey; rungs under Sub-
chapters and C, Chapter 9, of the Code n force on or after anuary
1, 19 0, are pubshed under the secton headngs of Reguatons 106
and 107, respectvey; rungs under the Carrers Ta ng ct of 1937
and under Subchapter , Chapter 9, of the Code, are pubshed under
the artce headngs of Reguatons 100; and rungs under Tte III
of the Revenue ct of 1936 Ta on un|ust enrchment are coded
under the sectons of that ct and the artce headngs of Reguatons
95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
(n)
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. T. oard of Ta ppeas.
C. . Cumuatve uetn. ,
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
C. T. Ta es on mpoyment by Carrers.
D. C. Treasury Department crcuar.
m. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct
of 1937, and Subchapters , , and C of the Interna Revenue Code.
. P. C. cess Profts Ta Counc rung or memorandum.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
I. T Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Ta es on mpoyment by others than carrers.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. C Ta Court of the Unted States.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T UNIT D
ST T 8, FORM RLY NOWN S T UNIT D ST T S O RD OF T PP LS.
In order that ta payers and the genera pubc may be nformed
whether the Commssoner has acquesced n a decson of The Ta
Court of the Unted States, formery known as the Unted States
oard of Ta ppeas, dsaowng a defcency n ta determned by
the Commssoner to be due, announcement w be made n the b-
weeky Interna Revenue uetn at the earest practcabe date.
Notce that the Commssoner has acquesced or nonacquesced n a
decson of The Ta Court reates ony to the ssue or ssues decded
adversey to the Government. Decsons so acquesced n shoud be
reed upon by offcers and empoyees of the ureau of Interna
Revenue as precedents n the dsposton of other cases.
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CUMUL TI CONT NTS.
Rung.
Treasury Decsons:
5566
5567
5588
5689
5570
5571
5572
5573
557
5575
5576
5577
5578f.
5579
5586
5589
5590
5591
5592 _
5593
559 ...
5595
Court decsons:
1686
1687
1688
1689
1690
1691
1692
1693
169
Chef Counse s memoranda:
25131
25250
25261
2S298
25301
25358
Ta Court of Unted States:
2581
2613
261
3106
339
3 01.
3786.
3890.
297.
2 .
953.
95 .
955.
956.
957.
958.
959.
960.
961.
962.
963.
978.
50 1.
50 2.
50 3.
Rung No.
19 7-1 -12585
19 7-1 -12589
19 7-15-12603
19 7-15-12597
19 7-15-12601
19 7-15-12602
19 7-10-12612
19 7-16-12613
19 7-17-12625
19 7-19-126 2
19 7-19-126 7
10 7-21-12606
19 7-21-f2667
19 7-21-12670
19 7-2 -12698
19 7-2 -12699
19 7-2 -12700
19 7-2 -12701
19 7-2 -12702
19 7-2 -12703
19 7-2 -1270
19 7-2 -12705
19 7-2 -12706
19 7-2 -12707
19 7-2 -12708
19 7-2 -12709
19 7-25-12712
19 7-25-12715
19 7-25-12716
19 7-26-12721
19 7-1 -12582
19 7-15-12595
19 7-15-12598
19 7-15-12599
19 7-17-1262
19 7-20-12651
19 7-21-12553
19 7-22-12679
19 7-23-12681
19 7-22-1267
19 7-18-12030
19 7-19-126 0
19 7-16-12608
19 7-15-12596
19 7-20-12652
19 7-15-12592
19 7-15-12592
19 7-15-12592
19 7-26-12718
19 7-15-12592
19 7-15-12592
19 7-19-12639
19 7-26-12718
19 7-26-12718
19 7-26-12718
19 7-23-12680
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-18-12629
19 7-15-12592
19 7-15-12592
19 7-16-12592
19 7-15-12592
19 7-15-12592
Page.
227
100
277
220
265
255
180
221
17
208
aa
219
88
239
259
237
270
25
269
258
262
263
20
69
166
(17
28
96
M
70
167
17
129
50
92
122
28
85
32
1
90
1,
1
2
I
2
3
I
2
7
,7
2

3
I

2
2
a
3
3
Rung.
Ta Court of Unted 6tates
Contnued.
50
50 5
50 6
5160
5 50
5517
5730
5862
6121
6383
6 87
651
6515 -
6516
6517
6618
6519
6520
6621
6522
6523
652
6525
65 7
6606
6806
6828
7031 -
721
7215
7322
735
7 05
7 59
755
7886
8209...
8292
8389..
8 03
8580
8598
866
8895
8813
8837
8883
8905
8907.
8908.
8922.
8929.
8998.
9012.
9013
9019.
9028.
9077.
9123
9176.
9180
9210.
9270.
928 .
9295
9328.
9373.
9397.
9535.
967 .
958 .
96 2.
9833.
99 1.
Rung No.
19 7-15-12592
19 7-16-12592
19 7-15-12592
19 7-15-12592
19 7-20-126 8
19 7-16-12807
19 7-23-12880
19 7-15-12592
19 7-17-12621
19 7-22-12671
19 7-19-12639
19 7-2 -12691
19 7-2 -12691
19 7-2 -12091
19 7-2 -12691
19 7-2 -12691
19 7-2 -12691
19 7-2 -12091
19 7-2 -12691
19 7-2 -12691
19 7-2 -12691
19 7-2 -12891
19 7-2 -12891
19 7-2 -12891
19 7-1 -12681
19 7-19-12639
19 7-10-12607
19 7-20-126 8
19 7-23-12680
19 7-23-12680
19 7-15-12592
19 7-28-12718
19 7-21-12659
19 7-18-12029
19 7-23-12680
19 7-19-12039
19 7-23-12680
19 7-20-126 8
19 7-21-12059
19 7-22-12671
19 7-16-12592
19 7-19-12639
19 7-16-12592
19 7-22-12671
19 7-1 -12581
19 7-23-12680
19 7-23-12680
19 7-17-12621
19 7-17-12621
19 7-17-12621
19 7-17-12621
19 7-16-12607
19 7-16-12592
1917-23-12680
19 7-26-12718
19 7-28-12718
19 7-21-12659
19 7-21-12859
19 7-15-12592
10 7-26-12718
19 7-1 -12581
19 7-2 -12891
19 7-20-126 8
19 7-22-12T71
19 7-1 -12Ik1
19 7-21-12059
19 7-28-12718
19 7-22-12671
19 7-22-12071
19 7-22-12871
19 7-19-12639
19 7-22-12671
19 7-23-12680
19 7-28-12718
19 7-23-12680
( )
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I
Rung.
Ta Court of Unted States
Contnued.
99 7
1U028
10067
10083
1010
10105
10170...
102 5
102 6
102 7
10 7
10887
11116 -
11620
11836
12M1
58180
60899
72932
72933
95500
99559
101276
108586
Offce decsons (I. T.):
3858
3859
3860
3861
3862
3863
386 --
3865
38156
3867
3868
3809
3870
3871
3872
3873
387
3875
3876
3877
3878
3879 -
3880
1881
3882
3883
Offce decsons ( P c |
19
20
21
22
23
Rung No.
19 7-18-12629
19 7-18-12629
19 7-18-12029
19 7-15-12592
19 7-20-126 8
19 7-20-120 8
19 7-22-12671
19 7-18-12629
19 7-18-12029
19 7-18-12029
19 7-26-12718
19 7-26-12718
19 7-26-12718
19 7-26-12718
19 7-20-12M8
19 7-23-12080
19 7-22-12671
19 7-22-12071
10 7-22-12671
19 7-22-12071
19 7-1 -12581
19 7-1 -12581
19 7-22-12071
19 7-19 12639
1 7-1 -12583
19 7-1 -12SS
19 7-15-1259
19 7-10-12609
19 7-16-12610
19 7-10-12611
19 7-17-12622
19 7-17-12623
19 7-19-120 1
19 7-20-126 9
19 7-20-12050
19 7-21-12600
19 7-21-12061
19 7-21-12662
19 7-22-12672
19 7-22-12673
19 7-22-12675
19 7-22-12070
19 7-23-126S2
19 7-2 -12692
19 7-2 -12693
1917-2 -1209
19 7-2 -12695
19 7-2.5-12710
19 7-25-12711
19 7-20-12719
19 7-19-126 6
19 7-20-12668
10 7-21-12668
19 7-21-12669
19 7-23-12085
Pago.
1
a
2
3
1

.1
2
1
2
6
2
3,7
6
2
3
2
1

3
1
3
2
,7
71
98
70
7
70
1 1
17
20
OS
9
9
58
r,7
62
19
82
218
86
120
15
57
58
87
23
61
132
135
136
137
139
Rung.
Offce decson ( . T.):
20.
Offce decsons (MS.):
312
313.
31
315
316
317....
Offce decsons (T.):
188
189
190....
191
192-
193
19
195
196
197
198
199
200
Department Crcuar:
230 (Rev.).
Mmeographs:
6156
6157
017 . ,
6185
6187
019
6197
0198
6209-
Crcuar:
199
Msceaneous
Legsaton.
Rung No.
19 7-23-12687
19 7-15-1280
19 7-17-12626
19 7-19-126 3
19 7-21-12665
19 7-2 -12696
19 7-26-12720
19 7-1 -12586
19 7-1 -12587
19 7-16-1261
19 7-16-12615
19 7-19-120
19 7-19-126 5
1917-20-12653
19 7-20-1265
19 7-23-12688
19 7-23-12689
19 7-23-12690
19 7-25-12713
19 7-25-1271
19 7-18-12832
19 7-1 -12590
19 7-16-12503
19 7-18-12031
19 7-21-12661
19 7-22-12077
1917-22-12078
19 7-23-1268
19 7-23-12686
19 7-25-12717
19 7-23-12683
19 7-1 -12588
19 7-15-12600
19 7-20-12655
19 7-20-12658
19 7-20-12657
19 7-2 -12687
19 7-1 -12591
19 7-15-12605
19 7-15-12606
19 7-16-12616
19 7-16-12617
19 7-16-12618
19 7-16-12619
19 7-16-12620
19 7-17-12627
19 7-17-12628
19 7-18-12033
19 7-18-1203
19 7-18-12635
19 7-18-12636
1917-18-12637
19 7-18-12638
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CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 to 5; S. T. FOR 1920 ND 1921; INT RN L
revenue m, -2. n-, n-2. m-. 111-2, v-. v-2, v-, v-2. v-, v-2, vn-, vn-2, vm-,
vn-2, -. -2, -, -2, -, -2, n-. n-2, ra-. n-2, v-, v-2, v-, v-2,1937-1,
1937-2, 1938-1, 1938-2, 1939-1 (P RT 1 ND P RT 2). 1939-2, 19 0-1, 19 0-2, 19 1-1, 19 1-2. 19 2-1.
19 2-2; NNU L ULL TINS FOR 19 3, 19 , ND 19 5; S MI NNU L ULL TINS 19 6-1.
19 6-2. 19 7-1, ND 19 7-2.
Cumuatve uetn.
Income Ta :
December 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1020 fNo. 3)
anuarv- une, 1921 (No. )
uv-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)
anuarv- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uv-December, 1922 (No. 1-2)
anuarv- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)
anuary- une, 192 (No. III-)
uy-December, 192 (No. III-2)
anuarv- une, 1925 (No. I -11
uv-December, 1925 (No. I -2)
anuary- une, 1920 (No. -)__
uy-December, 1926 (No. -2)
anuary- une, 1927 (No. I-1).
uv-December, 1927 (No. I-2)
anuarv- une, 1928 (No. II-1)
uy-December, 1928 (No. II-2)
anuarv- une, 1929 (No. III-1)
uv-December, 1929 (No. III-2)
anuarv- une, 1930 (No. I -1)
uy-December, 1930 (No. I -2)
anuarv- une, 1931 (No. -)
uy-December, 1931 (No. -2)
anuary- une, 1932 (No. I-1)
uy-December, 1932 (No. I-2)
anuary- une-, 1933 (No. II-1)
uv-December, 1933 (No. II-2)
anuarv- une, 193 (No. III-1)
uy-December, 193 (No. III-2)
anuary- une, 1935 (No. I -1)
uv-December, 1935 (No. I -2)
anuary- une, 1936 (No. -1)
uy-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uv-December, 1937 (1937-2)
anuary- une, 1938 (1938-1)
uy-December, 1938 (1938-2)
anuarv- une, 1939 (1939-1 Part 1 and Part 2)
uv-December, 1939 (1939-2)
anuarv- une, 19 0 (19 0-1)
uy-December, 19 0 (19 0-2)...
anuarv- une, 19 1 (19 1-1)
uv-December, 19 1 (19 1-2)...
anuary- une, 19 2 (19 2-1)
uy-December, 19 2 (19 2-2)
anuary-December, 19 3 (12 months)
anuary-December, 19 (12 months)
anuary-December 19 5 (12 months).
anuary- une, 19 6 (19 6-1) --
uy-December, 19 6 (19 6-2)
anuary- une, 19 7 (19 7-1) _.
uy-December, 19 7 (19 7-2)
( II)
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T T COURT OF T UNIT D ST T S.
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S,
FORM RLY T UNIT D ST T S O RD OF T PP LS,
PU LIS D IN T INT RN L R NU ULL TIN S R -
IC FROM ULY 1 TO D C M R 31, 19 7, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner n
decsons of The Ta Court of the Unted States, formery the Unted States oard of Ta
ppeas, as prnted In the weeky Interna Revenue uetns from December 22, 102 , to
December 31, 1931, ncusve, are pubshed n Cumuatve Uetn -2 (1931), pages 1-106.
Those prnted n weeky uetns from anuary 1, 1832, to December 31, 1939, ncusve, are
ubshed n Cumuatve uetn 1939-2, pages 1-73. Those prnted n weeky uetns from
anuary 1, 19 0, to December 31, 19 2, ncusve, and n semmonthy uetns from anuary
1,19 3, to December 31, 19 , ncusve, are pubshed n Cumuatve uetn 19 , pages 1-51.
Those prnted n semmonthy uetns durng the caendar year 19 5 are pubshed n Cumu-
atve uetn 19 5, pages 1-9. Those prnted In bweeky uetns from anuary 1 to uno
30, 19 6, Incusve, are pubshed In Cumuatve uetn 19 0-1, pages 1-6. Those prnted In
bweeky uetns from uy 1 to December 31, 19 6, Incusve, are pubshed n Cumuatve
uetn 19 6-2, pages 1-7. Those prnted n bweeky uetns from anuary 1 to une 30,
19 7, Incusve, are pubshed In Cumuatve uetn 19 7-1, pages 1-6. Tho st beow there-
fore, contans ony such announcements prnted n tho bweeky uetns from uy 1 to
December 31,19 7, ncusve.
19 7-26-12718
The Commssoner acquesces n the foowng decsons:
Ta payer.
Docket No.
Report.
oume.
.
dda, Inc.1
nderson, Monroe D., estate of -
nderson, Wam P
tknson, Wam G. (aso known as.Pau Cavanagh) .
.
atmore Transfer Co. of atmore Cty, The
artett, dwn R
eande ct u , dward
erwnd, Chares G
ake, Maron
ake, rgna - -
oudn, Chares F
rskey Co.
ush Termna udngs Co
yram, arry ., estate of --
8883
2581
8929
95500
99 7
102 6
50 5
8599
721
7215
8560
60899
6806
8837
9
8
8
1 2
8
8
8
8
8
8
8
29
7
9
Carter-Coton Cgar Co. - I 9123 9
Cavanagh, Pau (aso known as Wam G. tknson) . 95500 I 2
oard of Ta ppeas.
cquescence reates ony to the Issue Invovng the usefu fe of a budng for deprecaton purposes.
Oft ta decson.
1 Nonacquescence pubshed n Cumuatve uetn 19 1-1, pages 12 and 13, wthdrawn.
onacquesccncc pubshed In Cumuatve uetn III- (103 ), page 19, wthdrawn,
state ta decson.
N
(1)
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cqutescences Contnued.
Ta payer.
Chrstman Co., The
Cayton, Susan .1
Cayton, W. L.1..
Cuett, 3d, et u , Robert.
Cohu, Dd M
Cohu, La Motte T.
Cook, Mary ., estate of
Crown Zeerbach Corporaton.
Cuba Raroad Co., The 3
928
8
679
261
8
706
2613
8
706
10067
8
1178
50 0
8
796
5039
8
796
735
9833

563
3786
8
511
9397
9
211
D
Dean, . Smpson
Dean, Pauna duPont
Donadson, Maynard M., e ecutor of estate of Mary
. Cook..
Druggsts Suppy Corporaton
Durst Productons Corporaton 3
.
ast Coast O Co., S. . .
oon Co., The
Fock, manue
Frew, Water ., estate of
Frew et a., a Louse, e ecutors of the ast w and
testament of Water . Frew 3
Frye, Foyd ., admnstrator of estate of oseph D.
Rosenberg
G.
Geary, Mary deF. arrson
Gbson Products Co., Inc
Gracey, ueon ock
Guggenhemer et u ., Chares S.
.
a, eda N
arrs ardwood Co., Inc. ..
eckett, rc
, Inc., R. O.
ome Guaranty bstract Co.
ooker, arry M
ooker ectrochemca Co...
udson, Mar|ore . L
9013
9012
1 735
9833
9270
10867
58180
101276
6828
9373
9373
978
8209
9176
339
8813
11836
2
5160
9028
957
102 7
102 5
8695
31
5
oard of Ta ppeas.
Gft ta decson.
3 state ta decson.
1 cquescence reates ony to the resut.
1 cquescence reates to a ssues e cept the ssue whether apprecaton n vaue of assets dstrbuted In
knd s ncudbe n computng earnngs and profts of the corporaton whch made the dstrbuton.
Nonacquescence pubshed n Cumuatve uetn I -1 (1935), page 27, wthdrawn.
8 Lmted acquescence and parta nonacquescence pubshed In Cumuatve uetn 19 2-1, pages 6
and 22, respectvey, wthdrawn.
Nonacquescence pubshed In Cumuatve uetn 19 5, page 8, wthdrawn.
1 Ths announcement does not reate to the ssue Invovng ad|ustment tor abnormates of base perod
net ncome under secton 711(b)(1) ( )(h) of the Interna Revenue Code.
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3
cquebcences Contnued.
Ta payer.
Docket No.
Report.
oume. Page.
I.
Irvng, eanor Sasbury
Irvng, Gage
.
mbe Gass Co
regar, dward It., estate of
regar et a., Wam ., e ecutors of estate of dward
R. regar 1
L.
Lon Cothng Co
Longvew ton ote Co.
Lucas, Mabee T.
M.
Mahn, Dorothy (formery Mrs. . . Gracey)
Marks, Meane Dennery
Marsha, erbert
May, gnes
May, Water ., estate ofe
May et a., Moe ., e ecutors of estate of Water
. May
Mc voy Company7..
Monroe Coa nng Co
Morey, Water G
Mutua Fre, Marne and Inand Insurance Co., The_.
N.
Natona Leather Shoe Fnders ssocaton
New York Trust Co., The, e ecutor of estate of arry
. yram
Northrop, Inez
Northrop, ohn _.
O.
O Meara, Maurce P -
P.
Perkns, arod G
Pttsburgh West rgna Raway Co., The 8
R.
Roberts, dward, transferee of assets receved from
oseph D. Rosenberg, deceased
Roberts, dward, transferee of assets receved from
estate of oseph D. Rosenberg
50
50 3
99 1
9328
9328
5730
12511
72933
3395
6383
99559
865
10083
10170
10170
9216
7322
7031
7 59
9535
8837
50 2
50 1
S292
8922
11116
956
95
3
5
8
1
8
S
8
10
7
oard of Ta ppeas,
Oft ta decson.
cquescence reates ony to the vauaton of the Rft property.
Nonacquescence pubshed In Cumuatve uetn -2 (1936), page
1 Nonacquescence pubshed In Cumuatve uetn 19 6, page 0, wthdrawn.
1 Nonacquescence pubshed In Cumuatve uetn 19 0-2, page 12, wthdrawn.
state ta decson.
Nonacquescence pubshed In Cumuatve uetn II-2 (1928), page 9, wthdrawn.
cquescence reates to a Issues e cept the Issue whether ta abe ncome was derved by the ta payer
upon the purchase of ts own bonds at ess than the Issue prce.
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cquescences Contnued.
Ta payer.
Docket No.
oume. Page.
Roberts, Mchae C, transferee of assets receved
from oseph D. Rosenberg, deceased
Roberts, Mchae C, transferee of assets receved
from estate of oseph D. Rosenberg .
Roberts, Waace, transferee of assets receved from
oseph D. Rosenberg, deceased
Roberts, Waace, transferee of assets receved from
estate of oseph D. Rosenberg
Rose, Oe every
Rosenberg, sther, transferee of assets receved from
oseph D. Rosenberg, deceased
Rosenberg, sther, transferee of assets receved from
estate of oseph D. Rosenberg
Rosenberg, oseph D., estate of
Rosenberg, Robert T
Rosenberg, Robert T., transferee of assets receved
from oseph D. Rosenberg, deceased
Rosenberg, Robert T., transferee of assets receved
from estate of oseph D. Rosenberg
Rosenbatt et u ., ernard
Rosenbatt, Gertrude -
f
of
S.
Safety Tube Corporaton
Schwartz, Cornea ., estate of1
Schwartz, . Lvngston, admnstrator
Cornea . Schwartz 1
Segmann, Grace R.3 --
Smth, Inc., ugh ..
Standsh, Thomas .
State Natona ank of ouston et a., The. e ecutors
of estate of Monroe P. nderson 2
Stephens et u ., Move W
Stewart, nta unby
Strauss, Lews L.1 --
Te as Co. (South merca), Ltd.,
Toy, arvey M.
The.
U.
Unon Trusteed Funds, Inc
Unque rt Manufacturng Co., Inc.
959
960
957
958
6606
953
955
978
963
961
962
1010
10105
5517
8998
8998
8103
8389
9019
2581
50 6
96 2
108586
958
72932
7 05
9295
et, oward I 5862
oard of Ta ppeas.
state ta decson.
Gft ta decson.
1 cquescence reates to a Issues e cept that Invovng the aowance of a dvdends pad credt In deter-
mnng undstrbuted ad|usted net ncome for the year 193 .
cquescence reates ony to the ssue whether the tota cost of common and cass preferred stock of
Poarod Corporaton was entrey aocabe to the preferred stock.
1 Nonacquescence pubshed n Cumuatve uetn -2 (1938), page 8, wthdrawn.
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cquescenceb Contnued.
Ta payer.
Docket No.
Report.
oume.
w.
Watson, Thomas
Wech, Lews W
Wodehouse, Peham G
Wrght, r., Soomon
Z.
Zakon, Wam 1
Zeerbach Paper Co
755
6121
3 01
6 87
11620
5 50
3106
8
569
8
1139
8
637
9
173
7
687
8
511
oard of Ta ppeas.
Nonacquescencc pubshed In Cumuatve uetn II-2 (1928), page 53, wthdrawn.
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6
The Commssoner does NOT acquesce n the foowng decsons:
Ta payer.
Docket No.
oume. Page.
dda, Inc.1
e ander, enry C
nderson et u ., rthur M__.
tkn et u ., I. C. Raymond.
.
arnard, osephne S., estate of 2.
artow, Francs D., estate of
artow, Sabna R
rnckerhoff et u ., ohn
C.
Cty ank Farmers Trust Co., e ecutor of est ae of
osephne S. arnard 1
Cary, George
Cemens, rnest W
Davds, eatrce Cary...
Davson, . P
Dean, . Smpson
Dean, Pauna duPont ..
Dckey et u ., Chares D.
.
dward Orton, r. Ceramc Foundaton.
F.
Frst State ank of Stratford
.
Gt dge Te te Corporaton, formery Gt dge
Sk Ms of New ersey
.
regar, dward R., estate of
regar et a., Wam ., e ecutors of estate of dward
R. regar 1
Lamont, Thomas 8
Lamont, Thomas W
Leffngwe et u ., R. C.
8883
6515
6516
6517
9180
65 7
65 7
8905
91S0
8908
10026
8907
6518
9013
9012
6519
297
9077
10 7
9328
6520
6521
6522
1 Nonacquescenco reates ony to the Issue Invovng the deductbty of New York Cty rea estate taves.
Gft ta decson.
Nonacqucscence reates ony to the ssue whether apprecaton In vaue of assets dstrbuted In knd
s Incudbe In computng earnngs and profts of the corporaton whch made the dstrbuton.
Nonacquescence reates ony to the Issue whether the donor Is entted to seven deusons or to one.
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7
NoN C Usac NC S Contnued.
Ta payer.
Docket No.
oume. Pages.
M.
Mtche, Wam
Morgan, . P., estate of
Morgan et a., unus S., e ecutors of estate of . P.
Morgan
Morgan et u ., unus S
Morgan Co., Inc., . P., e ecutor of estate of Francs
D. artow:
Mac ugget a., Chares ., trustees of dward Orton,
r. Ceramc Foundaton
Pttsburgh West rgna Raway Co., The
R.
Raway press gency, Inc
8.
Smth, Inc., ugh2..
Stephan et u ., ohn.
Strauss, Lews L.
Transport, Tradng Termna Corporaton.
W.
Whtney, George.
6523
652
652
6525
65 7
297
11116
7886
8389
8906
108586
3890
651
onacquesoence reates ony to the ssue whether ta abe Income was derved by the ta payer upon
the purchase of ts own bonds at ess than the ssue prce.
1 Nonacquescence reates ony to the ssue nvovng the aowance of a dvdends pad credt n deter-
mnng undstrbuted ad|usted net ncome for the year 193 .
1 Nonacquescence reates ony to the ssue whether pettoner s ta abe on certan royaty payments
receved by hs wfe In 1938 and 1939 where pettoner had assgned to hs wfe the rght to receve the roy-
ates.
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INCOM T RULINGS. P RT I.
. INT RN L R NU COD .
C PT R 1. INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTIO 22(a). GROSS INCOM : G N R L
D FINITION.
Secton 29.22(a)-1: What ncuded n gross ncome.
INT RN L R NU COD .
Interest from Phppne obgatons ssued after March 2 , 193 .
(See. T. 386 , page 17.)
Secton 29.22(a)-5: Gross ncome from busness.
INT RN L R NU COD .
Tennessee retaers saes ta coected by deaer from vendee. (See
I. T. 3865, page 20.)
Secton 29.22(a)-5: Gross ncome from busness.
INT RN L R NU COD .
Connectcut saes and use ta es coected by retaer from purchaser.
(See I. T. 3881, page 23.)
Secton 29.22(a)-21: Trust ncome ta abe to 19 7-1 -12589
the grantor as substanta owner thereof. T. D. 5567
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 2
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1.
Reguatons 111 amended Ta abty of ncome of certan trusts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On anuary 28, 19 7, notce of proposed rue makng regardng
the ta abty of the ncome of certan trusts was pubshed n the
77338 8 2 ( )
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5 29.22(a)-21.
10
Federa Regster (12 F. R., 560). fter consderaton of a such
reevant matter as was presented by nterested persons regardng the
proposa, the foowng amendments to Reguatons 111 26 CFR,
Part 29 are hereby adopted. These amendments are desgned to
set forth the appcaton n certan cases of the prncpes enuncated
n everng v. Cfford (309 U. S., 331 Ct. D. 1 , C. . 19 0-1,
105 ) and reated cases.
Paragraph 1. Secton 29.22(a)-21, added by Treasury Decson
5 88, approved December 29, 19 5 C. . 19 6-1, 19 26 CFR,
29.22(a)-21 , s amended as foows:
( ) y strkng out the ast sentence of paragraph (a) of such
secton and nsertng n eu thereof the foowng:
Such factors are set forth n genera n paragraph (6) and n deta n para-
graphs (c), (d), and (e), beow.
( ) y strkng out the words subsecton (a), subsecton (c),
subsecton (d), and subsecton (e) wherever they appear n
paragraph (b) of such secton and nsertng n eu thereof pa a-
graph (a), paragraph (c), paragraph (d), and paragraph
(e).
(C) y strkng out of subparagraph (2) of paragraph (c) of
such secton the words: or spouse vng wth the grantor, and
nsertng n eu thereof the foowng:
or spouse (vng wth the grantor, and not havng a substanta adverse nterest
n the corpus or ncome of the trust),
(D) y strkng out the second undesgnated paragraph of para-
graph (c) of such secton begnnng: Where the grantor s rever-
sonary nterest s to take effect n possesson or en|oyment to and
ncudng the cause desgnated ( ) and nsertng n eu thereof
the foowng:
Where the grantor s reversonary nterest s to take effect n possesson or
en|oyment by reason of some event other than the e praton of a specfc term
of years, the trust ncome s nevertheess attrbutabe to hm f such event s
the practca equvaent of the e praton of a perod ess than 10 or 15 years,
as the case may be. For e ampe, a grantor s ta abe on the ncome of a
trust f the corpus s to return to hm or hs estate on the graduaton from
coege or pror death of hs son, who s 18 years of age at the date of the
transfer n trust. Trust ncome Is, however, not attrbutabe to the grantor
where such reversonary nterest s to take effect n possesson or en|oyment at
the death of the person or persons to whom, the ncome s payabe.
( ) y strkng out the words e ceptons (1) to (5) n the frst
parenthetca cause n the frst undesgnated paragraph of paragraph
(d) and nsertng n eu thereof subparagraphs (1) to ( ).
(F) y strkng out the second sentence of the frst undesgnated
paragraph of paragraph (d) of such secton and nsertng n eu
thereof the foowng:
The grantor s not ta abe, however, f the power, whether e ercsabe wth
respect to corpus or ncome, may ony affect the benefca en|oyment of the
ncome for a perod commencng 10 years from the date of the transfer (or 15
years where any power of admnstraton specfed n paragraph (c) Is e ercs-
abe soey by the grantor, or spouse vng wth the grantor and not havng a
substanta adverse nterest, or both, whether or not as trustee).
(G) y strkng out the ast sentence of the frst undesgnated
paragraph of paragraph (d) of such secton and nsertng m eu
thereof the foowng:
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11
29.22(a)-21.
Where the Income affected by the power 1b for a perod begnnng by reason
of some event other than the e praton of a specfc term of years, the grantor
w be ta abe f such event s the practca equvaent of the e praton of
a perod ess than 10 or 15 years, as the case may be, n accordance wth the
crtera stated In paragraph (o).
( ) y strkng out the cause consttutng the begnnng of the
second undesgnated paragraph of paragraph (d) readng as foows:
Ths subsecton sha not appy to any one or more of the foowng
e cepted powers: and nsertng n eu thereof the foowng:
The foregong provsons of ths paragraph sha not appy to any one or more
of the foowng powers:
(I) y strkng out a of paragraph (d) foowng subparagraph
(2) and nsertng n eu thereof the foowng:
(8) If (1) the power s e ercsabe by a trustee or trustees, none of whom
Is the grantor, spouse vng wth the grantor, or a reated or subordnate
trustee of the type and under a the condtons referred to n subparagraph
( )(), and () the e ercse of the power s not sub|ect to the approva
or consent of any person other than such trustee or trustees, ths paragraph
sha not appy to a power
( ) to dstrbute, apporton, or accumuate ncome to or for a bene-
fcary or benefcares, or to, for, or wthn a cass of benefcares,
( ) to pay out corpus to or for a benefcary or benefcares or to
or for a cass of benefcares (whether or not ncome benefcares).
The powers heren descrbed ncude a the powers descrbed n subpara-
graph ( ), snce the atter powers are more mted than those heren
descrbed.
( ) If the power
() s e ercsabe by the grantor or spouse vng wth the grantor,
or both, whether or not as trustee, or
(11) Is e ercsabe ( ) soey by a trustee or trustees who ncude the
father, mother, Issue, brother, sster, or empoyee of the grantor, or a
subordnate empoyee of a corporaton n whch the crantor Is an
e ecutve or n whch the stock hodngs of the grantor and the trust are
sgnfcant from the vewpont of votng contro, and ( ) n a manner
whch may affect the Interests of benefcares whch ncude the spouse
or any chd of the grantor (see subparagraph (3) for a power e er-
csabe by a reated or subordnate trustee of the cass herenabove
descrbed where the e ercse of the power does not affect the nterest
of the spouse or a chd of the grantor or where the power Is e ercsabe
ony wth the concurrence of an unreated and nonsubordnate trustee),
or
( ) Is e ercsabe by any person or persons other than as trustee,
or
(v) s e ercsabe by any trustee or trustees, and the e ercse of the
power s sub|ect to the approva or consent of any person or persons
(other than such trustee or trustees), or of the grantor or spouse vng
wth the grantor, or both, n the capacty of trustee,
ths paragraph sha not appy
(oo) to a power to pay out corpus to or for a benefcary or benefc-
ares or to or for a cass of benefcares (whether or not ncome bene-
fcares), provded that the power s mted by a reasonaby defnte
e terna standard. Such standard must be set forth n the trust n-
strument and must consst of needs and crcumstances of the
benefcares;
(66) f the power s not mted by a reasonaby defnte e terna stand-
ard, to a power to pay out corpus to or for any current ncome benefcary,
provded that any such payment of corpus must be chargeabe aganst
the proportonate share of corpus hed n trust for the payment of ncome
to such benefcary as f such corpus consttutes a separate trust;
(co) to a power to dstrbute or appy ncome to or for any current
Income benefcary or to accumuate such ncome for hm, provded
that any accumuated ncome must utmatey be payabe to the bene-
fcary from whom dstrbuton or appcaton s wthhed, to hs estate,
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S 19.22(a)-21.
12
or to hs appontees (or persons named as aternate takers n defaut of
appontment) provded that such benefcary possesses a power of ap-
pontment whch does not e cude from the cass of possbe appontees
any person other than the benefcary, hs estate, hs credtors or the
credtors of hs estate; or, f payabe upon the termnaton of the trust
or n con|uncton wth a dstrbuton of corpus whch dstrbuton s aug-
mented by such accumuated ncome, s utmatey payabe to the current
ncome benefcares n shares whch have been rrevocaby specfed n
the trust nstrument. ccumuated ncome sha be consdered so pay-
abe athough t s provded that f any benefcary does not survve a date
of dstrbuton whch may reasonaby be e pected to occur wthn the
benefcary s fetme, the share of such deceased benefcary s to be pad
to such persons as the benefcary may appont, or s to be pad to one or
more desgnated aternate takers (other than the grantor or the grantor s
estate) f the share of such aternate taker or the shares of such aternate
takers have been rrevocaby specfed n the trust nstrument;
(dd) to a power, e ercsabe ony durng (1) the e stence of a ega
dsabty of any current ncome benefcary, or (2) the perod n whch
any ncome benefcary sha be under the age of 21 years, to dstrbute
or appy ncome to or for such benefcary or to accumuate and add such
ncome to corpus;
(ce) n a case fang under subdvson () hereof, to a power to
dstrbute, apporton, or accumuate ncome to or for a benefcary or
benefcares, or to, for, or wthn a cass of benefcares, whether or not
the condtons n subdvson (co) or (dd) are satsfed, provded that
such power s mted by a reasonaby defnte e terna standard. For
the requrements of such standard, see subdvson (oo) hereof.
power does not fa wthn the powers descrbed In subparagraphs (3)
and ( ) If the trustee Is enabed to add to the cass of benefcares desgnated
to receve the ncome or corpus, e cept n so far as provson may be made
for after-born or after-adopted chdren. mere power to aocate recepts
as between corpus and Income, even though e pressed In broad anguage,
Is not deemed a power over benefca en|oyment wth respect to ncome or
corpus.
( ) y strkng out paragraph (e) of such secton n ts entrety
and nsertng n eu thereof the foowng:
(e) dmnstratve contro. Income of a trust, whatever Its duraton, Is
ta abe to the grantor where, under the terms of the trust or the crcumstances
attendant on Its operaton, admnstratve contro s e ercsabe prmary for
the beneft of the grantor rather than the benefcares of the trust. dmns-
tratve contro s e ercsabe prmary for the beneft of the grantor where
(1) a power e ercsabe by the grantor, or any person not havng a sub-
stanta adverse nterest n ts e ercse, or both, whether or not n the
capacty of trustee, enabes the grantor or any person to purchase, e change
or otherwse dea wth or dspose of the corpus or the Income therefrom for
ess than an adequate and fu consderaton n money or money s worth; or
(2) a power e ercsabe by the grantor, or any person not havng a sub-
stanta adverse nterest n ts e ercse, or both, whether or not n the
capacty of trustee, enabes the grantor to borrow the corpus or ncome,
drecty or ndrecty, wthout adequate nterest n any case, or wthout
adequate securty e cept where a trustee (other than the grantor or spouse
vng wth the grantor) s authorzed under a genera endng power to
make oans wthout securty to the grantor and other persons and corpora-
tons upon the same terms and condtons; or
(3) the grantor has drecty or ndrecty borrowed the corpus or ncome
and has not competey repad the oan, Incudng any nterest, before the
begnnng of the ta abe year; or
( ) any one of the foowng powers of admnstraton over the trust
corpus or ncome s e ercsabe In a nonfducary capacty by the grantor, or
any person not havng a substanta adverse nterest n ts e ercse, or both:
a power to vote or drect the votng of stock or other securtes, a power to
contro the nvestment of the trust funds ether by drectng Investments or
renvestments or by vetong proposed nvestments or renvestments, and a
power to reacqure the trust corpus by substtutng other property of an
equvaent vaue.
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13
29.22(a)-2.
If a power Is e ercsabe by a person as trustee, t s presumed that the power
s e ercsabe n a fducary capacty prmary In the nterests of the benefc-
ares. Such presumpton may be rebutted ony by cear and convncng proof
that the power s not e ercsabe prmary n the nterests of the benefcares.
If a power s not e ercsabe by a person as trustee, the determnaton of whether
such power s e ercsabe n a fducary or a nonfducary capacty depends on
a the terms of the trust and the crcumstances surroundng Its creaton and
admnstraton. For e ampe, where the trust corpus conssts of dversfed
stocks or securtes of corporatons the stock of whch s not cosey hed and n
whch the hodngs of the trust, ether by themseves or n con|uncton wth the
hodngs of the grantor, are of no sgnfcance from the vewpont of votng con-
tro, a power wth respect to such stocks or securtes hed by a person who s
not a trustee w be regarded as e ercsabe n a fducary capacty prmary
n the nterests of the benefcares. Where the trust corpus conssts of stock
or securtes of a cosey hed corporaton, such a power may or may not, depend-
ng upon a the facts, be consdered e ercsabe n a fducary capacty.
The mere fact that a power e ercsabe by the trustee Is descrbed n broad
anguage does not ndcate that the trustee s authorzed to purchase, e change,
or otherwse dea wth or dspose of the trust property or ncome for ess than
an adequate and fu consderaton n money or money s worth, or s authorzed
to end the trust property or ncome to the grantor wthout adequate nterest.
On the other hand, such authorty may be ndcated by the actua admnstraton
of the trust.
Par. 2. Secton 29.22(a)-21 26 CFR, 29.22(a)-21 as amended
sha be appcabe to ta abe years begnnng after December 31,
19 5.
(Ths Treasury decson s ssued under authorty contaned n sec-
ton 62 of the Interna Revenue Code (53 Stat., 32: 26 U. S. C, 19 0
ed.,62).)
Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
oseph D. Nun an, r.,
Commssoner of Interna Revenue.
pproved une 30, 19 7.
oseph . O Connet , r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy , 19 7.)
Secton 29.22 (a)-21: Trust ncome ta abe to 19 7-1 -12590
the grantor as substanta owner thereof. Mm. 6156
Pocy regardng e tent of appcaton of secton 29.22(a)-21 of
Reguatons 111, as amended by Treasury Decson 5567 page 9, ths
uetn , reatng to ta abty of ncome of certan trusts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Secton 29.22(a)-21, deang wth the ta aton of trust ncome
to the grantor wthn the prncpes of everng v. Cfford (309
U. S., 331 Ct. D. 1 , C. . 19 0-1,105 ), was added to Reguatons
111 by Treasury Decson 5 88 (11 F. R., 65), approved December 29,
19 5 C. . 19 6-1, 19 . Secton 29.22(a)-21 was amended by
Treasury Decson 5567, approved une 30, 19 7 page 9, ths ue-
tn . Such secton, as amended, s appcabe ony to ta abe years
begnnng after December 31, 19 5. owever, t w be the pocy
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29.22(a)-2
1
of the ureau, where no nconsstent cams pre|udca to the Gov-
ernment are asserted by trustees or benefcares, not to assert abty
of the grantor for any pror ta abe year under the genera provsons
of secton 22(a) of the Interna Revenue Code f the trust ncome
woud not be ta abe to the grantor under the reguatons as amended.
2. Mmeograph 6071 (11 F. R., 120 ), approved October 10, 19 6
C. . 19 6-2, 31 , provded that where the grantor s contro over a
trust created pror to anuary 1, 19 6, was termnated at any tme
durng the caendar year 19 6, wth the resut that the trust ncome
on the ast day of such caendar year was no onger ta abe to the
grantor under the provsons of secton 29.22(a)-21 of Reguatons
111, t woud be the pocy of the ureau not to assert abty of the
grantor under such provsons for any part of the caendar year 19 6.
In vew of the amendments made by Treasury Decson 5567, grantors
who have not heretofore termnated ther substanta ownershp of
the trust ncome under Mmeograph 6071 may now desre to term-
nate such contros over the trusts as sub|ect them to ta under the
provsons of secton 29.22(a)-21, as amended by Treasury Decson
5567.
It w, therefore, be the pocy of the ureau where the grantor s
contro over a trust created, pror to anuary 1, 19 6, s termnated
at any tme pror to anuary 1, 19 8, wth the resut that the trust
ncome on the ast day of the caendar year 19 7 s no onger ta abe
to the grantor under the provsons of secton 29.22(a)-21, as amended
by Treasury Decson 5567, not to assert abty of the grantor un-
der those reguatons for any part of the caendar years 19 6 and
19 7. The ureau may, however, assert abty of the grantor n
such a case under secton 22(a) of the Interna Revenue Code wthout
reference to secton 29.22(a)-21 for any part of the caendar year
19 6 or the caendar year 19 7 precedng the termnaton of the
grantor s contro over the trust. The compete repayment by the
grantor pror to anuary 1, 19 8, of a oan of trust corpus or ncome
made to hm drecty or ndrecty pror to anuary 1, 19 6, sha be
consdered, for the purposes of the appcabty of ths mmeograph,
a termnaton (wth respect to such oan) of the contros defned n
paragraph (e) (3) of secton 29.22(a)-21, as amended.
Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: IM.
Ths mmeograph s pubshed wthout pror genera notce of ts
proposed ssuance, nasmuch as ta payers, n order to secure the
benefts provded heren, must act pror to anuary 1,19 8, and notce
and pubc rue makng procedure n connecton herewth woud re-
sut m deay, whch s nereby found to be contrary to the pubc n-
terest. (See secton (a) of the dmnstratve Procedure ct, ap-
proved une 11, 19 6.)
Ths mmeograph, beng wthn the parenthetca e cepton to sec-
ton (c) of the dmnstratve Procedure ct, sha be effectve upon
ts fng for pubcaton n the Federa Regster.
oseph D. Nunan, r.,
Commssoner.
pproved une 80,19 7.
oseph . O Connb , r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 3, 19 7, 8. 8 a. m.)
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15
22(b).
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM .
19 7-2 -12692
L T. 3877
INT RN L R NU COD .

Pensons receved by former members of the poce and re depart-

ments of New York Cty, retred pursuant to sectons 18- .0 and
19- .0, respectvey, of the dmnstratve Code of the Cty of New
York (Loca Laws of Ctes and ages, 19 0, page 2 7) because of
tota permanent dsabty caused n or nduced by the actua per-
formance of the dutes of ther postons, are n the nature of and n
eu of workmen s compensaton, and such pensons are e cudbe
from gross ncome under secton 22(b) (5) of the Interna Revenue
Code.
dvce s requested whether pensons receved by former members
of the poce and fre departments of New York Cty, retred pursuant
to sectons 18- .0 and 19- .0, respectvey, of the dmnstratve
Code of the Cty of New York (Loca Laws of Ctes and ages,
19 0, page 2 7) because of tota permanent dsabty caused n or
nduced by the actua performance of the dutes of ther postons, are
e cudbe from gross ncome under secton 22(b) (5) of the Interna
Revenue Code.
Secton 22(b) (5) of the Code provdes n part as foows:
(b) cusons from Gross Income. The foowng Items sha not be ncuded
n gross ncome and sha be e empt from ta aton under ths chapter Chapter
1 of the Code :

(5) Compensaton for n|ures or sckness. cept n the case of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23( ) In any pror ta abe year, amounts receved, through accdent
or heath nsurance or under workmen s compensaton acts, as compensaton
for persona n|ures or sckness
Secton cMr.O o fthe dmnstratve Code of the Cty of New
York, reatng to dsabty retrement of pocemen, provdes n part
as foows:
Sec. 18- .0. Payment of pensons ; dsabty ; retrement for servce. a.
The board of trustees sha retre any member who, upon an e amnaton, as pro-
vded In subdvson d of ths secton, may be found to be dsquafed, physcay
or mentay, for the performance of hs dutes. Such member so retred sha
receve from such penson fund an annua penson as provded n ths secton.
In every case such board sha determne the crcumstances thereof, and such
penson so aowed Is to be n eu of any saary receved by such member at the
tme of hs beng so retred. The department sha not be abe for the payment
of any cam or demand for servces thereafter rendered, and the amount of such
penson sha be determned upon the foowng condtons:
1. In case of tota permanent dsabty at any tme caused n or nduced
by the actua performance of the dutes of hs poston, the amount of annua
penson to be aowed sha be not ess than three-fourths of the annua saary
of such member at the date of hs retrement.
Secton 19- .0 of the dmnstratve Code of the Cty of New York
contans smar provsons wth respect to dsabty retrement of
fremen.
The corporaton counse of the cty of New York, n an opnon dated
une 11, 19 7, rendered at the request of the fre commssoner of the
cty of New York, concuded that penson payments made to members
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S 22(b).
16
of the fre department who are n|ured n ne of duty are n the nature
of and n eu of workmen s compensaton. In support of that con-
cuson, the corporaton counse cted the decson n Ryan v. Cty of
New York (228 N. Y, 16, 126 N. ., 350), n whch t was hed that a
poceman n|ured whe on duty at the precnct poce staton was not.
entted to the benefts of the workmen s compensaton aw. In arrv-
ng at the concuson that the n|ured poceman was not entted to
workmen s compensaton, the court sad:
The truth s that the camant and hs brother offcers do not need the protec-
ton of the workmen s compensaton aw, and the egsature dd not mean that
they shoud have It. They do not need t, because compensaton s assured to
them by an ndependent statute, wth ts own speca and comprehensve scheme.

In Webster R. Frye et u . v. Unted States and erman L. Lay et u .
v. Unted States (72 Fed. Supp., 05), the Dstrct Court of the Unted
States for the Dstrct of Coumba stated that the Dstrct of Coumba
Code provsons for compensaton of pocemen and fremen n the
Dstrct of Coumba, dsabed through n|ury receved or dsease
contracted n ne of duty, were n the nature of a workmen s compen-
saton act. That statement appears to have been based prmary on
the fact that when the Federa Compensaton ct of September 7,
1916 (39 Stat., 7 2), was amended by secton 11 of the ct of uy 11,
1919 ( 1 Stat., 68, 10 ), to cover empoyees of the government of the
Dstrct of Coumba, pocemen and fremen n the Dstrct of Coumba
who are pensoned or pensonabe under secton 12 of the Dstrct of
Coumba ppropraton ct approved September 1, 1916 (39 Stat.,
676, 718), were e pressy e cuded. The court aso ponted out that
pocemen and fremen are e pressy e cuded from the Cv Servce
Retrement ct of 1920, as amended. In the course of ts opnon, the
court cted I. T. 3281 (C. . 1939-1 (Part 1), 97) n whch t s hed,
n effect, that compensaton pad by the Unted States under the pro-
vsons of the Federa Compensaton ct of September 7, 1916, on
account of dsabty or death of an empoyee of the Federa Govern-
ment resutng from a persona n|ury sustaned by the empoyee whe
n the performance of hs duty comes wthn the provsons of secton
22(b) (5) of the Revenue ct of 1938, and s, therefore, not sub|ect to
Federa ncome ta . The provsons of secton 22(b)(5) of the In-
terna Revenue Code, supra, are, to the e tent matera, the same as
those of secton 22(b) (5) of the Revenue ct of 1938. It s stated n
I. T. 3281, supra, that the provsons of the ct of September 7, 1916,
are smar n many respects to those of the so-caed workmen s com-
pensaton acts of the varous States.
In vew of the foregong, t s hed that pensons receved by former
members of the poce and fre departments of New York Cty, retred
pursuant to sectons 18 .0 and 19- .0, respectvey, of the dmn-
stratve Code of the Cty of New York because of tota permanent
dsabty caused n or nduced by the actua performance of the dutes
of ther postons, are n the nature of and n eu of workmen s com-
pensaton, and such pensons are e cudbe from gross ncome under
secton 22(b) (5) of the Interna Revenue Code.
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17
29.22(b)(9)- .
Secton 29.22(b) ( )- : Interest upon Unted
States obgatons.
( so secton 22(a), Secton 29.22(a)- .)
19 7-17-12622
1. T. 386
INT RN L R NU COD .
Interest receved by a ctzen of the Unted States, or an aen
resdng theren, from obgatons of the Phppne Isands ssued
subsequent to March 2 , 193 , s sub|ect to Federa Income ta .
Interest receved by such ndvduas from obgatons of the Php-
pne Isands ssued on or pror to that date Is e empt from Federa
ncome ta .
The wthdrawa of soveregnty of the Unted States In the Php-
pne Isands on uy , 19 (, had no effect on the ta abty, for
Federa ncome ta purposes, of nterest on Phppne obgatons.
dvce s requested whether the wthdrawa of soveregnty of the
Unted States n the Phppne Isands on uy , 19 6, had any effect
on the ta abty of nterest on Phppne obgatons, where such
nterest s receved by a ctzen of the Unted States or an aen resdng
n the Unted States.
Under secton 22(b) ( ) (C) of the Interna Revenue Code and cor-
respondng provsons of pror revenue aws, nterest upon the ob-
gatons of possessons of the Unted States s e cuded from gross
ncome and e empt from Federa ncome ta . (See aso secton 1 of
the ct of February 6,1905, 33 Stat., 689.) owever, secton 9 of the
ct of March 2 , 193 ( 8 Stat., 56, 63), enacted to effect the
compete ndependence of the Phppne Isands and for other pur-
poses, provdes as foows:
S ;. 9. There sha be no obgaton on the part of the Unted States to meet
the nterest or prncpa of bonds and other obgatons of the government of the
Phppne Isands or of the Provnca and muncpa governments thereof,
hereafter ssued durng the contnuance of Unted States soveregnty n the
Phppne Isands: Provded, That such bonds and obgatons hereafter ssued
sha not be e empt from ta aton n the Unted States or by authorty of the
Unted States.
In vew of the provsons of secton 9 of the ct of March 2 , 193 ,
supra, nterest receved by a ctzen of the Unted States, or an aen
resdng n the Unted States, on Phppne obgatons ssued subse-
quent to March 2 , 193 , s sub|ect to Federa ncome ta . Interest
receved by such ndvduas from obgatons of the Phppne Isands
ssued on or pror to that date s e empt from Federa ncome ta .
(See O. D. 3 , C. . 1, 8 (1919), reatng to nterest on Phppne
certfcates of ndebtedness, and O. D. 922, C. . , 111 (1921), reatng
to nterest on Phppne bonds of 191 -193 .)
The wthdrawa of soveregnty of the Unted States n the Php-
pne Isands on uy ,19 6, had no effect on the ta abty, for Federa
ncome ta purposes, of nterest on Phppne obgatons.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 20. IN-
COM T ; T L Y RS GINNING FT R D C M R 81, 19 1.
Reguatons 111 amended to conform to Pubc Law 112, ghteth
Congress page 33 , ths uetn , reatng to the e cuson of In-
come from the dscharge o ndebtedness.
Secton 29.22(b)(9)-1: Income from, ds-
charge of ndebtedness.
19 7-19-126 7
T. D.5576
( so Secton 29.22(b) (10)-1.)
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29.22(b)(9)- .
18
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 111 26 CFR, Part 29 to Pubc
Law 112, ghteth Congress, approved une 25, 19 7 page 33 , ths
uetn , such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
29.22(b) (9)- of Reguatons 111 26 CFR, 29.22(b) (9)- the
foowng:
PU LIC L W 112 ( IG TI T CONGR SS), PPRO D UN
25, 19 7.

Sec. 3. The ast sentence of secton 122(b) (9) and the ast sentence
of secton 22(b) (10) of the Interna Revenue Code (reatng to e cu-
son of ncome from dscharge of ndebtedness) are hereby amended
by strkng out 19 7 and nsertng In eu thereof 19 9 .
Par. 2. Secton 29.22(b) (9)- of Reguatons 111, as amended by
Treasury Decson 55 6, approved December 9,19 6 C. . 19 6-2, 32
26 CFR, 29.22(b) (9)- , s further amended by strkng from the
frst paragraph and from the thrd paragraph anuary 1, 19 8
and nsertng n eu thereof n each nstance anuary 1,1950.
Par. 3. There s nserted mmedatey precedng secton 29.22(b)
(10)-1 of Reguatons 111 26 CFR, 29.22(b) (10)-1 the foowng:
PU LIC L W 112 ( IG TI T CONGR SS), PPRO D UN
25, 19 7.

Sec. 3. The ast sentence of secton 22(b) (9) and the ast sentence
of secton 22(b) (10) of the Interna Revenue Code (reatng to e cu-
son of ncome from dscharge of ndebtedness) are hereby amended
by strkng out 19 7 and nsertng n eu thereof 19 9 .
Par. . Secton 29.22(b) (10)-1 of Reguatons 111, as amended
by Treasury Decson 55 6, approved December 9, 19 6 26 CFR,
29.22(b) (10)-1 , s further amended by strkng from the frst sen-
tence and from the ast sentence anuary 1, 19 8 and nsertng
n eu thereof n each nstance anuary 1,1950.
(Ths Treasury decson s ssued under the authorty contaned
n secton 62 of the Interna Revenue Code (53 Stat., 32, 26 U. S. C
19 0 ed., 62) and Pubc Law 112, ghteth Congress, approved
une 25,19 7.)
Ths Treasury decson s pubshed wthout pror genera notce
of ts proposed ssuance for the reason that notce and pubc rue
makng procedure n connecton therewth s found to be unnecessary.
See secton (a) of the dmnstratve Procedure ct, approved une
11,19 6.
Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved September 5, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster September 12, 19 7.)
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19 5 29.23(b)-.
Secton 29.22(b) (10)-1: Income from dscharge of
ndebtedness of raroad corporatons.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5576, page 17.)
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM .
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD .
Connectcut saes and use ta es pad by retaers or purchasers and
attrbutabe to a trade or busness. (See I. T. 3881, page 23.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S.
Secton 29.23 (a)-1: usness e penses.
INT RN L R NU COD .
Tennessee retaers saes ta pad by vendee. (See I. T. 38G5,
page 20.)
Secton 29.23(a)-1: usness e penses.
INT RN L R NU COD .
Connectcut saes ta pad by purchaser wth respect to property
purchased for use n trade or busness. (See I. T. 3881, page 23.)
S CTION 23(b). D DUCTIONS FROM GROSS
INCOM : INT R ST.
Secton 29.23(b)-: Interest. 19 7-22-12672
I. T. 3872
INT RN L R NU COD .
Where, the transferee of the assets of a decedent s estate pays n-
terest whch accrued on a Federa estate ta defcency subsequent
to the dstrbuton of assets of the estate, the dstrbuton renderng
the estate no onger abe to make payment of the defcency, such
nterest s deductbe by the transferee for Federa Income ta pur-
poses.
I. T. 3150 (C. . 1938-1, 213) modfed.
dvce s requested wth respect to the deductbty, for Federa
ncome ta purposes, of nterest on a Federa estate-ta defcency, pad
by the transferee (dstrbutee) of the assets of the estate.
In the case under consderaton, the ta payer was the soe benefcary
under the w of her husband. The Federa estate ta was due and
payabe on October 25,1938. efore and after that date, the e ecutor
made payments on account of the Federa estate ta abty. Fna
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29.23(c)- .
20
dstrbuton of the assets was made on anuary 7, 19 1, foowng a
parta dstrbuton on December 31, 19 0. The dstrbuton of De-
cember 31,19 0, depeted the assets of the estate to such an e tent that
the vaue of the remanng assets was ess than the amount of an estate
ta defcency whch was determned on October 1 , 19 1, whch def-
cency, wth nterest, was pad by the ta payer as transferee on uy
3,19 2.
Secton 23(b) of the Interna Revenue Code provdes n part for the
deducton, n computng net ncome, of nterest pad or accrued wthn
the ta abe year on ndebtedness. The ndebtedness must be that of the
ta payer.
In Commssoner v. enry W. reyer, r., et a., nvovng nterest on
Federa estate ta defcences, and Commssoner v. oppers Company,
nvovng nterest on Federa ncome ta defcences, both reported n
151 Fed. (2d), 267, the Unted States Crcut Court of ppeas for the
Thrd Crcut concuded that nterest pad by the transferees n those
cases, whch nterest had accrued subsequent to the transfer to them of
the assets of the transferors, was nterest on the ndebtedness of the
transferees and, as such, deductbe n ther Federa ncome ta returns
under secton 23(b) of the Interna Revenue Code.
In vew of the foregong, t s hed that where the transferee of the
assets of a decedent s estate pays nterest whch accrued on a Federa
estate ta defcency subsequent to the dstrbuton of assets of the
estate, the dstrbuton renderng the estate no onger abe to make pay-
ment of the defcency, such nterest s deductbe by the transferee for
Federa ncome ta purposes.
I. T. 315G (C. . 1938-1, 213), whch hods (syabus) that the n-
terest pad by transferees n meetng the abty of the transferor for
Federa ncome ta and nterest thereon s not deductbe n the ncome
ta returns of such transferees, s modfed to the e tent t s ncon-
sstent herewth.
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
Secton 29.23 (c) -1: Ta es. 19 7-17-12623
( so Secton 22(a), Secton 29.22(a)-5; 1. T. 3865
Secton 23(a), Secton 29.23(a)-1; Sec-
ton 3, Secton 29. 3-2.)
INT RN L R NU COD .
The ta Imposed by the Tennessee Retaers Saes Ta ct, ap-
proved anuary 2 ,19 7, Is an e cse ta eved on the deaer, and t
consttutes an aowabe deducton under secton 23(c)(1) of the
Interna Revenue Code n the Federa Income ta return of the
deaer upon whom t s Imposed. Where deaers coect the ta from
vendees, they must ncude the tota amounts so coected n ther
gross ncome for Federa ncome ta purposes.
To the e tent that the ta s pad by the vendee, otherwse than n
connecton wth the vendee s trade or busness, t s deductbe as a
ta n computng the net Income of the vendee uness he eects the
optona standard deducton. If the ta s pad wth respect to goods
purchased for consumpton or use n the vendee s trade or busness,
t s deductbe by hm as a busness e pense, provded the cost of
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21
29.23(c)- .
the property acqured s propery chargeabe to e pense, or It may
be treated as a capta tem where the cost of the property s
propery captazed.
dvce s requested as to the treatment for Federa ncome ta pur-
poses of the ta eved by the Tennessee Retaers Saes Ta ct,
approved anuary 2 ,19 7.
The pertnent provsons of the act (Chapter No. 3, ouse b No.
39, Seventy-ffth Genera ssemby, State of Tennessee) are as
foows:
n act to defne certan addtona prveges and to evy and provde for the
coecton of addtona prvege ta es; and to provde penates for voaton
of ths act
Whereas, the present revenues of the State of Tennessee have proven whoy
nadequate

tom|, therefore, new and addtona prvege ta aton Is offered as a souton
to meet the foregong essenta needs of the State of Tennessee:
Secton 1. e t enacted by the Genera ssemby of the State of Tennessee,
That ths act sha be known as the Tennessee Retaers Saes Ta ct and
the ta heren mposed sha be n addton to a other prvege ta es.

Sec. 3. Me t further enacted, That t s hereby decared to be the egsatve
ntent that every person s e ercsng a ta abe prvege who engages n the
busness of seng tangbe persona property at reta n ths State, or who
rents or furnshes any of the thngs or servces ta abe under ths act, or who
stores for use or consumpton n ths State any tem or artce of tangbe per-
sona property as defned heren and who eases or rents such property wthn
the State of Tennessee. For the e ercse of sad prvege a ta s eved as
foows:
(a) t the rate of two per cent (2 ) of the saes prce of each tem or artce
of tangbe persona property when sod at reta n ths State; the ta to be
computed on gross saes for the purpose of remttng the amount of ta due the
State, and to ncude each and every reta sae.
(b) t the rate of two per cent (2 ) of the cost prce of each tem or artce
of tangbe persona property when the same s not sod but s used, consumed,
dstrbuted, or stored for use of sc consumpton n ths State;
(c) t the rate of two per cent (2 ) of the gross proceeds derved from the
ease or renta of tangbe persona property where the ease or renta
of such property s an estabshed busness, or part of an estabshed busness,
or the same s ncdenta or germane to sad busness.
(d) t the rate of two per cent (2 ) of the monthy ease or renta prce pad
by essee or rentee, or contracted or agreed to be pad by essee or rentee, to the
owner of the tangbe persona property.
(e) The sad ta sha be coected from the deaer as defned heren and pad
at the tme and n the mann r as herenafter provded.

Sec. 3 sc . e t further enacted, That the aforesad ta at the rate of
two per cent (2 ) of the reta saes prce, as of the moment of sae, or two
per cent (2 ) of the cost prce, as of the moment of purchase, as the case may
be, sha be coectbe from a persons as defned heren engaged as deaers, as
herenafter defned, n the sae at reta, the use, the consumpton, the dstrbu-
ton, and the storage for use or consumpton In ths State, of tangbe persona
property.

Sec. 5. e t further enacted, That:
(a) The prvege ta heren eved, measured by reta saes sha be coected
by the deaer from the purchaser or consumer.
(b) Deaers sha, as far as practcabe, add the amounts of the ta mposed
under ths act to the saes prce or charge, whch sha be a debt from the
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29.23(c)- .
22
purchaser or consumer to the deaer, unt pad, and sha be recoverabe at aw
In the same manner as other debts.

(e) person engaged n any busness ta abe under ths act sha not adver-
tse or hod out to the pubc, n any manner, drecty or ndrecty, that he w
absorb a or any part of the ta , or that he w reeve the purchaser of the
payment of a or any part of the ta . person who voates ths provson wth
respect to advertsng sha be guty of a msdemeaner
The ta s to be pad to the State by the deaer. In genera, the
term deaer ncudes every person who ses tangbe persona prop-
erty at reta, or who manufactures, produces, possesses, or stores such
property for sae at reta, or for use, consumpton, or dstrbuton
wthn the State. The term aso ncudes both essees and essors of
tangbe persona property.
In vew of the provsons of the act set forth above, t s evdent that
the ta s an e cse ta eved by the State on the deaer for the prv-
ege of engagng n any of the foowng busnesses: seng at reta,
rentng or furnshng certan thngs or servces, and storng certan
property for use or consumpton wthn the State. For Federa n-
come ta purposes, such ta s an aowabe deducton under secton
23(c) (1) of the Interna Revenue Code n the ncome ta return of
the deaer upon whom t s mposed. If the deaer keeps accounts and
fes Federa ncome ta returns on the accrua bass, the amount of
the ta accrued durng the ta abe year must be deducted n the return
for such year. If the deaer keeps accounts and fes Federa ncome
ta returns on the cash recepts and dsbursements bass, ony the
amount of ta actuay pad durng the ta abe year may be deducted
n the return for such year. Where deaers coect the ta from ven-
dees, they must ncude the tota amounts so coected n ther gross
ncome for Federa ncome ta purposes.
Snce the State aw prohbts deaers from absorbng the ta , t s
presumed that the amount of the ta s separatey stated at the tme
t s pad by the vendee. (See secton 29.23(c)-(6) of Reguatons
111.) Therefore to the e tent that the ta s pad by the vendee
(otherwse than n connecton wth the vendee s trade or busness),
such amount s deductbe as a ta n computng the net ncome of the
vendee for Federa ncome ta purposes. owever, n the case of a
vendee who s an ndvdua and who eects the optona standard
deducton, no amount may be deducted on account of the ta pad by
hm.
Secton 23(c) (3) of the Code specfcay prohbts the vendee from
deductng, as a ta , the amount pad where the ta s pad n connecton
wth the vendee s trade or busness. owever, where the ta s pad
by the vendee wth respect to goods purchased for consumpton or use
n hs trade or busness, such amount may be deducted as a busness
e pense f the cost of the property acqured s propery chargeabe to
e pense, or t may be treated as a capta tem where the cost of the
property s propery captazed. Wth respect to amounts whch may
be deducted as a busness e pense, a vendee who keeps accounts and
fes Federa ncome ta returns on the accrua bass must deduct the
ta accrued for the ta abe year n the return for such year, whereas
a vendee who keeps accounts and fes Federa ncome ta returns on
the cash recepts and dsbursements bass may deduct n the return
for the ta abe year ony that amount of ta whch was actuay pad
durng such year.
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23
| 29.23(c)- .
Secton 29.23 (c)- : Ta es.
( so Secton 22(a). Secton 29.22(a)-5;
Secton 22(n), Secton 29.22(n)-; Sec-
ton 23(a), Secton 29.23(a)-; Secton
2 , Secton 29.2 -2.)
INT RN L R NU COD .
Deductbty for Federa Income ta purposes of the saes ta
and the use ta mposed by sectons 3 and 6, respectvey, of the
Connectcut Saes and Use Ta ct approved on May 29, 10-17,
effectve uy 1,19 7.
dvce s requested as to the treatment for Federa ncome ta pur-
poses of the ta es eved by the Connectcut Saes and Use Ta ct,
approved on May 29,19 7, effectve uy 1,19 7.
The pertnent provsons of the Connectcut Saes and Use Ta
ct are as foows :
Secton 1. Tte. Ths act s known and may be cted as the Saes and
Use Ta ct

Sec. 3. The Saes Ta . (1) Imposton and rate of saes ta For the
prvege of seng tangbe persona property at reta a ta s hereby mposed
upon a retaers at the rate of three per cent of the gross recepts of any
retaer from the sae of a tangbe persona property sod at reta n ths
State on or after uy 1, 19 7, and to and ncudng une 30, 1951. (2) Re-
mbursement. Rembursement for the ta hereby mposed sha be coected
by the retaer from the consumer so far as t can be done and such ta re-
mbursement termed ta n ths and the foowng subsectons sha be pad
by the consumer to the retaer and It sha be the duty of each retaer n ths
State to coect from the consumer the fu amount of the ta mposed by ths
act or an amount equa as neary as possbe or practcabe to the average
equvaent thereof; and such ta sha be a debt from the consumer to the
retaer, when so added to the orgna purchase prce and sha be recoverabe
at aw n the same manner as other debts. ( ) Unawfu adverts-
ng. No retaer sha advertse or hod out or state to the pubc or to any
consumer, drecty or ndrecty, that the ta or any part thereof w be assumed
or absorbed by the retaer or that t w not be added to the seng prce of
the property sod or f added that It or any part thereof w be refunded.

Sec. 6. The Use Ta . (1) Imposton and rate of use ta . n e cse ta
s hereby mposed on the storage, use or other consumpton n ths State of
tangbe persona property purchased from any retaer on or after uy 1, 19 7,
for storage, use, or other consumpton n ths State at the rate of three per cent
of the saes prce of the property. (2) Labty for ta . very person storng,
usng, or otherwse consumng n ths State tangbe persona property purchased
from a retaer Is abe for the ta . s abty s not e tngushed unt the
ta has been pad to ths State e cept that a recept from a retaer mantanng
a pace of busness n ths State or from a retaer who s authorzed by the com-
mssoner, under such rues and reguatons as he may prescrbe, to coect the
ta and who Is, for the purposes of ths act reatng to the use ta , regarded as a
retaer mantanng a pace of busness n ths State, gven to the purchaser
pursuant to subsecton 3 of ths secton, s suffcent to reeve the purchaser
from further abty for the ta to whch the recept refers. (3) Coecton by
retaer. very retaer mantanng a pace of busness n ths State and makng
saes of tangbe persona property for storage, use, or other consumpton n
ths State, not e empted under ths act, sha, at the tme of makng the saes
or, f the storage, use, or other consumpton of the tangbe persona property
Is not then ta abe hereunder, at the tme the storage, use, or other consumpton
becomes ta abe, coect the use ta from the purchaser and gve to the pur-
chaser a recept therefor n the manner and form prescrbed by the comms-
soner. ( ) Ta as debt. The ta requred to be coected by the
retaer consttutes a debt .owed by the retaer to the State. (5) Unawfu ad-
vertsng. The provsons of secton 3, subsecton pertanng to the saes ta
sha appy wth equa force to the use t; (0) Separate statement of ta .
19 7-25-12710
I. T. 3881
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29.23(c)- .
2
The ta requred to be coected by the retaer from the purchaser sha be ds-
payed separatey from the st prce, the prce advertsed n the premses, the
marked prce, or other prce on the saes check or other proof of saes.

Sec. 8. emptons feom Use Ta . (1) Where saes ta appcabe. The stor-
age, use or other consumpton n ths State of property, the gross recepts from
the sae of whch are requred to be ncuded n the measure of the saes ta , s
e empted from the use ta .
Sec. 9. Returns and Payments. (2) Return. For purposes
of the saes ta a return sha be fed by every seer. For purposes of the
use ta a return sha be fed by every retaer mantanng a pace of busness
n the State and by every person purchasng tangbe persona property, the
storage, use, or other consumpton of whch s sub|ect to the use ta , who has
not pad the use ta due to a retaer requred to coect the ta .

Sec. 20. Overpayments and Refunds. (1) Credts and refunds.
ny overpayment of the use ta by a purchaser to a retaer who s requred to
coect the ta and who gves the purchaser a recept therefor pursuant to ths
act sha be credted or refunded by the State to the purchaser.
Secton 23(c) (1) of the Interna Revenue Code provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here mate-
ra. Secton 23(c)(3) of the Code provdes for the deducton of
amounts representng saes ta es pad by a purchaser of servces or
tangbe persona property, otherwse than n connecton wth a pur-
chaser s trade or busness. The term saes ta , as used n secton
29.23(c)- (6) of Reguatons 111, reatng to State and oca saes
ta es, means a ta mposed by any State, Terrtory, Dstrct, or posses-
son of the Unted States, or any potca subdvson thereof, upon
persons engaged n seng tangbe persona property at reta, whch
s measured by the gross saes prce or the gross recepts from the sae,
or whch s a stated sum per unt of such property sod. The term
aso ncudes a ta mposed by such authortes upon persons engaged
n furnshng servces at reta, whch s measured Dy the gross recepts
for furnshng such servces.
It s hed that the saes ta mposed by secton 3 of the Connectcut
Saes and Use Ta ct, effectve uy 1, 19 7, s deductbe by the
retaer under secton 23(c) (1) of the Interna Revenue Code. If the
retaer s an ndvdua, the deducton must be taken n arrvng at
ad|usted gross ncome. (See secton 22(n)() of the Code.) In
the case of a other retaers, the deducton s aowabe n determnng
net ncome. The saes ta coected by a retaer from a purchaser
must be ncuded n the retaer s gross ncome for Federa ncome ta
purposes. To the e tent that the saes ta s pad by the purchaser
(otherwse than n connecton wth hs trade or busness), t s deduct-
be under secton 23(c) (3) of the Code e cept n the case of an nd-
vdua who eects to take the optona standard deducton. Where
the saes ta s pad wth respect to property purchased for use n the
purchaser s trade or busness, t s deductbe by hm as a busness
e pense f the cost of the property acqured s propery chargeabe to
e pense, or t may be treated as a capta tem where the cost of the
property s propery captazed. Where the purchaser s an nd-
vdua and the saes ta s deductbe as a busness e pense, the deduc-
ton must be taken n arrvng at hs ad|usted gross ncome. (See
secton 22(n)() of the Code.) In the case of a other purchasers,
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25
29.23(k)-L
the deducton s aowabe as a busness e pense n determnng net
ncome.
It s aso hed that the use ta mposed by secton 6 of the Connect-
cut Saes and Use Ta ct consttutes an aowabe deducton to the
purchaser under secton 23 (c)(1) of the Code, e cept that n the case of
ah ndvdua who eects the optona standard deducton, no deducton
s aowabe f the use ta s not attrbutabe to a trade or busness
carred on by hm. Where the use ta s attrbutabe to a trade or
busness carred on by an ndvdua, the amount of such ta s de-
ductbe from gross ncome n computng ad|usted gross ncome. In
the case of a other ta payers, the use ta s deductbe from gross
ncome n determnng net ncome. The amount of use ta coected
by a retaer from a purchaser shoud not be ncuded n the retaer s
gross ncome, and no deducton s aowabe to the retaer wth respect
to the amount of use ta remtted by hm to the State.
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS.
Secton 29.23(k)-: ad debts. 19 7-25-12716
T. D. 559
TITL 2ft INT RN L R NU . C PT R I, SU C PT R , P RT 20.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1.
Secton 23(k), Interna Revenue Code. tenson of tme for
fng appcaton for permsson to change to the reserve method of
treatng bad debts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 6, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 29.23(k)- of Reguatons 111 as amended
by Treasury Decson 5376, approved une 3, 19 C. . 19 , 119
26 CFR, 29.23(k)- , provdes that appcaton for permsson to
change the method of treatng bad debts sha be made at east 30 days
pror to the cose of the ta abe year for whch the change s to be
effectve. n e tenson of tme, to a date not ater than March 15,19 8,
wthn whch to make the appcaton provded n secton 29.23 (k)-,
s granted to ta payers makng returns on the bass of the caendar
year 19 7 where the appcaton s for permsson to change to the
reserve method of treatng bad debts.
Par. 2. ecause of the short perod of tme remanng for makng
the appcatons to whch ths Treasury decson reates, deay n the
grantng of the e tenson of tme provded hereby woud adversey
affect the operatons of the ta payers nvoved. It s therefore found
mpractcabe to ssue ths Treasury decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Procedure
ct, approved une 11,19 6, or sub|ect to the effectve date mtaton
of secton (c of sad ct.
Par. 3. Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
77338 8 8
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5 29.23 (k) -5. 26
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat., 32; 26 U. S. C, 19 0
ed., 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved December 8, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 9,19 7, 3.33 p. m.)
Secton 29.23 (k)-5: Reserve for bad debt 19 7-25-12717
Mm. 6209
Reserve method of accountng for bad debts n the case of banks.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton U, D. C, December 8, 19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Technca Staff, and Others Concerned:
1. The ureau has gven carefu and e tended consderaton to the
stuaton of banks n genera wth respect to the use of reserves for
bad debts, the proper measure of such reserves, and amounts to be
aowed as deductons.
2. In determnng a reasonabe annua addton to a reserve for bad
debts by a bank t s beeved to be far and suffcenty accurate to re-
sort to the average annua bad-debt oss of the bank over a perod of
20 years, to ncude the ta abe year, as consttutng a representatve
perod n the bank s hstory and to accept the equvaent percentage
of presenty outstandng oans as ndcatve of the probabe annua
accrung oss. The Ta Court has hed that the use of the reserve
for bad debts s not nherenty nconsstent wth a cash bass where, as
here, the reserve s aganst oss of capta ony and contans
no eement of ncome whch has never been reported. Such a
reserve for oss of capta does not dffer materay from a reserve for
deprecaton whch s set up on a percentage bass rather than on the
bass of actua deprecaton suffered. (See state of Maurce S. Sat-
sten v. Commssoner, 6 . T. ., 77 , 777, acquescence, C. .
19 2-1,1 .) owever, such reserve can not be permtted to accumuate
ndefntey smpy because of the possbty that at some future date
arge osses may De concentrated wthn a reatvey shortperod of tme
and operate to absorb the greatest probabe reserve. To permt ths
woud sancton the deducton of a mere contngency reserve for osses,
whch s not an aowabe deducton for ncome or e cess profts ta
purposes. Ths atter rue makes mperatve the mposton of some
reasonabe ceng on the accumuaton of the reserve other than such
ndefnte mtaton as mght eventuay preva under a movng av-
erage method.
3. The ureau has accordngy approved the use by banks of a mov-
ng average e perence factor for the determnaton of the rato of
osses to outstandng oans for ta abe years begnnng after Decem-
ber 31, 19 6. Such a movng avernge s to be determned on a bass
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29.23(k) 5.
of 20 years, ncudng the ta abe year, as representng a suffcenty
ong perod of a bank s e perence to consttute a reasonabe cyce
of good and bad years. The percentage so obtaned, apped to oans
outstandng at the cose of the ta abe year, determnes the amount of
permssbe reserve n the case of a bank changng to the reserve
method n such year (see frst year n foowng computaton) and
the mnmum reserve whch the ta payer w be entted to mantan n
future years (see second year n foowng computaton). bank,
foowng a change to the reserve method of accountng for bad debts,
may contnue to take deductons from ta abe ncome equa to the
current movng average percentage of actua bad debts tmes the out-
standng oans at the cose of the year, or an amount suffcent to brng
the reserve at the cose of the year to the mnmum mentoned above,
whchever s greater. Such contnued deductons w be aowed ony
n such amounts as w brng the accumuated tota at the cose of any
ta abe year to a tota not e ceedng three tmes the movng average
oss rate apped to outstandng oans (see ffth year n foowng
computaton).
ampe of the appcaton of the foregong vrth amount of outstandng oans reman-
ng unchanged at 1,000,000.
Movng
average
ctua bad
debts for
year.
Reserve at
end of
year.
Year.
percent-
age.
Deducton.
Ceng.
1.0
2,000
12,000
10,000
30,000
2
.8
11,500
9,500
8,000
2 ,000
.7
1,000
7,000
1 ,000
21,000
.
1,000
8.000
21,000
2 ,000
1.0
500
,500
30,000
30,000
. In computng the movng average percentage of actua bad debt
osses to oans, the average shoud be computed on oans comparabe n
ther nature and rsk nvoved to those outstandng at the cose of the
current ta abe year nvoved. Government nsured oans shoud be
emnated from pror year accounts n computng percentages of past
osses, aso from the current year oans n computng aowabe deduc-
tons for addtons to the reserve. Losses not n the nature of bad
debts resutng from the ordnary conduct of the present busness
shoud aso be emnated n computng percentages of pror osses.
5. newy organzed bank or a bank wthout suffcent years e -
perence for computng an average as provded for above w be per-
mtted to set up a reserve commensurate wth the average e perence of
other smar banks wth respect to the same type of oans, preferaby
n the same ocaty, sub|ect to ad|ustment after a perod of years when
the bank s own e perence s estabshed.
6. ad debt osses sustaned are to be charged to the reserve, and
recoveres made of specfc debts whch have been prevousy charged
aganst the reserve by a bank on the reserve method of treatng bad
debts shoud be credted to the reserve.
7. Where a bank makng ts return on the bass of the caendar year
19 7 wshes to ava tsef of the provsons of ths mmeograph and to
change from the specfc charge-off to the reserve method of accountng
for bad debts, the tme for makng appcaton for such change under
secton 29.23(k)-, Reguatons 111. has been e tended to March 15,
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8 19.23(m)-5.
28
19 8 (T. D. 559 , approved December 8,19 7 ( page 25. ths uetn ).
If such bank fes ts return on or before March 15,19 8, on the reserve
method, and the return s accompaned by a wrtten statement settng
forth the eecton to use such method and e panng n deta the com-
putatons of the bad debt deducton shown n the return, such return
w be accepted as a tmey appcaton.
8. The term banks as us ed heren means banks or trust companes
ncorporated and dong busness under the aws of the Unted States
(ncudng aws reatng to the Dstrct of Coumba), of any State,
or of any Terrtory, a substanta part of the busness of whch conssts
of recevng deposts and makng oans and dscounts.
9. Correspondence n regard to ths mmeograph shoud refer to the
number and to the symbos IT: IM,
Geo. . Schoeneman,
Commssoner.
pproved December 8, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
S CTION 23(m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
Secton 19.23(m)-5: Computaton of depeton 19 7-23-12681
based on a percentage o ncome n the case Ct. D. 169
of coa mnes, meta mnes, fuorspar mnes,
ba and sagger cay mnes, rock asphat mnes,
and suphur mnes or deposts.
( so Secton 11 , Secton 19.11 -1.)
ncome ta nterna revenue code decson of court.
Depeton ass Meta Mnes Products Used for Refractory
Purposes Rather Than for Metac Purposes.
mne producng chromte, the end use of practcay a of
whch product was for refractory purposes rather than for metac
purposes, does not come wthn the category of meta mnes wthn
the meanng of secton 11 (b)( ) of the Interna Revenue Code.
The Commssoner s dsaowance of pettoner s cam for percent-
age depeton was a reasonabe nterpretaton of that secton.
Dstrct Court of the Unted Status for the astern Dstrct of Pennsyvana.
. . Lavno Co. v. Unted States of merca.
72 Fed. Supp., 2 8.
une 18, 19 7.
opnon.
McGranert, . I Ths s an acton brought aganst the Unted States to recover
ncome ta es pad by . . Lavno Co. for the years 1939, 19 0 and 19 1. On
the bass of the peadngs and the evdence adduced at tra, I make the foow-
ng speca
fndngs of facts.
L Ths acton arses under 28 U. S. C. ., secton 1 (1), (5) and (20). The
matter n controversy e ceeds, e cusve of nterest and costs, the sum of
3,000. The pantff s a Deaware corporaton havng Its prncpa busness
offce In Phadepha. The Unted States s made the party defendant to ths
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29
19.23(m)-5.
sut because Water . Rothenses, the coector of Interna revenue for the frst
dstrct of Pennsyvana, to whom the aegedy overpad ta es were pad, was
not n offce at the tme of the commencement of ths sut.
2. Durng the years 1039, 19 0, 19 1, ta payer owned chromte propertes n
the Provnce of Camaguey n the Repubc of Cuba.
3. For each of these years, the ta payer duy fed Federa Income ta returns
In whch there was refected ncome receved from the operaton of the mnes,
and n each Instance t cacuated ts aowance for depeton by takng 15 per
cent of Its gross ncome from the mnes (hereafter desgnated percentage depe-
ton) as permtted for meta mnes by secton 11 (b) ( ) of the Interna Revenue
Code. Later, the Commssoner of Interna Revenue dsaowed the depeton as
computed by the percentage depeton method and substtuted a depeton deduc-
ton arrved at by makng an aowance for each unt of mnera actuay taken
from the mnes (unt depeton). Ths method resuted n smaer deductons
and the ta payer became abe for addtona ta es. fter approprate sats-
facton of the ta defcences, the ta payer fed cams for refunds whch
were re|ected by the Commssoner of Interna Revenue. Ths acton was then
brought on May 19, 19 5.
. The ta payer seeks the beneft of the percentage depeton provsons of
secton 23(m) and secton 11 (b)( ) of the Interna Revenue Code. Secton
23(m), durng the years at ssue, provded that n computng net ncome there
shoud be aowed as a deducton
In the case of mnes, a reasonabe aowance for depeton ;
such reasonabe aowance n a cases to be made under rues and reguatons
to be prescrbed by the Commssoner, wth the approva of the Secretary.
Secton 11 (b)( ) provded:
( ) Percentage depeton for coa and meta mnes and suphur. The
aowance for depeton under secton 23(m) sha be, n the case of coa mnes,
5 per centum, In the case of meta mnes, 15 per centum, and, n the case of
suphur mnes or deposts, 23 per centum, of the gross ncome from the prop-
erty durng the ta abe year
5. The Industra uses of chromte mneras fa nto three groups: metaurg-
ca, refractory, and chemca uses, wth the atter reatvey ess Important
than the frst two. The use of chromte ore for refractory purposes does not
Invove the makng of or reducton to a meta. The mnera, In the form n
whch t s obtaned from the earth. Is crushed or ground nto brcks or other
shapes and these are then used In the nngs of hgh temperature metaurgca
furnaces. Substantay a of the materas produced by the ta payer s mnes
n 1939, 19 0, and 19 1 were used by the ta payer n the producton of these
refractores for hgh temperature metaurgca furnaces.
DISCUSSION.
though the meta chromum mght have been e tracted from the ore product
of ta payer s mnes n the years at ssue, by and arge, t was not. The appro-
prateness of the Commssoner s dsaowance, therefore, depends upon the
defnton of meta mnes. The ta payer s contenton s that Congress n-
tended to defne a meta mne as one from whch metas can be e tracted at a
proft or commercay. The Government necessary contends that the category
meta mnes dd not embrace pettoner s mnes In the years at Issue; ts
theory Is that meta mnes are those mnes from whch meta actuay s obtaned.
The Government contends, as we, that the ta payer has not proved, even under
ts own defnton, that the Commssoner s dsaowance was mproper; . e.,
that meta coud have been e tracted from the mnes at a proft, but ths court s
fna vew of the case makes t unnecessary to dea wth ths argument.
The Government has marshaed an array of arguments to support ts nter-
pretaton of the statute. It ponts to the egsatve hstory of the percentage
depeton provson, the pror, the contemporaneous, and the subsequent admns-
tratve nterpretatons, and the enactment of ater statutes, as a evncng a
congressona ntent to defne meta mnes accordng to the use of the mne s
product. It further contends that practca consderatons recommend ts defn-
ton and that the Commssoner s nterpretaton of the phrase, f reasonabe,
shoud not be aet asde merey because another Interpretaton s possbe.
The aowance for depeton a permtted n recognton of the fact that mnera
deposts are wastng assets and s Intended as compensaton to the owner for
the e hauston of hs capta assets n natura resources. ut The deducton
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19.23(m)-5.
30
s permtted as an act of grace. (See everng v. anMne O Co., 303 . S.,
362, 368 Ct. D. 1323, C. . 1938-1, 806, 307 .) The grantng of an arbtrary
deducton of a percentage of the gross ncome derved from the severance of
the mneras from the earth s n the Interests of convenence and does not change
the basc character of the aowance. (See nderson v. everng, 310 U. S., 0 ,
08 Ct. D. 1 66, O. . 19 0-1, 108, 110 .) The anguage of secton 11 (b)( )
frst appeared n the Revenue ct of 1932. The aowance of a fat 15 per cent
deducton for depeton of a meta mne as a substtute for the computatons
htherto used was adopted by Congress after a study of the probem by the ont
Commttee on Interna Revenue Ta aton. Premnary Report on Depeton
was submtted to the commttee on September 19, 1929, by L. . Parker, ts
chef of staff. (See Reports to the ont Commttee on Interna Revenue Ta a-
ton, S ty-nnth Congress, voume 1, part 8.) Copes of the Parker report were
dstrbuted to the Treasury Department, the mnng Industry, and others, and
hearngs were hed on the data contaned n the report and ts recommenda-
tons. The recommendatons made by the Parker report were urged on the
ouse Ways and Means Commttee and the Senate Fnance Commttee and
fnay the Senate Fnance Commttee ntroduced secton 11 (b)( ) as an
amendment to the revenue b of 1932. (S. Rept. No. 665, Seventy-second Con-
gress, frst sesson, page 30, C. . 1939-1 (Part 2), 96.) It s apparent from
the Parker report that the 15 per cent short cut aowance was based on a study
of the probems and e perences of mnes actuay producng ores from whch
metas were e tracted. The dscusson of the prevous method for arrvng at
depeton aowances, the e ampes of mnes used, the anayss of how the new
method of computng depeton woud work wth ts references to smetng and
refnng, a ndcate that the recommendaton of a 15 per cent percentage depe-
ton for meta mnes contempated mnes from whch meta s actuay e tracted.
The Government ponts out that the Treasury Department, both before and
after adopton of the percentage depeton provson, had used the test of whether
or not mneras were used for the purpose of obtanng the metas from theu
n descrbng the mneras as metac or nonmetac. Thus, at the tme of enact-
ment of secton 11 (b) ( ), In defnng mnera propertes. Treasury Reguaton
7 , under the Revenue ct of 1928, artce 221(e), provded:
Mneras ncude ores of the metas, coa, o, gas, and such nonmetaUc sub-
stances as abrasves, barytes, bora , budng stone, fuor-
spar, refractores and tac. Itacs supped.
The Government contends that ores of the metas and nonmetac sub-
stances had the same scope as meta mnes and mnes other than meta,
and that the recproca of the atter, nonmetac substances, obvousy de-
scrbed mnera substances whch may or may not contan metas, but whch
were not mned for the purpose of recoverng the metas they contaned. Further-
more, the Government ponts out, wthn the cassfcaton of nonmetac sub-
stances were severa whch had meanng soey as cassfcatons of the non-
metac use to whch mneras were put, Incudng abrasves and refractores.
Therefore, In vew of the cose cooperaton of the Treasury and the ont Com-
mttee n the enactment of secton 11 (b) ( ), Its substantay contemporaneous
e pressons of opnon are hghy reevant and matera evdence of the probabe
genera understandng of the tmes and of the opnons of the men who probaby
were actve In the draftng of the statute. (See Whte v. Wnchester Cub,
U. S., 32, 1 Ct. D. 1538, O. . 19 2-1, 272, 275-276 .) Furthermore, the sub-
stance of Reguatons 7 has been promugated under ater Revenue cts and the
Government argues that reenactment of the Revenue cts Iustrates specfc
congressona approva of ths Interpretaton, as emboded n the reguaton.
Wth ths argument the court s ess mpressed. (Of. Grswod, Summary of
the Reguatons Probem, 5 arv., 898.)
The evdence at tra ndcated that admnstratve nterpretaton has con-
tnued further. Mr. L. R. ndresen, Chef of the Natura Resources Secton of
the ureau of Interna Revenue, testfed at tra that the end use rue has
been the ureau s pocy throughout the years, but was modfed sghty n 1938
to meet the unusua stuaton of a mne whch produced both substances sus-
ceptbe of a metac and nonmetac use from the same property In the same
year, by a rung cassfyng the mne accordng to the use for whch the
product had the greater vaue. In the war perod, when ta payers producng
and usng substances for nonmetac uses were asked by the Government to
dvert a or a part of ther producton to the producton of metas, there was
ssued Genera Counse s Memorandum 2 185 C. . 19 , 132 , whch stated
that:
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31
19.23(m)-5.
Where a mne produces an ore contanng substances whch are susceptbe
to both metac and nonmetac uses, or where a mne produces both metac
and nonmetac substances from the same ore body, percentage depeton may
be computed for Federa Income ta purposes on the part sod or used as a
meta or metas, and that part sod or used as a nonmeta shoud be treated as
a nonmeta n determnng the nature and e tent of the depeton aowance.
The Government further argues that n amendng secton 11 (b) ( ) n 19 2
and 19 to grant percentage depeton to other specfed mnes as we as meta
mnes, Congress agan approved the prncpe that meta mnes are mnes from
whch the mneras are actuay used as source of metas. In 19 2 the amend-
ment provded that the same percentage depeton apped to meta mnes shoud
be granted to fuorspar, ba and sagger cay or rock asphat mnes. (Revenue
ct of 19 2, O. 619, 56 Stat, 8 0, secton 1 5.) In 19 Congress provded that
the aowance shoud be e tended to meta mnes, fuorspar, fake graphte, ver-
mcute, bery, fedspar, mca, tac, epdote, spodumene, barte, ba and sagger
cav, or rock asphat mnes, and potash mnes or deposts. (Revenue ct of
19 3, 0. 63, 58 Stat, , secton 12 (a).) Snce most of the mnes sted n add-
ton to meta mnes are mnes from whch metas can be e tracted, the Govern-
ment s argument s that the defnton of meta mne ntended by Congress
must be somethng other than that suggested by the ta payer.
the above Is suggestve, n varyng degree, of congressona ntent to adopt
a defnton of meta mnes smar to that empoyed by the Commssoner n
dsaowng percentage depeton n the Instant case. Ths s a stuaton where
e perts obvousy dsagree, as they dd at tra, on the defnton of the key term,
and where, athough t s dffcut to be postve about congressona Intent on the
specfc pont, the Commssoner s Interpretaton does not seem unwarranted.
ntrey apart from specfc congressona Intent, the ta payer argues that the
Government s end use crteron s Impractca, and, therefore, unreasonabe,
pontng out that If t Is adopted a meta mne may be cassfed as such on one
day and as a nonmeta mne on the ne t, dependng upon the utmate use to
whch ts product s put, and that t may be dffcut, even Impossbe, for a ta -
payer to determne what that utmate use Is. From the evdence adduced at
tra, both these contngences woud seem mprobabe and, as far as ths ta payer
s concerned, both ob|ectons for the years at ssue are hypothetca. It has
stpuated that the end use of substantay a ts products for the years nt Issue
was as refractores. Moreover, the frst type of ob|ecton s met by the proraton
formua emboded In the Genera Counse s memorandum, for f the ob|ecton
means anythng, t means that a ta payer w be unabe to forete hs ta ab-
tes wth reasonabe certanty, and the formua takes care of that. The second
ob|ecton woud seem equay surmountabe by a reasonabe effort at nqury
among customers, where prce, ore content, and past deangs dd not make cear
the ntended utmate use. Furthermore, on ths pane of admnstratve eff-
cency, or practcaty, the crteron suggested by ta payer has practca weak-
nesses of ts own, enough, at any rate, to further the mpresson that the Com-
mssoner s nterpretaton of the aw In re|ectng t s not unreasonabe. Thus,
durng what perod woud a mne have to be susceptbe of producng ore from
whch meta coud be e tracted at a proft; durng the ta years at ssue, or at some
future date, durng war, durng perods of scarcty and emergency stockpng, or
durng perods when hgh-grade ore s avaabe at ow prces ow much
proft s proftabe ; shoud the absence or presence of competton matter
Fnay, t shoud be remembered that the sub|ect deat wth here s an e ceedngy
compe one. Of t, the Supreme Court has sad, n everng v. Wshre O
Co. (308 U. S., 90,102-103 Ct. D. 1 2 , C. . 1939-2,213, 218 ) :
In ts genera aspects under Revenue cts depeton s a probem on whch
ta payers, Government and accountants have e pressed a contrarety of opn-
ons. Obfuscaton In attempted appcaton of ts prncpes under
Income ta aws has frequenty been the resut perence and new
Insght can be e pected to produce rather constant change. In sum, the hghy
technca and nvoved factors enterng nto a practca souton of the probem
of depeton n admnstraton of the ta aws ponts to the necessty of nter-
pretng secton 23(1) so as to strengthen rather than to weaken the admnstra-
tve powers to dea wth It equtaby and reasonaby
To sustan the Commssoner s nterpretaton, the court need not fnd that hs
constructon s the ony reasonabe one, but ony that t has a reasonabe bass.
(See Unempoyment Compensaton Commsson of Terrtory of aska v. ragan,
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I 29.23 (u)-.
32
829 U. S., 1 3, 153.) The court fees that ths requrement has been met, and
that ta payer was correcty aowed to cam depeton on a unt bass ony, rather
than percentage depeton under 11 (b) ( ).
CONCLUSIONS OF L W.
1. The court has |ursdcton of the sub|ect matter and the partes of ths
acton.
2. The Commssoner s dsaowance of pettoner s cam for percentage depe-
ton was a reasonabe nterpretaton of secton 11 (b) ( ).
3. udgment w be entered n favor of defendant.
secton 23(u). deductons from gross ncome:
mony, etc., payments.
Secton 29.23 (u) -1: Perodc amony payments. 19 7-18-12630
G. C. M. 26250
INT RN L R NU COD .
The ta payer and hs wfe, who were domced In the State of
Connectcut, entered nto a separaton agreement n anuary,
1935, whch provded for monthy payments to her. She obtaned
a decree of dvorce from a court n Me co wthn two weeks there-
after, and the husband then remarred. Payments were made
under the 1936 agreement unt uy of 19 3, at whch tme the
wfe was advsed by counse that the Me can dvorce woud not
be recognzed by the courts of Connectcut Under a new agreement
whch made no menton of the Me can dvorce, a ump-sum sette-
ment was made, and the wfe thereafter obtaned a dvorce from
a court n Nevada. ed, the monthy payments made n 19 2 and
19 3 are deductbe under secton 28(u) of the Interna evenue
Code.
n opnon s requested whether, n a case n whch a wfe obtaned
a Me can dvorce whch s not recognzed by the courts of the State
n whch the husband and wfe are domced, the husband may deduct,
for Federa ncome ta purposes, monthy payments made to her dur-
ng 19 2 and 19 3 pursuant to a separaton agreement.
In the nstant case, the ta payer and hs wfe, who were domced
n the State of Connectcut, separated pror to anuary , 1935, on
whch date a separaton agreement was entered nto between them
provdng for monthy payments to her. Wthn two weeks there-
after, the wfe obtaned a decree of dvorce from a court n Me co
and the husband then remarred. Payments were made under the
1985 agreement unt uy of 19 3, at whch tme the wfe was advsed
by counse that the Me can dvorce woud not be recognzed by the
courts of Connectcut. Under a new agreement whch made no men-
ton of the Me can dvorce, a ump-sum settement was made, and
the wfe thereafter obtaned a dvorce from a court n Nevada.
Secton 22 (k) of the Interna Revenue Code provdes n part as
foows:
(k) mony, tc., Income In the case of a wfe who Is dvorced or egay
separated from her husband under a decree of dvorce or of separate mante-
nance, perodc payments (whether or not made at reguar ntervas) receved
subsequent to such decree n dscharge of a ega obgaton whch,
because of the marta or famy reatonshp, Is mposed upon or ncurred by
such husband under such decree or under a wrtten Instrument Incdent to such
dvorce or separaton sha be Incudbe n the gross ncome of such wfe
Secton 23 (u) of the Code provdes n part that n computng net n-
come, there sha be aowed as deductons:
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33
29.23(u)-.
(u) mony, tc., Payments. In the case of a husband descrbed n secton
22(k), amounts ncudbe under secton 22(k) n the gross ncome of hs wfe,
payment of whch s made wthn the husband s ta abe year.
In genera, the provsons of sectons 22(k) and 23(u) of the Code are
appcabe wth respect to ta abe years begnnng after December 31,
19 1. (See secton 120(g) of the Revenue ct of 19 2.)
In the case under consderaton, the payments were perodc and
were made under an agreement ncdent to a dvorce. owever, the
queston remans whether there was a decree of dvorce whch the
ureau must, or shoud, recognze for Federa ncome ta purposes.
The queston whether a Me can dvorce decree s vad n the State
of Connectcut has not been passed upon by the hghest court of that
State. owever, t seems probabe that such a decree woud not be
recognzed n Connectcut. (Cf. State v. Cooke, 110 Conn., 3 8. 1 8
t., 385; and Petts v. Petts, 91 Conn., 608, 101 t., 13.) In fact,
mercan courts n genera have shown tte tendency to recog-
nze decrees of dvorce granted by Me can courts to ctzens of the
Unted States who are not bona fde resdents of Me co. (See obaa
v. obaa, 68 Oho pp., 63, 33 N. . (2d), 8 5; Cover v. Mattngy,
62 Wash. L. Rep., 967; zmann v. Maker, 231 pp. Dv., 139, 2 6
N. Y. Supp., 60; Du uesnay v. enderson, 2 Ca. pp. (2d), 11, 7
Pac. (2d), 29 ; Daey v. Daey, 15 Wash., 99, 282 Pac, 830.)
though some State courts refuse to recognze Me can dvorce
decrees, t s unkey that they woud permt partes to deny the va-
dty thereof f the partes have taken steps whch ndcate ther re-
ance upon the vadty of such decrees. (See Weber v. Weber, 135
Msc.. 717, 238 N. Y. Supp., 383: Fsher v. Fsher, 162 Msc., 775, 295
N. Y. Supp.. 51; esey v. Mer, 203 Ca., 61, 263 Pac, 200; ru-
guere v. rugvere, 172 Ca., 199,155 Pac, 988.)
There s no doubt that many persons affected by Me can dvorces
have acted n good fath n reyng on such dvorces. That s true n
the nstant case n whch the wfe obtaned the Me can dvorce and
the husband then remarred. To aow deductons under secton
23(u) of the Code n such cases seems to be wthn the genera n-
tent of Congress n enactng that secton. (See ouse of Representa-
tves Report No. 2333, Seventy-seventh Congress, second sesson, C. .
19 2-2,372, 09.)
Payments made pursuant to a separaton agreement not ncdent to
a dvorce or a decree of separate mantenance are not deductbe undpr
secton 23(u) of the Code. Such mtaton on amony deductons
was probaby due to the apprehenson that uness the payments were
part of or ncdent to some pubcy recorded acton of a court separa-
ton agreements mght be used for ta avodance. ven though a
husband and wfe mght e ecute a separaton agreement as an ncome-
spttng devce, t s doubtfu that a husband and wfe woud go
through the form of a Me can dvorce for such purpose.
Snce the partes n the nstant case took affrmatve steps whch
ceary ndcated ther reance on the vadty of the Me can decree,
and snce the facts negatve any effort on ther part to use such de-
cree as a devce to avod or evade ta es, t s the opnon of ths offce
that the monthy payments made by the husband to hs wfe durng
19 2 and 19 8 are deductbe under secton 23 (u) of the Code.
. P. Wenohb,
Chef Counse, ureau of Interna Revenue,
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f 9.2 -6.
3
S CTION 2 . IT MS NOT D DUCTI L .
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD .
mount pad as consderaton for the transfer of a quor cense.
(See I. T. 3873, page 82.)
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD .
Connectcut saes ta pad by purchaser wth respect to property
purchased for use n trade or busness. (See L T. 3881, page 23.)
Secton 19.2 r-6: Losses from saes or e - 19 7-1-1-12582
changes between certan casses of persons. Ct. D. 1686
ncome ta nterna revenue code decson of supreme court.
1. Deductons Losses Saes or changes of Pbopeett etween
Members of a Famy.
On severa occasons n 19 0 and 19 1 a husband who managed
the estate of hs wfe as we as hs own ordered hs broker to seU
certan stock for the account of one of the two and to buy the same
number of shares of the same stock for the other at as neary the
same prce as possbe. On each occason the sae and purchase were
prompty negotated through a stock e change, the dentty of the
other purchasers and seers was never known, the buyng spouse
receved stock certfcates dfferent from those whch the other
had sod and the purpose was to estabsh ta osses. ed: The
osses are dsaowed under secton 2 (b) (1) of the Interna Revenue
Code. The purpose of that secton was to put an end to the rght
of ta payers to choose, by ntrafomy transfers and other desg-
nated devces, ther own tme for reazng ta osses on nvestments
whch, for most practca purposes, are contnued unnterrupted.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, S th
Crcut (158 Fed. (2d), 637), reversng The Ta Court (5 T. C, 623),
affrmed.
Supreme Court of the Unted States.
9 5. ohn P. McWams, pettoner, v. Commssoner of Interna Revenue.
9 6. state of Susan P. McWams, Deceased, ohn P. McWams, ecutor,
pettoner , v. Commssoner of Interna Revenue.
9 7. rooks . McWams, pettoner, v. Commssoner of Interna Revenue.
On wrts of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
une 16, 19 7.
OPINION.
Mr. Chef ustce nson devered the opnon of the Court.
The facts of these cases are not In dspute. ohn P. McWams, pettoner In
No. 9 5, had for a number of years managed the arge ndependent estate of hs
wfe, pettoner n No, 9 7, as we as hs own. On severa occasons In 19 0 and
19 1 he ordered hs broker to se certan stock for the account of one of the two,
and to buy the same number of shares of the same stock for the other, at as neary
the same prce as possbe. e tod the broker that hs purpose was to estabsh
ta osses. On each occason the sae and purchase were prompty negotated
through the Stock change, and the Identty of the persons buyng from the
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35
19.2 -6.
geng spouse and of the persons seng to the buyng spouse was never known.
Invaraby, however, the buyng spouse receved stock certfcates dfferent from
those whch the other had sod. Pettoners fed separate ncome ta returns for
these years, and camed the osses whch he or she sustaned on the saes as
deductons from gross Income.
The Commssoner dsaowed these deductons on the authorty of secton
2 (b) of the Interna Revenue Code,1 whch prohbts deductons for osses from
aes or e changes of property, drecty or ndrecty between mem-
bers of a famy, md between certan other cosey reated ndvduas and
corporatons.
On the ta payers appcatons to The Ta Court, t hed secton 2 (b) nap-
pcabe, foowng ts own decson n Ickehcmer v. Commssoner and e -
punged the Commssoner s defcency assessments. The Crcut Court of ppeas
reversed The Ta Court and we granted certorar because of a confct between
crcuts and the mportance of the queston nvoved.
Pettoners contend that Congress coud not have ntended to dsaow osses
on transactons ke those descrbed above, whch, havng been made through a
pubc market, were undoubtedy bona fde saes, both n the sense that tte to
property was actuay transferred, and aso n the sense that a far consdera-
ton was pad n e change. They contend that the dsaowance of such osses
woud amount, pro tanto, to treatng husband and wfe as a snge ndvdua
for ta purposes.
In support of ths contenton, they ca our attenton to the pre-193 rue,
whch apped to a saes regardess of the reatonshp of seer and buyer, and
made the deductbty of the resutant oss turn on the good fath of the
sae, 1. e., whether the seer actuay parted wth tte and contro. They
pont out that n the case of the usua ntrafamy sae, the evdence matera
to ths ssue was pecuary wthn the knowedge and even the contro of the
ta payer and those amenabe to hs wshes, and naccessbe to the Government.
They mantan that the ony purpose of the provsons of the 193 and 1037
Revenue cta the forerunners of secton 2 (b) was to overcome these
1 Tbe matera parts of secton 2 (b) are as foows :
(b) Losses Fbom Saes ok changes of Property.
(1) Losses dsaowed. In computng net ncome no deducton ha In any case
be aowed In respect of osses from safes or e changes of property, drecty or
Indrecty
( ) etween members of a famy, as defned n paragraph (2)(D) ;
( ) cept n the case of dstrbutons n qudaton, between an ndvdua
and a corporaton more than 50 per centum n vaue of the outstandng stock of
whch s owned, drecty or ndrecty, by or for such ndvdua:
(C) cept n the case of dstrbutons n qudaton, between two corpora-
tons more than 50 per centum n vaue of the outstandng stock of each of whch
Is owned, drecty or ndrecty, by or for the same Indvdua, f ether one of such
corporatons, wth respect to the ta abe year of the corporaton precedng the
date of the sae or e change was, under the aw appcabe to such ta abe year,
a persona hodng company or a foregn persona hodng company :
(D) etween a grantor and a fducary of any trust;
( ) etween the fducary of a trust and the fducary of another trust, f the
same person s a grantor wth respect to each trust; or
(F) etween a fducary of a trust and a benefcary of such trust.
Secton 2 (b)(2)(D) defnes the famy of an Indvdua to Incude ony hs brothers
and ssters (whether by the whoe or haf bood), spouse, ancestors, and nea descend-
ants
1 . T. ., 78, affrmed, 132 Fed. t2d), 660 (C. C. . 2).
5 T. C. 623.
168 Fed. (2d), 687 (C. C. . 6).
U. S., - 67 8. Ct. 8R81. In No. 9 6, the petton for certorar of the estate
of Susan P. McWIams, the deceased mother of ohn P. McWams. was granted at the
same tme as the pettons In Nos. 9 5 and 9 7, and the three cases were consodated n
ths Court. s a three present the same matera facts and rase precsey the same
ssues, no further reference w be made to the severa cases separatey.
The decson of the Crcut Court of ppeas for the Second Crcut n Commssoner
v. Ickehemer, supra, note, 2, Is n confct on ths pont wth the decson of the Crcut
Court of ppeas for the S th Crcut n the present case, and aso wth that of the Crcut
Court of ppeas for the Fourth Crcut In Commssoner v. ohn (158 Fed. (2d). 32
1 Commssoner v. ae (67 Fed. (2d), 561 (C. C. . 1)) ; Zmmerman v. Commssoner
(36 . T. ., 279, reversed on other grounds. 100 Fed. (2d), 1028 (C. C. . 8)) ; Uhcn
v. Commssoner (30 . T. ., S99, affrmed, 82 Fed. (2d), 9 (C. C. . 7) .
See . ept No. 15 6, Seventy-ffth Congress, frst sesson, page 26 (C. . 1939-1
(Part 2), 70 , 732-723). See aso cases cted In note 7, supra.
The provsons of secton 2 (b)(1) ( ) and ( ) of the Interna Revenue Code org-
nated In secton 2 (a)(6) of the Revenue ct of 198 ( 8 Stat., 680, 691). These
provsons were reenacted wthout change as secton 2 (a)(6) of the Revenue ct of 1986
( 9 Stat.. 16 8, 1662), and the provsons or secton 2 (b)(1) (C), (D), ( ), and (F)
of the Code were added by secton 301 of the 1937 ct (50 Stat., 813, 827).
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5 f. 2 -6.
36
evdentary dffcutes by dsaowng osses on such saes rrespectve of good
fath. It seems to be pettoners beef that the evdentary dffcutes so
contempated were ony those reatng to proof of the partes observance of the
formates of a sae and of the farness of the prce, and consequenty that
the egsatve remedy apped ony to saes made mmedatey from one member
of a famy to another, or medatey through a controed ntermedary.
We are not persuaded that Congress had so mted an apprecaton of ths
type of ta avodance probem. ven assumng that the probem was thought
to arse soey out of the ta payer s nherent advantage In a contest concernng
the good or bad fath of an ntrafamy sae, decepton coud obvousy be
practced by a buyng spouse s agreement or tact readness to hod the property
sod at the dsposa of a seng spouse, rather more easy than by a pretense
of a sae where none actuay occurred, or by an unfar prce. The dffcuty
of determnng the fnaty of an ntrafamy transfer was one wth whch the
courts wrested under the pre-193 aw, and whch Congress undoubtedy meant
to overcome by enactng the provsons of secton 2 (b).
It s cear, however, that ths dffcuty Is one whch arses out of the cose
reatonshp of the partes, and woud be met whenever, by prearrangement,
one spouse ses and another buys the same property at a common prce, regard-
ess of the mechancs of the transacton. Indeed, f the property s fungbe,
the possbty that a sae and purchase may be rendered nugatory by the buyng
spouse s agreement to hod for the beneft of the seng spouse, and the dffcuty
of provng that fact aganst the ta payer, are equay great when the unts
of the property whch the one buys are not the Identca unts whch the other
ses.
Securtes transactons have been the moat common vehce for the creaton
of Intrafamy osses. ven f we shoud accept pettoners premse that the
ony purpose of secton 2 (b) was to meet an evdentary probem, we coud
agree that Congress dd not mean to reach the transactons In ths case ony
f we thought t competey ndfferent to the effectuaty of ts souton.
Moreover, we thnk the evdentary probem was not the ony one whch
Congress Intended to meet. Secton 2 (b) states an absoute prohbton not
a presumpton aganst the aowance of osses on any saes between the members
of certan desgnated groups. The one common characterstc of these groups Is
that ther members, athough dstnct ega enttes, generay have a near-dentty
of economc nterests. It s a far Inference that even egay genune ntra-
group transfers were not thought to resut, usuay, n economcay genune
reazatons of oss, and accordngy that Congress dd not deem them to be
approprate occasons for the aowance of deductons.
The pertnent egsatve hstory ends support to ths Inference. The con-
gressona commttees. In reportng the provsons enacted n 198 , merey stated
that the practce of creatng osses through transactons between members of
a famy and cose corporatons has been frequenty utzed for avodng the
Income ta , and that these provsons were proposed to deny osses to be
taken n the case of such saes and to cose ths oophoe of ta avod-
ance. 1 Smar anguage was used n reportng the 1937 provsons. Char-
man Doughton of the Ways and Means Commttee, In e panng the 1937
provsons to the ouse, spoke of the artfca takng and estabshment of osses
where property was shuffed back and forth between varous ega enttes owned
by the same persons or person, and stated that these transactons seem to
occur at moments remarkaby opportune to the rea party In nterest n re-
ducng hs ta abty but, at the same tme aowng hm to keep substanta
contro of the assets beng traded or e changed. u
C(. Shoenberg v. Commtaoner (77 Fed. (2d), 8 (C. C. . 8) Ct. D. 1051, C. .
I -2, 180 (1938) ) ; Coe v. eburn ( Fed. Supp., 280) ; Zmmerman v. Oommtesoner,
supra, note 7.
a See . Rent. No. 15 6. Seventy-ffth Congres , frst sesson, page 26, supra, note 8.
See te t or secton 2 (b) (1), quoted n note 1.
u . Rept. No. 70 , Seventy-thrd Congress, second sesson, page 23 (C. . 1939-1
(Part 2), 55 , 571) : S. Rept. No. 558, Seventy-thrd Congress, second sesson, page 27
(C. . 1989-1 (Part 2), 586. 607).
u The type of stuatons to whch these provsons apped was descrbed as beng that
In whch due to famy reatonshps or frendy contro, artfca osses mght be created
for ta purposes. ( . Rept. No. 15 6, Seventy-ffth Congress, frst sesson, page 28
(C. . 1939-1 (Part 2), 70 , 72 ).
81 Congressona Record, 9019. Representatve , charman of a ouse subcommttee
on the Income ta aws, e paned to the ouse wth reference to the 198 provsons that
the commttee had provded In ths b that transfers between members of the famy
for the purposes of creatng a oss to be offset aganst ordnary Income sha not be
recognzed for such deducton purposes. (78 Congressona Record, 2662.)
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37
19.2 -6.
We concude that the purpose of secton 2 (b) was to put an end to the rght
of ta payers to choose, by ntrafamy transfers and other desgnated devces,
ther own tme for reazng ta osses on nvestments whch, for most practca
purposes, are contnued unnterrupted.
We are cear as to ths purpose, too, that ts effectuaton obvousy had to be
made ndependent of the manner n whch an ntragroup transfer was accom-
pshed. Congress, wth such purpose n mnd, coud not have Intended to ncude
wthn the scope of secton 2 (b) ony smpe transfers made drecty or through
a dummy, or to e cude transfers of securtes effected through the medum of the
Stock change, uness It wanted to eave a oophoe amost as arge as the one
It had set out to cose.
Pettoners suggest that Congress, f t truy ntended to dsaow osses on
ntrafamy transactons through the market, woud probaby have done so by an
amendment to the wash saes provsons,1 makng them appcabe where the
seer and buyer were members of the same famy, as we as where they were
one and the same ndvdua. Ths e tenson of the wash saes provsons, how-
ever, woud bar ony one partcuar means of accompshng the ev at whch
secton 2 (b) was amed, and the necessty for a comprehensve remedy woud
have remaned.
Nor can we agree that Congress omsson from secton 2 (b) of any prescrbed
tme nterva, comparabe n functon to that n the wash saes provsons, ndcates
that secton 2 (b) was not ntended to appy to ntrafamy transfers through the
change. Pettoners argument s predcated on the dffcuty whch courts may
have n determnng whether the eapse of certan perods of tme between one
spouse s sae and the other s purchase of ke securtes on the change s of
great enough mportance n tsef to break the contnuty of the nvestment and
make secton 2 (b) Inappcabe.
Precsey the same dffcuty may arse, however, n the case of an ntrafamy
transfer through an ndvdua ntermedary, who, by prearrangement, buys from
one spouse at the market prce and a short tme ater ses the dentca certfcates
to the other at the prce prevang at the tme of sae. The omsson of a pre-
scrbed tme nterva negates the appcabty of secton 2 (b) to the former type
of transfer no more than t does to the atter. ut f we shoud hod that t
negated both, we woud have converted the secton Into a mere trap for the
unwary.
Pettoners aso urge that, whatever may have been Congress Intent, ts desg-
naton n secton 2 (b) of saes between members of a famy Is not adequate
to comprehend the transactons n ths case, whch conssted ony of a sae of stock
by one of the pettoners to an unknown stranger, and the purchase of dfferent
certfcates of stock by the other pettoner, presumaby from another stranger.
We can understand how ths phraseoogy, f construed teray and out of
conte t, mght be thought to mean ony drect ntrafamy transfers. ut pet-
toners concede that the e press statutory reference to saes made drecty or
Indrecty precudes that constructon. Moreover, we can dscover In ths an-
guage no mpcaton whatsoever that an ndrect ntrafamy sae of fungbes
Is outsde the statute uness the unts sod by one spouse and those bought by
the other are dentca. Indeed, f we accepted pettoners constructon of the
statute, we thnk we woud be readng Into t a crppng e cepton whch s not
there.
Secton 118 of the Interna Revenue Code, whch frst appeared In Its present form as
secton 118 of the Revenue ct of 10S2 ( T Stat., 160, 208). provdes In part as foows :
S C. 118. LOSS FROM W S S L S OF STOC OR S CURITI S.
(a) In the case of any Iobs camed to have been sustaned from any sae or other
dsposton of shares of stock or securtes where It appears that, wthn a perod begnnng
80 days before the date of such sae or dsposton and endng 30 days after such date, the
ta payer as acqured (by purchase or by an e change upon whch the entre amount of
tran or oss was recognzed by aw), or has entered Into a contract or opton so to acqure,
substantay Identca stock or securtes then no deducton for the oss sha be aowed
under secton 28(e)(2) ; nor sha such deducton be aowed under secton 23(f) uness
the cam Is made by a corporaton, a deaer In stocks or securtes, and wth respect to a
transacton made In the ordnary course of Its busness.
We have noted pettoners suggeston that a ta payer a assured, under the wash saes
provsons, of the rght to deduct the oss ncurred on a sae of securtes, even though he
hmsef buys smar securtes 81 days ater; and that he shoud certany not be precuded
by secton 2 (b) from camng a smar oss If the ta payer s spouse. Instead of the ta -
payer, makes toe purchase under the same crcumstances. We do not fee Impeed to
comment on these propostons, however, In a ease In whch the sae and purchase were
practcay smutaneous and the net consderaton receved by one spouse and that pad
by the other dffered ony In the umount of brokers commssons and e cse ta es.
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29.25-3.
38
Fnay, we must re|ect pettoners asserton that the Dobson rue contros
ths case. The Ta Court found the facts as we stated them, and then overrued
the Commssoner s determnaton because It thought that secton 2 (b) had no
appcaton to a ta payer s sae of securtes on the change to an unknown
purchaser, regardess of what other crcumstances accompaned the sae. We
have decded otherwse, and on our constructon of the statute, and the conceded
facts, The Ta Court coud not have reached a resut contrary to our own.
ffrmed.
Mr. ustce urton took no part n the consderaton or decson of these cases.
S CTION 25. CR DITS OF INDI IDU LS
G INST N T INCOM .
Secton 29.25-3: Persona e empton, surta 19 7-26-12719
e emptons, and e emptons for both norma I. T. 3883
ta and surta .
INT RN L R NU COD .
dvorced husband Is entted to cam hs chd as a dependent,
for Federa Income ta purposes. If the amount pad under a court
order for the chd s support durng the caendar year consttuted
more than one-haf of the amount e pended for that purpose, even
though the payments are deposted n a speca account for ust as
an educatona fund.
dvce s requested whether a chd of dvorced parents may be
camed as a dependent by the husband under the crcumstances here-
nafter stated.
In the nstant case, the chd ves n the home of hs mother and
6tepfather, hs mother havng remarred. Pursuant to the court decree
under whch the chd s parents were dvorced, hs father makes a
monthy payment of 60 for the chd s support. owever, such pay-
ments are not used for support of the chd but are deposted n an
account to hs credt for use as an educatona fund when he reaches
coege age. The money used for the chd s support s furnshed by
hs stepfather, but the payments made by the chd s father e ceed
one-haf of the amount used for the chd s support.
Secton 25(b) of the Interna Revenue Code provdes n part as
foows:
(b) Credts fob oth Norma Ta and Surta .
(1) Credts. There sha be aowed for the purposes of both the norma
ta and the surta , the foowng credts aganst net ncome:

(C) n e empton of 500 for each dependent whose gross Income
for the caendar year In whch the ta abe year of the ta payer begns
Is ess than 500, e cept that the e empton sha not be aowed In
respect of a dependent who has made a ont return wth hs spouse
under secton 51 for the ta abe year begnnng In such caendar year.

(3) Defnton of dependent. a used n ths chapter Chapter 1 of the,
Code the term dependent means any of the foowng persons over haf
of whose support, for the caendar year In whch the ta abe year of the
ta payer begns, was receved from the ta payer:
( ) a son or daughter of the ta payer
( ) a stepson or stepdaughter of the ta payer.
.
Dobaon v. OommUMoner (820 U. 8., 89 Ct. D. 160T. O. . 10 , M).
Cf. Trutt of ngham v. Comm tsoner (828 U. 8., 365 Ct. D. 16 8, C. . 10 5, 108 ).
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39
29. 3-2.
It s hed, n the nstant case, that the dvorced husband s entted
to cam hs chd as a dependent, for Federa ncome ta purposes,
nasmuch as the amount pad under a court order for the chd s sup-
port durng the caendar year consttuted more than one-haf of the
amount e pended for that purpose, even though the payments are de-
posted n a speca account for use as an educatona fund.
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION 1. G N L UL .
Secton 19. 1- : ccountng perod.
INT RN L R NU COD .
ccountng perod of a corporaton revved after severa years
of nactvty. (See Ct. D. 1690, page 129.)
S CTION 8. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N.
Secton 29. 3-2: When charges deductbe. 19 7-16-1260
( so Secton 19. 3-2.) G. C. M. 25298
INT RN L R NU COD ND R NU CT OF 1888.
Unpad amounts asserted aganst a ta payer as addtona ta
abtes, whch amounts are the sub|ect of a bona fde contest, are
not accruabe tems for Federa Income ta purposes whe they are
unsetted as to amount and pror to estabshment of the fact of ab-
ty. The term contest ncudes a contest odged wth the ta
authortes as we as a contest n court. Recommended that I. T.
3 91 (C. . 19 1-2, 177) be revoked.
Contested defcences of ta whch have been pad to the ta
authortes are deductbe not ater than the tme of payment even
though the contest of abty Is contnued by the ta payer by the
fng of a cam for refund and a sut In court for recovery of the
amounts pad.
dvce s requested as to accrua and deducton, for Federa ncome
ta purposes, of varous amounts asserted aganst a ta payer as add-
tona ta abtes, such amounts havng been contested by the ta -
payer ether n the courts or before the ta ng authortes.
(a) Federa eectrca energy ta . s the resut of an e amnaton
of the ta payer s Federa eectrca energy ta abty, mposed under
secton 616(a) of the Revenue ct of 1932, as amended, for perods
begnnng n 1933 and e tendng through the caendar year 1939, a
consderabe addtona abty was proposed whch was mmedatey
contested by the ta payer. s the resut of conferences wth ureau
offcas, at whch the appcabty of ureau reguatons and rungs
to varous phases of the ta payer s busness was dscussed, agreements
were reached on most of the ponts n dspute and a new audt was
made. Negotatons for fna settement of the abty were com-
peted n May, 19 0, and the reduced defcency agreed upon was pad
n une, 19 0.
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29. 3-2.
0
(b) New York Cty emergency e cse, saes, persona property, and
compensatng use ta es. The ta payer, n determnatons by the
comptroer of the cty of New York, was bed for varous defcences
for ta abe perods under oca aws enacted from tme to tme from
1933 to 19 2, ncusve, such as the emergency e cse ta of 1933 and
193 on the gross ncomes of pubc utty companes (ater the 1 per
cent ta on pubc uttes), the 2 per cent reta saes ta , and the
2 per cent persona property and compensatng use ta es. These de-
fcences were contested on numerous grounds, ncudng consttu-
tonaty. In each case, forma hearngs were hed n the comptroer s
offce wth respect to the merts of tem ncusons, etc. In a but one
nstance, the contested ssues were setted n the comptroer s offce by
stpuaton, wthout further proceedngs, for amounts whch appear,
wth one or two e ceptons, to nave reduced the asserted defcences by
one-thrd to one-haf or more. No payment of any of these asserted
defcences was made pror to the dates of settement In the one
case where further proceedngs were taken, the comptroer s offce re-
fused to revse the asserted defcency, and proceedngs were nsttuted
by the ta payer n the Supreme Court of the State of New York for
certorar to revew the comptroer s determnaton. s a prerequste
to commencement of the certorar proceedngs, the ta payer was re-
qured, under oca aw, to depost the tota amount of the asserted de-
fcency, ncudng penates and nterest, wth the comptroer. The
case was thereafter setted by stpuaton for about two-thrds of the
asserted defcency n ta , and the e cess depost made wth the comp-
troer was returned.
(c) New York Cty ta on rea estate of corporatons. Pror to
the year 1936, a of the parces of rea estate owned by the ta payer
were assessed separatey and ndependenty under ther respectve
secton, bock, and ot desgnatons. In 1936 the ta ng authortes
adopted a method of groupng the propertes and vaung each group
as a unt. Ths method was apped to some of the ta payer s proper-
tes for 193(). For 1937 a of the ta payer s rea estate was brought
under the group vauaton method. The ta payer fed protests
aganst the 1937 tentatve assessed vauatons on the ground that the
group vauaton method represented a procedure not authorzed by,
and contrary to, the Greater New York Charter and the ta aw of
the State of New York. fter hearng on an appcaton duy made
for the correcton of the assessments, the ta ng authortes made
ther determnaton fna, wthout modfcaton, and entered such
assessments upon the ta ros thereafter devered to the cty coector.
To avod ens upon the propertes and penaty nterest the ta payer
pad the ta es under protest and mmedatey fed a petton wth the
Supreme Court of the State of New York for certorar to revew the
assessments made by the ta ng authortes. wrt of certorar was
forthwth ssued by the court. Thereafter, a settement of the pro-
ceedngs was effected whereby the contested ta was substantay
reduced, and the court ordered the dfference refunded to the ta payer
wthout nterest.
The rue whch has been foowed by the ureau for a number of
years s that, regardess of the nature of the reasons underyng the
deay n ts determnaton, a defcency n ta s deductbe for Federa
ncome ta purposes, by a ta payer who keeps accounts and fes Fed-
era ncome ta returns on the accrua bass, for the ta abe perod
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1
8 29. 3-2.
wth respect to whch the ta s mposed. (See I. T. 3 91, C. .
19 1-2,177, ctng Foyd, Incorporated . Commssoner, 3 . T. .,
101, acquescence, C. . 19 1-| .) Ths rue was premsed on the
vew that abty for the ta s ncurred n the year for whch the
ta s mposed by aw, and snce a of the events upon whch the ta
s predcated have occurred n that year, the amount of the ta abty
s then f ed by aw and s ascertanabe (knowabe) as of the end
of the ta abe perod.
The above-stated rue appears to have orgnated n Uncasve
Manufacturng Co. v. Commssoner (55 Fed. (2d), 893, certorar
dened, 286 U. S., 5 5). In that case, the ureau s fna determna-
ton n 1925 ncreased the ncome for Federa ncome ta purposes
for the year 1918. That ncrease had the effect of ncreasng the ta -
payer s abty for a State ta whch was measured by the amount
of ncome for Federa ncome ta purposes. The queston for deter-
mnaton was when the defcency n the State ta shoud be taken as
a deducton n the Federa returns whether n 1918, or n 1925 when
t was fnay f ed as a ta by the ureau s fna determnaton of the
revsed ncome. The ureau had rued that the defcency n the
State ta was deductbe for the year 1925, and the oard of Ta
ppeas had approved ths acton. The crcut court, appyng what
t conceved to e the essenta hodng n Unted States v. nderson
(269 U. 8., 22, T. D. 3839. C. . -, 179 (1926)), hed that the
defcency m the State ta had accrued n, and was deductbe for,
the ta abe year 1918, and n support of ts concuson stated:
the facts upon whch the cacuaton depended had been f ed be-
fore the e praton of the year 1918. Dfferences coud arse, and dd, as to the
amount of the company s Income for that year, but they were due to the proper
apprasa of Its property, and possbe dsputes as to the meanng of the aw. The
computaton was uncertan, but ts bass was unchangeabe; t was unknown, not
unknowabe on December 31, 1918. That s the test, and that was not the stua-
ton In Luoas v. meroon Code Co. 2S0 U. S., 5, Ot. D. 168, O. . I -1, 31
(1930) , where the empoyee s cam was sub|ect to varaton accordng as he
ved and conducted hmsef n the future.
y the statement that the facts upon whch the cacuaton de-
pended had been f ed before the e praton of the year 1918, the cr-
cut court ceary ndcated that t meant that a of the facts upon
whch the ta was predcated had ther tme n that year and that
ths was the essenta factor to accrua. The crcumstance that a ds-
pute mght arse, as to the proper evauaton of such facts, to deay
the f ng of the amount of the evauaton unt a ater tme, and as
to the meanng of the aw as we, was regarded by the court as un-
mportant.
In Unted States v. nderson, supra, no dspute about the facts and
ther evauaton s ndcated n the Supreme Court s opnon. The
prncpa contenton of the ta payer theren was that, even upon the
accrua bass of accountng, the muntons manufacturer s ta mposed
bv the Revenue ct of 1916 for the year 1916 dd not accrue unt t was
due and payabe n the foowng year. The Supreme Court, n the
course of ts dscusson, stated that the adopton of the accrua method
of accountng for Federa ncome ta purposes
was to enabe ta payers to keep ther books and make ther returns
accordng to scentfc accountng prncpes, by chargng aganst ncome earned
77338 1
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29. 3-2.
2
darng the ta abe perod the e penses Incurred In and propery attrbutabe to
the process of earnng Income durng that perod;
and that
The appeee s ta payer s true Income for the year 1916 coud not have been
determned wthout deductng from Its gross Income for the year the tota cost
and e penses attrbutabe to the producton of that Income durng the
year.
ncudng the reserve et up on the ta payer s books n 1916 for mun-
tons ta es n respect of muntons soa n that year. The Court con-
cuded wth the statement that
In a technca ega sense It may be argued that a ta does not accrue
unt t has been assessed and becomes due; but t Is aso true that In advance of
the assessment of a ta a the events may occur whch f the amount of the ta
and determne the abty of the ta payer to pay It
nd ts decson was that the reserves for ta es whch appeared on
appeee s books n 1916 were deductbe n ts ncome ta return on
the accrua bass for that year.
The Supreme Court s genera remarks n the nderson case un-
doubtedy gave strong ndcaton that under the accrua .method of
accountng the ncome earned durng the ta abe perod shoud, per-
haps, n a nstances be charged wth the e penses ncurred and attrb-
utabe to the process of earnng ncome durng that perod. ut t s
not certan that the Court rested ts decson upon the premse that
accrua n the ta abe perod for whch the ta s mposed necessary
foows because of the crcumstance that a of the facts upon whch
the cacuaton depends had ther tme n the ta abe year. Its state-
ment that n advance of assessment a the events may must occur
whch f the amount of the taw and determne he abty of the ta -
payer to pay t tacs supped had to do wth reserves for ta es
whch had actuay been set up on the ta payer s books n 1916, the
year for whch the ta was mposed, and was not addressed to a
stuaton nvovng a defcency n ta determned after a bona fde
contest as to amount and the fact of abty.
D e Pne Products Oo. v. Commssoner (820 U. S., 516, Ct. D.
1598, C. . 19 , 609) nvoved a ta asserted by the Msssspp
ta ng authortes n respect of the recept and use of a sovent hed
by such authortes to be gasone wthn the meanng of the State
aw mposng a ta on gasone. The ta payer had made payment of
a smar demand for 1986, but for the year 1937 t refused to, and
never dd, make any payment n respect of the ta asserted. Never-
theess, t made entres n ts books as of the cose of that year accrung
the ta so asserted and deducted the amount thereof n ts 1937 Federa
ncome ta return. Thereafter, n 1939, the Supreme Court of Msss-
spp uphed the ta payer s contenton that the sovent used by t was
not wthn the scope of the ta ng statute. Notwthstandng ts
successfu contest of the demand for 1937, the ta payer carred to the
Unted States Supreme Court ts chaenge of the ureau s acton,
approved by the oard of Ta ppeas ( 5 . T. ., 286), n ds-
aowng the deducton of that tem n the Federa ncome ta return
for 1987. The Supreme Court sad that t coud not be questoned that
a ta payer who accounts on the accrua bass may, and shoud, deduct
from gross ncome a abty whch reay accrues n the ta abe
year. Itacs supped. The Court went on to say that:
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3
29. 3-2.
It has ong been hed that In order truy to refect the Income of a
gven year, a the events must occur n that year whch f the amount and the
fact of the ta payer s abty for Items of Indebtedness deducted though not
pad ctng Unted States v. nderson, supra ; and ths can not be the case
where the abty s contngent and s contested by the ta payer ctng Lucas
v. mercan Code Co., supra . t must, In the crcumstances, ;wat the
event of the State court tgaton and mght cam a deducton ony for the
ta abe year In whch ts abty for the ta was fnay ad|udcated. Itacs
supped.
The Court stressed the anguage frst used n Unted States v. nder-
son, supra, concernng the occurrence of a the events whch f the
ta and determne the abty of the ta payer to pay t, but n ths
nstance the Court stated that a the events must occur n that (ta -
abe) year whch f the amount and the fact of the ta payer s abty,
and t added the statement that ths can not be the case where the
abty s contngent and s contested by the ta payer. Ths an-
guage appears to ndcate that the resouton of a bona fde contest s
necessary, not ony to f the fact of abty but aso the amount
thereof, and necessary defers the accrua of the ta to the tme t s
fnay ad|udcated.
Later, n The Securty Four MUs Co. v. Commssoner (321 U. S.,
281, Ct. D. 1603, C. . 19 , 526 , the Supreme Court agan stated the
essentas of accruabty n the foowng anguage:
It Is setted by many decsons that a ta payer may not accrue an e pense the
amount of whch s unsetted or the abty for whch Is contngent, and ths
prncpe s fuy appcabe to a ta , abty for whch the ta payer denes, and
payment whereof he s contestng. Itacs supped.
y the statement that a ta payer may not accrue an e pense the
amount of whch s unsetted, the Court woud appear to have arrved
at the poston that accruabty of an unpad abty tem must
awat the occurrence of a the events necessary to sette the amount
and to estabsh the foot of the ta payer s abty, ncudng the
resouton of a bona fde contest of the fact of abty. (Cf. urton-
Sutton O Co., Inc., v. Commssoner, ssue 8, 3 T. C, 1187, 1196,
acquescence, C. . 19 , ; tantc Coast Lne Raroad Co. v. Com-
mssoner, T. C, 1 0, acquescence, C. . 19 , 2; and I. T. 37 6,
C. . 19 5,1 1.)
It s the opnon of ths offce that, under a proper nterpretaton of
the Supreme Court decsons dscussed heren; unpad amounts asserted
aganst a ta payer as addtona ta abtes, whch are the sub|ect
of a bona fde contest, are not accruabe tems tor Federa ncome ta
purposes whe unsetted as to amount and pror to the estabshment
of the foot of abty. The term contest ncudes not ony a
contest n court (I. T. 87 6, supra), but a contest odged wth the
ta authortes as we. (See The Great Isand odng Corporaton
et a. v. Commssoner, 5 T. C, 150, acquescence, C. . 19 5, 3.) c-
cordngy, t s recommended that I. T. 8 91 (C. . 19 1-2, 177),
whch s contrary to ths vew, be revoked.
Wth respect to the accruabty of nterest on contested unpad
defcences of ta , the rue set forth n . C. M. 9575 (C. . -, 381
(1981)) s consstent wth the foregong dscusson.
s to contested defcences of ta whch have been pad to the ta ng
authortes, though the contest of abty s contnued by the ta -
payer by the fng of a cam for refund and a sut n court for the
recovery thereof, ths offce s of the opnon that such defcences
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S 29. 3-2.

must be hed to be deductbe not ater than the tme of payment.
(See Chestnut Securtes Co. v. Unted States, 62 Fed. Supp., 57 .)
The accrua bass of accountng for abty tems reates to deduct-
bty of tems whch are unpad. (Cf. D e Pne Products Co. v.
Commssoner, supra.)
In vew of the foregong, t s the opnon of ths offce that the con-
tested defcency n the Federa eectrca energy ta , whch was setted
and pad n 19 0, and the varous contested defcences n New York
Cty emergency e cse, reta saes, persona property, and compen-
satng use ta es are deductbe, for Federa ncome ta purposes, for
the ta abe years of the fna settement, nasmuch as t appears that
the contests thereof were bona fde. In connecton wth these New York
Cty ta es, the makng of a depost wth the cty comptroer of the
fu amount of defcency, wth nterest, as a prerequste to the fng
of certorar proceedngs, shoud not be regarded as a payment of the
demanded defcency. Tne New York Cty rea estate ta es, whch
were pad upon assesssment to avod ens and penaty nterest, are
deductbe for the ta abe year n whch they were pad, even though
they were thereafter contested n certorar proceedngs.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 29. 3-2: When charges deductbe. 19 7-19-126 0
G. C. M. 25261
INT RN L R NU COD .
On May 29, 19 6, the Secretary of the Interor entered Into an
agreement wth the M Unon coverng, for the perod of Government
possesson of certan coa mnes, the terms and condtons of empoy-
ment In such mnes. The agreement provded for vacaton payments
of 100 to a empoyees wth a record of one year s standng ( une 1,
10 5, to May 81,19 6). Pro rata payments for fu months of empoy-
ment are provded for empoyees begnnng empoyment or ter-
mnatng empoyment durng the quafyng perod. The ta payer
was a party to a contract dated pr 11,19 5, contanng a provson
for vacaton pay of 75. The ta payer keeps ts accounts and fes
Its Federa ncome ta returns on a caendar year bass. ed, no
of the vacaton pay provded for In the agreement of May 29,
Is aecruabe and deductbe as of December 81, 19 5. ed
further, the accrua and deducton of vacaton pay may propery be
made for amounts determnabe at December 81, 19 5, under the con-
tract then In effect.
n opnon s requested as to accrua and deducton, for Federa n-
come ta purposes, of vacaton payments requred to be made under
an agreement of May 29,19 6, whch was entered nto by the Secretary
of the Interor wth the M Unon to cover, durng the perod of Gov-
ernment possesson, the terms and condtons of empoyment wth
respect to coa mnes whch were, as of March 81, 19 6, sub|ect to the
Natona tumnous Coa Wage greement dated pr 11, 19 5.
The agreement of May 29, 19 6, provdes n part for vacaton pay-
ments of 100 to a empoyees wth a record of one year s standng
( une 1, 19 5, to May 31, 19 6), wth pro rata payments for fu
months of empoyment n the case of empoyees begnnng empoy-
ment, or termnatng empoyment, durng the quafyng perod. The
ta payer s a party to a smar agreement entered nto on pr 11,
19 5, provdng for vacaton payments of 75. The ta payer keeps ts
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5
29. 3-2.
accounts and fes ts Federa ncome ta returns on the accrua and
caendar year bass.
In connecton wth the nstant nqury, attenton was caed to the
case of the O Company, n whch the ta payer was aowed to accrue
and deduct as of December 31, 19 8, amounts representng a r eason-
abe estmate of vacaton payments to be made n 19 . In that case,
under an agreement n effect pror to December 31,19 3, quafed em-
poyees were entted to receve pay durng vacatons taken wthn one
year after the cose of the quafyng perod, and f no vacatons were
taken wthn one year, to receve the vacaton pay n a ump sum. In
ether event, the vacaton pay was computabe at the rate of pay n
effect when such vacaton pay was pad. The concuson reached n
that case was based on the rue that an tem may be propery accrued
athough the amount s not defntey f ed, (pee Contnenta Te,
Lumber Co. v. Unted States, 286 U. S., 290, Ct. D. 9 , C. . I-1,
260 (1932); Lucas v. mercan Code Co., Inc., 280 U. S., 5, Ct. D.
168, C. . I -1, 81 (1930): and mercan Natona Co., Recever, v.
Unted States, 27 U. 8., 99, T. D. 099, C. . I-2,193 (1927).)
It has been ponted out that n some cases ta es, the amount of
whch s not determnabe or the abty for whch does not come nto
beng unt after the cose of the ta abe year, have been hed to be
acoruabe for the years to whch the ta es appy. In G. C. M. 15305
(C. . I -2, 80 (1935)), t was heM that ta es mposed by the State
of New ersey accrue as of October 1 athough the rate s not deter-
mned unt the atter part of the foowng year. In Famous Machne
Co. v. Unted States (282 U. S., 375, Ct. D. 278, C. . -, 12
(1931)), the Court hed that the Federa ncome ta wth respect to
the year 1918 accrued n that year even though the Revenue ct of
1918, appcabe to the year 1918, was not passed unt February, 1919,
and made changes n the rate of ta aton.
In the O Company case, referred to above, there was a defnte a-
bty for vacaton pay, the amount of that vacaton pay beng meas-
ured by the rate of pay of the worker at the tme of payment. It was
reazed that the worker mght be advanced n the rate of compensa-
ton pad hm and. therefore, the amount of vacaton pay to De re-
ceved mght be dfferent from the amount he woud have receved had
the vacaton been taken concurrenty wth the acquston of the rght
to such vacaton pay. It was hed that the amount of pay to be ac-
crued n the crcumstances of that case shoud comprehend an est-
mate of the cost of the vacaton pay to the empoyer at the tme the
vacaton woud be taken or the payments made.
In G. C. M. 15305, supra, the ta es were mposed by the State of
New ersey. The ta rate was not determned at the tme of assess-
ment, whch was on October 1. The ureau took the poston wth
respect to the accrua of the ta es that t was not necessary that the
rate of ta abty be f ed pror to the deducton thereof. In that
case, the abty for the ta es was determned, but the amount
thereof was sub|ect to ad|ustment The concuson n G. C. M. 15305
recognzed the procedure of assessment n New ersey and the New
ersey statute whch provded that a property shoud be assessed
to the owners wth reference to the amount owned on the 1st day of
October n each year. It s generay true n the State of New ersey
that the owner of rea property on October 1 s the person who s abe
for the ta , and the ony queston to be determned s the amount of
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29. 3-2.
6
that abty. In . C. M. 15305, supra, t was ponted out that the
basc dea under the accrua system of accountng s that the books
sha mmedatey refect obgatons and e penses defntey ncurred
and ncome defntey earned wthout regard to whether payment as
been made or whether payment s due. penses ncurred n the op-
eratons for a partcuar year are propery chargeabe n the accounts
for that year, athough payment may not bo due unt the foowng
year. s n the case of the O Company, heretofore mentoned, n
G. C M. 15305 the abty e sted but the amount thereof was of
necessty to be determned by future events. In the nstant case, the
abty for vacaton pay was certan as of December 31,19 5, but that
abty was based on the contract of pr 11, 19 5. s of the cose
of that caendar year no other abty for vacaton pay e sted.
In the Fawcus Machne Co. case, supra, the queston was whether
ta es coud be accrued when the egsaton f ng the amount of the
ta es was passed subsequent to the cose of the ta abe year, a rate
beng aready n effect at the cose of the ta abe year. The Court
sad:
corporaton can not cam to have accumuated any net Income 1b any year
unt provson s made for ta es accrued, based on net Income for the same year.
The Court further ponted out that the ta es n queston were pro-
vded for by an act passed n February, 1919, but the ta es n queston
were for the year 1918. The Court then observed:
The act was passed In ampe tme to aow the ta payer to read|ust ts ac-
counts for that year by Incudng these ta es; and, snce ts books were kept on
an accrua bass, t was necessary that ths shoud be done In order ceary to
refect the ncome for 1918.
The ast-quoted anguage of the Court n the Fawcus Machne Co.
case was nterpreted n an Norman Co. v. Wech (1 1 Fed. (2d), 99).
In that case, the abty for the addtona ta dd not e st and was
not known n the year of the earnngs to whch t pertaned. The event
whch f ed the amount of the addtona ta and made the ta payer
abe therefor was the enactment of statutes n une of the foowng
year. The court refer red to the anguage used n Fawcus Machne Co.
v. Unted States, supra, and sad:
We nterpret ths to mean that a ta payer w be requred to keep hs accounts
open for a reasonabe tme after the cose of the ta year. In that case the
Fawcus Machne Co. case the ct Imposng ta es for the year 1918 was passed
n February, 1919. Thus the ta payer was pven ampe tme to read|ust ts
accounts before ts ta return was due on March 15, 1919.
The court further observed that on the accrua bass no attempt
shoud be made to ncude thngs whch can not be earned unt beyond
a reasonabe tme after the ta perod. It treated the perod unt
March 15 as a reasonabe tme, and ndcated that snce the statutes
f ng the abty were not enacted unt the foowng une, It
woud be unreasonabe and mpractca to requre the accounts to be
hed open and ad|usted so ong after the cose of the ta abe year and,
more mportant, after the ta returns were due.
In the nstant case, the addtona abty arose on May 29 foow-
ng the cose of the (caendar) ta abe year. There s nothng to
ndcate that as of December 31, 19 5, a change n the amount of a-
bty wns to be antcpated. t the end of the ta abe year there was
a f ed abty for vacaton pay under the contract of pr 11, 19 5,
G
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7
29.51-1.
and t appears that the f ed and determned amount of ths vacaton
pay was 75. The abty at the rate of 100 dd not arse unt May
29 foowng the ta abe year. In the an Norman Co. case, supra,
the addtona abty arose n une foowng the ta abe year. The
facts n the nstant case are, therefore, more smar to the facts n the
an Norman Co. case than they are to the facts n the Fawcus Machne
Co. case.
In vew of the foregong, t s the opnon of ths offce that no part
of the vacaton pay provded for n the agreement of May 29, 1916,
s accruabe and deductbe as of December 31, 19 5. It s aso the
opnon of ths offce that the accrua and deducton of vacaton pay
may propery be made for amounts determnabe at December 81,19 5, ,
under the contract then n effect.
. P. Wenche,
Chef Counse, ureau of Interna Revenue,
Secton 29. 3-2: When charges deductbe.
INT RN L R NU COD .
Tennessee retaers saes ta . (See I. T. 3865, page 20.)
P RT . R TURNS ND P YM NT OF T .
S CTION 51. INDI IDU L R TU NS.
Secton 29.51-1: Indvdua returns. 19 7-16-12609
I. T. 3861
INT RN L R NU COD .
Upon the death of a spouse who Is domced n the State of Idaho,
the survvng spouse takes one-haf of the communty property, sub-
|ect to the communty debts, as a matter of rght, not as a matter of
descent. The prncpe of . C. M. 25008 (C. . 19 6-2, 9), whch
hods that that part of the ncome receved durng the perod of
admnstraton by the estate of a deceased husband, who ded whe
domced n Caforna, whch s derved from the survvng wfe s
share of communty property s ta abe to the wfe for
Federa Income ta purposes, Is appcabe n such a case.
dvce s requested whether the prncpe of G. C. M. 25008 (C. .
19 6-2, 9), whch hods that that part of the ncome receved durng
the perod of admnstraton by the estate of a deceased husband, who
ded whe domced n Caforna, whch s derved from the survvng
wfe s share of communty property acqured by the communty on or
after uv 29, 1927, the effectve date of secton 161(a) of the Cv
Code of Caforna, s ta abe to the wfe for Federa mcome ta pur-
poses, appes to cases n whch the-decedent was domced n the State
of Idaho.
The opnon n G. C. M. 25008, supra, s based on the decson n
Stea Wheeer shop v. Commssoner (152 Fed. (2d , 389) n whch
the court refused to foow the decsons n Commssoner v. Rose .
Larson (131 Fed. (2d), 85) and enne obbs arbour v. Commssoner
(89 Fed. (2d), 7 , Ct. D. 1267, C. . 1937-2, 279), nvovng the com-
munty property aws of the States of Washngton and Te as, respec-
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5 29.51-1.
8
vey, on the ground that by the aws of the State of Washngton the
ownershp of the ncome derved from the communty property
durng the admnstraton of the estate of the husband s n the
e ecutor or admnstrator, and by the aws of the State of Te as, the
communty property, upon the death of the husband, s an entrety
regarded as Deongng to hs estate, and that there were
no such aws n the State or Caforna wth respect to communty
property acqured after uy 29, 1927. The court further stated that
athough the survvng wfe s haf of Caforna communty property,
ke the decedent s haf, was sub|ect to admnstraton, her haf, unke
hs haf, never became a part of hs estate.
s n the case of the State of Caforna, the aws of the State of
Idaho appear to be unke those of the States of Washngton and Te as.
The aws of the State of Idaho reatng to communty property provde
that upon the death of ether the husband or the wfe, one-haf of a
of the communty property sha go to the survvor, sub|ect to the
communty debts, and the other haf sha be sub|ect to the testamentary
dsposton of the decedent, but ony to the e tent that such dsposton
s n favor of certan desgnated dstrbutees. In case no testamentary
dsposton s made, the decedent s one-haf nterest n the communty
property goes to the survvor, sub|ect to communty debts. (See sec-
ton 1 -113 of the Idaho Code, 1932.) Durng hs fetme the husband
has the management of the communty property, but he can nether
se, convey, nor encumber communty rea estate uness the wfe |ons
wth hm n e ecutng and acknowedgng the deed or other nstrument
of conveyance. (See secton 31-913 of the Idaho Code, 1932.)
The Supreme Court of Idaho has hed that the husband and wfe
are equa partners n the communty, there beng no dstncton as
to degree, quantty, and nature wth respect to uer hodngs. In
the eadng case of ohny v. Dunbar (21 Idaho, 258, 121 Pac, 5 ,
5 7, 5 8), n whch the State sought to sub|ect the survvng wfe s
share of the communty property to nhertance ta es, the court
stated that:
Ths statute ceary and unmstakaby provdes that the survvng
spouse takes hs or her haf of the communty property, not oy successon, descent
or nhertance, but as survvor of the marta communty or partnershp.
Whe, therefore, the survvor n ths case receves the entre communty estate
by reason of the death of her husband, haf of t teas aready hers, and the ony
addtona nterest or rght she acqures In that haf by reason of the death of
her husband s the rght of management, contro, and dsposton. The
statute makes her an her of her husband, and so, n the absence of testamentary
dsposton of the husband s share of the communty property, she nherts hs
haf, and therefore takes hs share under the ntestate aws of the State. It s
cear, however, that she does not Inhert her share of the common property.

We concude that upon the death of husband or wfe the survvor takes one-
haf of the property n hs or her own rght as survvor, and Is not abe under
secton 1873 of the Revsed Codes to pay an Inhertance ta on such Interest
In the communty estate. Itacs supped.
Snce, upon the death of a spouse who s domced n the State of
Idaho, the survvng spouse takes one-haf of the communty property,
sub|ect to the communty debts, as a matter of rght, not as a matter
of descent, t s hed that the prncpe of G. Cm. 25008, supra, s
equay appcabe to cases of decedents who were domced n the
State of Idaho.
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29.51-1.
Sucton 29.51-1: Indvdua returns. 19 7-20-126 9
I. T. 3867
INT RN L R NU COD .
husband and wfe domced In Mchgan are entted to ncude
In ther separate Federa Income ta returns one-haf of ther com-
munty Income receved or accrued on and after uy 1, 19 7, the
effectve date of the Mchgan Communty Property ct.
dvce s requested whether a husband and wfe who are domced
n Mchgan may each report n separate Federa ncome ta returns
one-haf of ther communty ncome receved or accrued on and after
the effectve date of the Mchgan Communty Property ct.
The Mchgan Communty Property ct ( ct No. 317 of the 19 7
Pubc cts of the State of Mchgan), effectve uy 1, 19 7, estab-
shes a communty property system whch, for Federa ncome ta
purposas, satsfes the tests prescrbed by the Supreme Court of the
Unted States n Poe v. Seaborn (282 U. S., 101, Ct. D. 259, C. . I -2,
202 (1930)) and Commssoner v. armon (323 U. S., , Ct. D. 1616,
C. . 19 ; 166). Secton of the Mchgan aw provdes that the
respectve nterests of the husband and wfe n such communty prop-
erty sha be present, e stng, and equa nterests and sha arse as an
ncdent of marrage.
It s hed, therefore, that a husband and wfe who are domced n
Mchgan are entted to ncude n ther separate Federa ncome ta
returns one-haf of ther communty ncome receved or accrued on
and after uy 1,19 7, the effectve date of the Mchgan Communty
Property ct.
Secton 29.51-1: Indvdua returns. 19 7-20-12650
I.T. 3868
INT RN L R NU COD .
husband and wfe domced In Oregon are entted to Incude n
ther separate Federa ncome ta returns one-haf of ther com-
munty Income receved or accrued on and after uy 5, 19 7, the
effectve date of the Oregon Communty Property ct.
dvce s requested whether a husband and wfe who are domced
n Oregon may each report n ther separate Federa ncome ta returns
one-haf of ther communty ncome receved or accrued on and after
uy 5, 19 7, the effectve date of the Oregon Communty Property
ct.
The Oregon Communty Property ct (Chapter 525, Laws of 19 7),
approved pr 19,19 7, provdes that husbands and wves sha each
have a present vested one-haf nterest n the communty property, as
defned n the act. The communty property system s not eectve or
consensua, but s mposed on marred persons domced n Oregon as
an ncdent of marrage. The ndvdua powers of management,
contro, and dsposton of the communty property, conferred on the
spouses by the act, are substantay the same as those provded n the
19 5 Okahoma Communty Property ct, whch has been recognzed
by the ureau as effectve for the dvson of communty ncome for
Federa ncome ta purposes. (See I. T. 3782 (C. . 19 6-1, 8 ).)
The communty property svstem estabshed by the Oregon Com-
munty Property ct satsfes the tests prescrbed by the Supreme
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19.51-1. 50
Court of the Unted States n Poe v. Seaborn (282 U. S., 101, Ct D.
259, C. . I -2,202 (1930)) and Commssoner v. armon (828 U. S.,
, Ct. D. 1616, C. . 19 ,166).
In vew of the foregong, t s hed that a husband and wfe who
are domced n Oregon are entted to ncude n ther separate Fed-
era ncome ta returns one-haf of ther communty ncome receved
or accrued on and after uy 5, 19 7, the effectve date of the Oregon
Communty Property ct.
Secton 19.51-1: Indvdua returns. 19 7-20-12651
Ct. D. 1691
INCOM T INT RN L R NU COD D CISION OF COURT.
L Communty or Separate Incomf Lousana On. Lease onuses
and Royates and Restored Depeton n Respect to Sepa-
ratey Owned Reaty.
O ease bonuses and royates and restored depeton from can-
ceed eases receved from the separatey owned rea property of ta -
payer, a marred man domced n the State of Lousana, consttutes
hs separate ncome, ta abe entrey to hm. Under Lousana aw,
the rghts of the communty n Income from the separatey owned
propertes of the spouses under the admnstraton of the husband
are the same as the rghts of the usufructuary to ncome. The com-
munty s entted to the fruts to whch the usufructuary s entted.
O n the earth s not a frut but a part of the reaty Itsef;
Its remova, therefore, aters the substance of the thng of whch It
s a part.
2. Decson Reversed.
Decson of The Unted States Ta Court (5 T. C, 290) reversed
and remanded.
3. Rehearng Dened.
Ta payer s moton for rehearng dened on March 31,19 7.
Unted States Crcut Court or ppeas for the Ffth Crcut.-
Commssoner of Interna Revenue, Pettoner, v. Wam rkman Gray,
Respondent.
Petton for revew of decson of The Ta Court of the Unted States.
efore McCord, Waer, and Lee, Crcut udges.
February 1 , 19 7.
opnon.
Lee, Crcut udge: Ths sut nvoves a defcency In Income ta for the year
19 1. The questons presented are: (1) whether royates and bonuses pad
under o and gas eases to the husband as owner of separate rea property n
Lousana beonged to the communty or to hm separatey;1 and (2) whether,
f such royates and bonuses beonged to the communty, they were ta abe as
separate ncome to the husband because derved from hs separatey owned
property.
The facts were stpuated, and those pertnent may be summarzed as foows:
Pror to 1989 the ta payer acqured by nhertance a one-thrd nterest n certan
ands n Lousana. The ta payer and hs sster, owner of the other two-thrds n-
terest, operate the ands as a pantaton. Subsequent to acquston of the ands
but pror to 1939, o was dscovered and proftabe producton foowed. The
ta payer and hs wfe, domcares of Lousana, were marred pror to the
1 The souton of such queston depends upon the oca aw. Pot v. Seaborn, 283 U. 8.,
101 Ct D. 259. C. . I -2. 202 ( )30) ; Commssoner v. Wson (76 Fed. (2d), TOT.)
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51
19.51-1.
ta abe year. No prempta agreement concernng ther separate or communty
Income e sts. Durng the ta abe year the ta payer receved o ease bonuses
and royates and the restored depeton from canceed eases. The ta payer
and hs wfe, n reportng these Items, dvded them equay In ther ta returns.
The Commssoner, determnng that these Items consttuted separate ncome
of the ta payer, assessed a defcency In hs Income ta and reported an over-
return n that of hs wfe.
The Ta Court hed that these tems consttu te communty Income of the ta -
payer and hs wfe, and reversed the Commssoner. (5 T. C, 290.) In reachng
ts concuson, The Ta Court reed on severa decsons of the Supreme Court
of Lousana, vz, Roberson v. Poneer Gas Co. (173 La., 313, 187 So., 6) ; Logan
v. State Grave Co. (158 La., 105,103 So., 526) ; oard of Commssoners of Caddo
Levee Dstrct v. Pure O Co. (167 La,, 801, 120 So., 373) ; She Petroeum Cor-
poraton v. Cacaseu Rea state f O Co. (185 La., 751, 170 So., 785), n whch
the court stated that the payment of royates under a mnera ease was the
payment of rent; and the case of Guf Refnng Co. of Lousana v. -U-sse
(186 La., 190, 171 So., 8 6), In whch the court sad that the usua o and gas
ease, wth a cash or royaty consderaton, or both, such as presenty before us.
was a contract of ettng and hrng wthn the meanng of the coda artces,
and therefore does not create a servtude on the reaty or a rea rght n the aud.
fter reasonng that the payment of royaty s a payment of rent, The Ta
Court apped the Lousana aw n Peters v. en (161 La., 66 , 109 So., 3 9),
that a coectons of rents or revenues from the property under the admns-
traton of a marred man durng the e stence of the communty beong to the
communty. The Ta Court then hed that bonuses, royates, and restored
depetons on bonuses coected by the ta payer, under o and gas eases coverng
hs separate rea property, went Into the marta communty. The Commssoner
s here urgng that The Ta Court faed to apprase propery the |ursprudence
t cted.
Lousana cases hod that royaty s rent for certan, but not a, purposes.
ary In the |ursprudence of Lousana the Supreme Court recognzed that o
and gas eases contaned eements of both ordnary eases and saes. In Rves
v. Guf Refnng Co. (133 La., 178, 62 So., 623) the court sad:
Gas and o eases and contracts are a part by themseves. There s scarcey
any comparson between them and the ordnary farm or house ease, athough
there s some resembance n them to coa or sod mnera eases. The code s
sent as to such contracts; for the reason, doubtess, that mneras under and
wthn the so of Lousana were not n the contempaton of the awmakers at
the tme that the code was adopted. The aw wth reference to saes
and eases found n the code can not be unreservedy apped to these contracts.
Such contracts partake of the nature of both sae and ease, and they have fea-
tures whch are not appcabe to ether.
In Spence v. Lucas (138 La., 763, 70 So., 796) the court sad:
mnera eases w be construed as eases, and not saes, and that
the aw wth reference to eases w be apped thereto n so far as they may be.
Itacs added.
gan n Sabors O Gas Co. v. Lousana O Refnng Co. (151 La., 861, 91
So., 765) the court (headnote 10) hed:
The doctrne that an ordnary essee can not dspute the tte of hs essor
durng the tme of the ease has no appcaton to a contract n the form of an
o and gas ease by whch a person acqures mnera rghts, t beng more ke
a sae than an ordnary ease .
Ths concept of an o and gas ease, partakng of the nature of both sae and
ease, runs through the |ursprudence of Lousana (Sparks v. Dan Cohen Co.,
187 La., 830, 175 So., 590; Wey v. Davs, 16 La., 1090, 115 So., 2S0; Tyson v.
Surf O Co., 195 La., 2 8, 196 So.. 336; Guf Refnng Co. of Lousana v. Garrett,
209 La., 67 , 25 So. (2d), 329) ; and the aw apped to a gven case has depended
on whether the artces of the code deang wth ettng and hrng were upp-
cabe to the ssue before the court, or whether the parta aenaton or dsmem-
berment of the fee, the sae feature of the ease contract, was a factor to be
consdered by the court n passng upon the queston before t. Most of the
apparent confcts n the cases can be reconced If ths dfferentaton be observed.
In Roberson v. Poneer Gas Co., Logan v. State Grave Co., oard of Comms-
soners of Caddo Levee Dstrct v. Pure O Co., and She Petroeum Corporaton
v. Cacaseu Rea state d O Co., cted by The Ta Court, the artces of the code
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52
deang wth ettng and hrng were appcabe to the Issues before the court
Nabors O d Gas Co. v. Lousana O Refnng Co., supra; Wey v. Davs, supra ;
Federa Land ank v. Muhern (180 La., 027, 157 So., 870) ; Wrght et a. v.
Impera O t Gas Products Co. (177 La., 82,1 8 So., 685) ; Te as Co. v. Fonteno
(200 La., 753, 8 So. (2d), 689) e empfy the appcaton of the sae feature of
ease contracts. To Iustrate:
In Wey v. Davs, supra, an o and gas ease gven by the natura tutr on
the property of her wards was hed nu and vod. The reason gven by the court
was that an o and gas ease was a parta sae. The court sad:
ut as tutr of her chdren Mrs. Davs had no authorty to grant a mnera
ease on ther behaf wthout authorzaton of the probate |udge; for the grantng
of a mnera ease on property s the grantng of a servtude thereon
and hence consttutes a dsmemberment of sad property amountng to a parta
aenaton thereof. nd 6nce the tutr had no authorty to grant sad
ease on behaf of the mnors, the ease was nu as to sad mnors.
In Federa Land ank v. Muhern, supra, the court sustaned the rght of a
mortgagee to protect hs mortgage aganst an o and gas ease under a ease
subsequent n date to the mortgage. The court sad:
Whe the owner of and does not own the fugtve mneras, such as
o and gas beneath ts surface, but ony the rght to reduce tbem to possesson and
ownershp, and whe such mneras are not susceptbe to ownershp apart from
the and, yet these mneras, whe n pace n the ground beneath the
surface, unsevered, are rea estate, a part of the and tsef, a part of the reaty,
as much so as tmber, coa, ron, and sat .
ease granted by the owner of and for the deveopment of the property for
o and gas s, n a sense, a conveyance of the mnera rghts, an aenaton of a
part of hs nterest n the and, a dsmemberment of the reaty. Itacs
added.
The gas n pace n the ground beng a part or eement of the reaty, t foows
that t consttutes a part of the vaue of the and, .
In Wrght et a. v. Impera O d Oas Products Co., supra, a case Invovng
abty of the owners of the gas severed for severance ta , the court hed that
whe the natura gas beneath the surface was the property of no one unt reduced
to possesson, the essor at the moment the gas was reduced to possesson n the
course of Its e tracton from the and became the owner of a part of t, namey,
one-eghth, and at the same nstant the essee became the owner of the remander.
Referrng to the cases of Logan v. State Grave Co., supra ; oard of Commssoners
of Caddo Levee Dstrct v. Purr O Co., supra; and Roberson v. Poneer Gas Co.,
supra, cted by pantffs to show that they were never at any tme the owners
of any part of the gas produced snce ther contract was one of ease and the
royates pad were rent, the court sad :
The ssues presented n those cases, as we as the facts, are dfferent
from those n the present case. There was no queston presented there, nvovng
abty for a severance ta . Whe n them, especay n the atter two, the
court treated royates as rent, t does not foow that when the queston of who s
abe for severance ta arses, the court w not e amne partcuary nto the
facts nvovng abty for the ta , and rue that the owner of the royaty
part of the natura resource severed s abe for the ta thereon. though
the essor, at the moment of the reducng of the o or gas to possesson, may be
the owner of a part of t, nevertheess the devery of such part by the esse;1
to the essor as royaty may be treated, n proper cases, as the payment of rent. 1
Itacs added.
The Cv Code of Lousana In artces 233 and 2 02 defnes separate and com-
munty property. rtce 2 02 says that the communty ncudes, among other
thngs, the profts of a of the effects of whch the husband has the admnstraton
and en|oyment of rght or n fact. The word profts, an erroneous transaton
from the French te t, shoud be read fruts (sec 3 Comped dton of the Cv
Codes of Lousana, Lousana Lega rchves, Part II, pages 1318-1320). Wth
rtce 288 :
Separate and oommon property of tpoutet. The property of marred persons s dvded
Into separate and common property.
Separate property s that whch ether party brngs nto the marrage, or acqures dur-
ng the marrage wth separate funds, or by nhertance, or by donaton made to nun or her
partcuary.
The earnngs of the wfe when vng separate and apart from her husband athough
not separated by udgment of court, her earnngs when carryng on a busness, trade, occu-
patou or ndustry separate from her husband, actons for damages resutng from offenses
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19.51-1.
the e cepton of the ast sentence In artce 2 02, deang wth damages resutng
from persona In|ury to the wfe, the present artce s dentca wth the cor-
respondng artce of the Code of 1870 and of the Code of 1825. In Lousana,
where the French te t of the code confcts wth the ngsh te t, the French te t
prevas. (Sampe v. Whtaker, 135 So., 38, 0, 172 La., 722; Pheps v. Renach,
38 La. nn., 5 7.)
The rghts of the communty n the ncome from the separatey owned propertes
of the spouses under the admnstraton of the husband are the same as the rghts
of the usufructuary to ncome. The communty s entted to the fruts to whch
the usufructuary s entted. In Successon of nOrus (131 La., 9 0, 60 So., 623)
the court sad:
The profts of a the effects of whch the husband has the admnstraton and
en|oyment, ether of rght or n fact, fa Into the communty. (C. C, artce 2 02.)
ence the communty quoad such effects, whether owned by the husband or the
wfe, occupes a poston smar to that of an usufructuary. Ths s the urs-
prudence of ths court, and the rue of stare decss forbds the reopenng of the
game queston.
See to the same effect Wmbsh v. Gray (10 Rob., 6) ; Successon of Waterer (25
La. nn., 210); and Long v. ee ( 2 La. nn., S99). Therefore, we turn to the
artces of the code settng forth the fruts to whch the usufructuary s entted
to determne the fruts (erroneousy transated as profts n artce 2 02)
to whch the communty s entted. These artces are set forth n a footnote.
Fruts are products reproduced from tme to tme n successve seasons and
ncude fruts of the earth, cv fruts, and the young of anmas. ( der v.
erbe, 135 La., 990, 66 So., 337; ackson v. Shaw, 151 La., 795, 92 So., 339.)
Fruts do not Incude mneras and tmber. (C. C, 551. der v. erbe,
supra; arang v. owe Lumber Co., 1 5 La., 96, 81 So., 769.)
s defned n artce 533 of the Ov Code, a usufruct s the rght of en|oyng
a thng, the property of whch s vested n another, and to draw from the same
a of the profts, utty, and advantages whch t may produce, provded t be
wthout aterng the substance of the thng. The knd of fruts spoken of n
and quas offenses and the property purchased wth a funds thus derved, are her separate
property.
ctons for damages resutng from offenses and quas offenses suffered by the husband,
vng separate and apart from hs wfe, by reason of faut on her part, suffcent for sep-
araton or dvorce, sha be hs separate property.
Common property Is that whch Is acqured by the husband and wfe durng marrage,
In any manner dfferent from that above decared. ut when the tte to communty prop-
erty stands n the name of the wfe, t can not be mortgaged or sod by the busbnu wth-
out her wrtten authorty or consent. s amended, cts 1912, No. 170 ; 1920, No. 180.
rtce 2 02:
Property formng communty Persona n|ures to wfe. Ths partnershp or com-
munty conssts of the profts of a the effects of whch the husband has the admnstra-
ton and en|oyment, ether of rght or In fact, of the produce of the recproca Industry
and abor of both husband and wfe, and of the estate whch they may acqure durng the
marrage, ether by donatons made |onty to them both, or by purchase, or n any other
smar way, even though the purchase be ony In the name of one of the two and not of
both, because In that case the perod of tme when the purchase Is made Is aone attended
to, and not the person who made the purchase. ut damages resutng from persona n-
|ures to the wfe sha not form part of ths communty, but sha aways be an reman
the separate property of the wfe and recoverabe by hersef aone; provded where the
In|ures sustaned by the wfe resut In her death, the rght to recover damages sha be as
now provded by e stng aws. ( s amended. cts 1902, No. 68.
533. Usufruct defned. Dsufruct a the rght of en|oyng a thng, the property of
whch Is vested n another, and to draw from the same a the proft, utty and advan-
tages whch It may produce, provded It be wthout aterng the substance of the thng.
The obgaton of not aterng the substance of the thng takes pace ony In the case of
perfect usufruct.
5 . Fruts Ownershp. knds of fruts, natura, cutvated or cv, produced,
durng the e stence of the usufruct, by the thngs sub|ect to It, beong to the usufructuary.
5 5. nds of fruts defned.- Natura fruts are such ns are the spontaneous prod
net of the earth; the product and Increase of catte are kewse natura fruts.
The fruts, whch resut from Industry bestowed on a pece of ground, are those whch
are obtaned by cutvaton.
Cv fruts are rents of rea property, the Interest of money, and annutes.
other knds of revenue or Income derved from property by the operaton of the
aw or prvate agreement, are cv fruts.
5 6. Natura or cutvated fruts Ownershp. The natura fruts, or such as are
the product of ndustry, hangng by branches or by roots at the tme when the usufruct Is
open, beong to the usufructuary.
Fruts In the same state, at the moment when the usufruct Is at an end, beong to the
owner, wthout beng obged to compensate the other, for ether work or seeds.
5 7. Cv fruts Ownershp.- -ftents and ncome of property. Interest of money, and
annutes, and other cv fruts, are supposed to be obtaned dny by day. and they beong
to the usufructuary. In proporton to the duraton of hs usufruct, and nre due to hm,
though they may not be coected at the e praton of hs usufruct.
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19.51-1.
5
artce 5 6 of the Ov Code of whch the usufructuary has the en|oyment are
such as may be used wthout aterng the substance of the thng. Snce o In
pace Is part of the reaty, when the essee goes on the property and drs for
and strkes gas o for the purpose of reducng It to possesson and ownershp,
the rea estate whch hods or contans the gas o s wasted by ts e tracton
because the property s actuay deprved of somethng whch forms a com-
ponent part of It that ts vauabe and capabe of beng reduced to possesson and
ownershp. Federa Land ank v. Muhern, supra, on rehearng.) O n the
earth s not a frut but a part of the reaty tsef; ts remova, therefore, aters
the substance of the thng of whch t Is a part.
In a recent case, Guf Refnng Co. v. Garrett (209 La., 67 , 25 So. (2d), 829) the
Lousana Supreme Court on orgna hearng made an anayss of the status of
a royaty under the coda provsons. In answer to the argument that royaty
was rent and that rent was a cv frut of whch the usufructuary had the en|oy-
ment, the court sad:
One of the arguments urged n support of Mrs. Garrett s cam, that she s
entted to a of the royates from o produced from the we dred on the 80-
acre tract after the agreement dated une 17, 19 1, was entered nto, s that the
royaty on o or gas, n a mnera ease, Is rent, and that rent s revenue. The
argument refers to the thrd paragraph In artce 5 5 of the Cv Code, where t
s decared: cv fruts are rents of rea property, the Interest on money, and
annutes. ut the word rents as used n that paragraph means the rent of
a farm or house not the royaty stpuated n a mnng ease; otherwse the
paragraph woud confct wth artce 552 of the Cv Code, referrng to the rght
of a usufructuary wth regard to the proceeds of mnes and quarres. nd t
woud confct wth the provso In artce 583, defnng usufruct, and mtng
the rght of the usufructuary to a the proft of the property sub|ect to the
usufruct, provded t be wthout aterng the substance of the thng. Itacs
supped. The cases cted to support the argument for Mrs. Oarrett n that
respect are Logan v. State Grave Co. (158 La., 105, 108 So., 526) and oard of
Commssoners of Caddo Levee Dstrct v. Pure O Co. (167 La., 801, 120 So.,
373), and severa other decsons, mantanng that the royaty stpuated n a
mnng ease s consdered rent, notwthstandng the royaty stpuated n an
o or gas ease may be consdered as rent for certan purposes, or n some aspects,
t s we setted now that the royaty stpuated n an o or gas ease s not to
be compared wth rent of a house or a farm. Itacs added. It Is true that n
the case of Guf Refnng Co. v. Gasse (186 La., 190, 171 So., 8 6, 850) t was
decared that a mnera ease, for the producton of o or gas, and a ease of a
farm, shoud be paced In the same ega category, that s, as eases, conferrng
persona rghts and not rea rghts. ut the hodng In that case was abrogated
by the egsature at ts ne t sesson, by ct 205 of 1988, decarng that o and
gas eases and the rghts resutng therefrom are hereby defned and cassfed
as rea rghts and ncorporea mmovabe property. In the case of merada
Petroeum Corporaton v. Reese (195 La., 359, 368, 196 So., 558), the court quoted
wth approva from son v. faroun (193 La., 286, oc. ct, 291, 190 So., 08,
oc. ct., 09) the foowng observaton: It s a matter of genera knowedge,
and Is conceded by a partes to ths sut, that the cause whch Induced the egs-
ature to enact ct No. 206 of 1988 was the decson n Guf Refnng Oo. v.
Gasse (186 La., 190, 171 So., 8 6), that the hoder of a mnera ease had not
a rea rght on the eased and and therefore coud not nsttute successfuy a
pettory or possessory acton. That the statute was enacted In consequence of
that decson Is emphaszed by the provson of the second secton, that the act
sha appy as we to eases made prevous to the passage of the act as to eases
made afterwards.
The |ustces of the court dsagreed as to the nterpretaton of the agreement
nvoved In the Ouf Refnng Oo. case; on appcaton, a rehearng was granted:
and, on rehearng, a ma|orty remanded the case for testmony on the ntenton
of the partes who e ecuted the agreement Whe the orgna opnon s not
authorty, as t was set asde by the grantng of a rehearng, the ogc of the
anaysts of the authortes as to the status of a royaty under a rght of usufruct
and the concuson therefrom, set forth n the quotaton, are persuasve. Nether
the anayss nor the concuson was chaenged In the dssentng opnons or n
the opnon on rehearng.
Under Lousana aw royaty under a mnera ease Is a share of the product
reserved by the owner for permttng another to use hs property. (Wrght et a.
v. Impera O d Gas Co.. supra; Te as Oo. v. Fontenot, supra; ncent v.
uock, 192 La., 1, 187 So., 35; Sartor v. Unted Gas Pubc Servce Co., 180 La.,
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555, 173 So., 103; State v. Te as Co., 187 La., 287, 17 So., 359.) When, therefore,
the essee devers to the essor royaty stpuated and reserved to the essor In
the ease, he Is deverng to the essor a share of the product, the rght to whch
product was vested In the essor by vrtue of hs ownershp of the property.
The setted ursprudence, therefore, Is that, under on o and gas ease
contract In whch the essor reserves a stpuated royaty nterest, the partes
own the o or gas onty at the tme of severance, the essor ownng the frac-
tona nterest reserved as royaty and the essee ownng the remander .
(Te as Co. v. Fontenot, 200 La., 753, 8 So. (2d), 680.)
Whe for some purposes ths product may be termed rent, so termng t does
not change the fact that n recevng t the essor has merey receved that Whch
he as reserved.
s the owner of the property the ta payer had the e cusve rght to dr for
and abstract the o and thereby acqure fu ega tte to the o. Ths rght he
conveyed to another by means of a ease, one consderaton beng the essee s
obgaton to dever to hm a fractona part, the royaty reserved, of the o
produced. The fact that It was devered to hm n the form n whch he acqured
the ega tte at the tme of severance and that ths was done by the essee may
not convert what s separate property Into communty property. In ths respect
an o royaty s not smar to rent receved from rea estate.
Fruts from the husband s separate estate fang nto the communty under
artce 210 of the Cv Code have the same character as the fruts of the wfe s
parapherna property fang Into the communty under artce 2380 of the Cv
Code. Pror to 10 artce 2386 descrbed the fruts so fang as natura, cv,
or the resut of abor. In 19 the egsature, n amendng the artce, amended
the descrpton wth respect to the fruts to read natura, cv, ncudng nter-
est, dvdends, and rents, or from the resut of abor. The amendment thus
specfed nterest, dvdends, and rents as Incuded n cv fruts. Snce
the o ndustry In 19 was one of the argest In the State, the omsson of
royaty from the specfc desgnaton of Interest, dvdends, and rents
Indcates the egsature dd not consder royaty a cv frut. The husband may
en|oy nterest and dvdends wthout consumng the producng property. y the
rue of cfus em geners, the rents n the phrase Interest, dvdends, and
rents must refer to nonconsumng rents, such as money rentas payabe for
nono-bearng propertes. The facts In Peters v. en, supra, cted by The Ta
Court, show that the rents coected In that case were of that character.
We concude, therefore, that the rent of and denomnated a cv frut n
C. C. 0 5, of whch the usufructuary has the en|oyment and whch beongs to the
communty when the and s under the admnstraton of the husband, s rent
under an ordnary ease.
Guf Refnng Co. v. Oasse, supra, aso reed on by The Ta Court must
be read In the ght of the Issue before the court. Wth reference to the scope
of that decson the Supreme Court n Smth v. ennon (175 So., 763,188 La., 101),
sad:
the same ustce who wrote the opnon n whch per
curam n connecton wth the refusa of an appcaton for rehearng
stated: We smpy hed that a essee of the usua mnera or gas and o
ense has no rea rght In or servtude on the eased and and s not a udgment
credtor type obgee and therefore can not, n hs own rght or name, nsttute
a pettory or possessory acton.
In merada Petroeum Co. v. Reese (195 La., 350, 190 So., 558), In referrng
to the Gasse case and ct 205 of 1938, passed by the egsature shorty after
the Gasse case was decded, the court sad :
nd as stated n the Lousana Law Revew, ct 205 of 1938 was passed for
the purpose of changng the rue of the Gasse case. y defnng
a mnera ease as a rea rght, the 1938 act brngs the rght of the essee
(such as that In the Gasse case), wthn the operaton of the artces of the
Code of Practce permttng pettory actons.
Later n the merada case the court sad:
Thus t may be seen that after the decson n the Gasse case, decarng
that under the aw as It then e sted the mnera essee dd not have a greater
rght than the ordnary essee, both beng controed by the same basc aw,
and consequenty, wthout the rght to nsttute a pettory or possessory acton,
Cf. Lucas v. aucum ( 0 Fed. (2d), 806).
unts from cty rea estate.
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56
the egsature, at Its reguar sesson of 1938, adopted ct 205, cassfyng a
mnera ease and smar contracts as rea rghts and ncorporea Immovabe
property n order to gve the mnera essee any procedure avaabe to the owner
of mmovabe property or and to that h rghts may be asserted, protected
and defended n the same manner as may be the oumershp or possesson of other
mmovabe property by the hoder of such rghts. (Itacs supped.)
It s evdent that the ssue n the Gasse case was one of procedure and has
been so confned n subsequent tgaton.
In Te as Co. v. Fontenot, supra, the court sad:
The words bonus, renta, and royaty used n connecton wth o and gas
eases are to be construed n the ordnary and popuar sense, bonus meanng
the cash consderaton pad or agreed to be pad for the e ecuton of the
ease,
s the e ecuton by a fee owner of an o and gas ease s a dsmemberment
of the property amountng to a parta aenaton and bonus s the cash con-
sderaton pad therefor, t foows that the bonus pad the ta payer for an o and
gas ease fe nto hs separate estate.
Our anayss and apprasa of Lousana ursprudence compe the concuson
n the nstant case that nether royates nor bonuses receved by the ta payer
from o and gas eases coverng hs separate rea property fe nto the marta
communty.
Lazard v. Commssoner (153 Fed. (2d), 8 8) s not opposed to the vews heren
e pressed. Whe the Commssoner aternatvey urged n that case n The Ta
Court and n ths court that royates from the wfe s separate property whe
beng admnstered by the husband woud not fa Into the communty but woud
reman the wfe s separate property, nether court found t necessary to consder
the aternate contenton, as each found that the wfe s property was not beng
admnstered by the husband.
odng, as we do, that the royates and bonuses from mnera eases on the
ta payer s separate property were hs separate Income, we fnd no need to
consder the Commssoner s second and aternate argument.
The |udgment appeaed from s reversed, and the cause Is remanded for further
proceedngs not Inconsstent herewth.
Reversed and remanded.
Secton 29.51-1: Indvdua returns. 19 7-21-12660
I. T. 3869
INT RN L R NU COD .
husband and wfe who are domced n Nebraska are entted to
Incude In ther separate Federa ncome ta returns one-haf of ther
communty Income receved or accrued on and after September 7,
19 7, the effectve date of the Nebraska Communty Property ct.
dvce s requested whether a husband and wfe who are domced
n Nebraska may each report n separate Federa ncome ta returns
one-haf of ther communty ncome receved or accrued on and after
September 7, 19 7, the effectve date of the Nebraska Communty
Property ct.
The ureau recognzes that the Nebraska Communty Property ct
(Nebraska egsatve b 10, approved une 12, 19 7) estabshes a
communty property system whch, for Federa ncome ta purposes,
satsfes the tests prescrbed by the Unted States Supreme Court n
Poe v. Seaborn (282 U. S., 101, Ct. D. 259, C. . I -2,202 (1930)) and
Commssoner v. armon (323 U. S., , Ct. D. 1616, C. . 19 ,166).
In vew of the foregong, t s hed that a husband and wfe who
are domced n Nebraska are entted to ncude n ther separate Fed-
era ncome ta returns one-haf of ther communty ncome receved
or accrued on and after September 7, 19 7, the effectve date of the
Nebraska Communty Property ct.
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57
29.51-1.
Secton 29.51-1: Indvdua returns. 19 7-21-12661
I. T. 3870
INT RN L R NU COD .
husband and wfe who are domced n Pennsyvana are entted
to ncude In ther separate Federa ncome ta returns one-haf of
ther communty Income receved or accrued on and after September
1, 19 7, the effectve date of the Pennsyvana Communty Property
ct.
dvce s requested whether a husband and wfe who are domced
n Pennsyvana may each report n separate Federa ncome ta re-
turns one-haf of ther communty ncome receved or accrued on and
after September 1, 19 7, the effectve date of the Pennsyvana Com-
munty Property ct.
The ureau recognzes that the Pennsyvana Communty Property
ct ( ct No. 550 of the Genera ssemby of the Commonweath of
Pennsyvana (19 7 sesson), approved uy 7, 19 7) estabshes a
communty property system whch, for Federa ncome ta purposes,
satsfes the tests prescrbed by the Supreme Court of the Unted States
n Poe v. Seaborn (282 U. S., 101, Ct. D. 259, C. . I -2, 202 (1930))
and Commssoner v. armon (323 U. S., , Ct. D. 1616, C. . 19 ,
166).
In vew of the foregong, t s hed that a husband and wfe who are
domced n Pennsyvana are entted to ncude n ther separate
Federa ncome ta returns one-haf of ther communty ncome re-
ceved or accrued on and after September 1, 19 7, the effectve date of
the Pennsyvana Communty Property ct.
Secton 29.51-1: Indvdua returns. 19 7-2 -12693
I. T. 3878
INT RN L R NU COD .
Renta ncome derved from North Carona rea property hed by a
husband and wfe as tenants by the entrety beongs to the husband,
and he aone s ta abe on such ncome for Federa ncome ta pur-
poses. owever, gans and osses from the sae of such property
may, for such purposes, be dvded equay between the spouses.
The fact that part of such ncome or gan s attrbutabe to servces
rendered by ether or both of the spouses Is Immatera.
dvce s requested whether (1) renta ncome derved from North
Carona rea property hed by a husband and wfe as tenants by the
entrety, and (2) gans and osses from the sae of such property, may
be dvded and reported equay by the spouses n ther separate Federa
ncome ta returns.
The ureau has hed n certan nstances that where a husband and
wfe own rea or persona property as tenants by the entrety they
may each report one-haf of the ncome derved from such property
n ther separate Federa ncome ta returns. In each such nstan :e
the State aw was resorted to n order to determne what nterest the
wfe had n the ncome derved from the property whch she hed wth
her husband as a tenant by the entrety. Where, under the partcuar
State aw, tho wfe s entted to share equay wth her husband n the
entrety ncome, the ureau has consstenty hed that one-haf of such
ncome s ta abe to the wfe.
77338 S 5
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29.51-1.
5S
Under the common aw, the husband s entted, durng the e stence
of the marta reatonshp, to a the ncome derved From property
hed by the spouses as tenants by the entrety. Where the strct com-
mon-aw rue st prevas, the husband aone s ta abe on such n-
come. (See Cooey v. Commssoner, 75 Fed. (2d); 188, certorar
dened| 295 U. S., 7 7.) It seems cear that the strct common-aw
rue st prevas n North Carona. The Supreme Court of North
Carona stated n tknson v. tknson (225 N. C, 120,33 S. . (2d),
666) that durng the e stence of the estate by entrety, the rents and
profts of the and beong to the husband. In Lews v. Pate et u .
(212 N. C, 253,193 S. ., 20), the same court, n a per curam opnon,
stated:
Whe there are a number of e ceptons In the record, the appeant presents
to th court for determnaton ony one queston, to wt: Does the husband own
and have the rght to dspose of a the ncome, rents and profts, products, etc.,
accrung from an estate hed by entrety to such an e tent that an e ecuton
aganst hm may be eved upon t to the e cuson of any nterest the wfe may
have Ths queston must be answered n the affrmatve. It s we estab-
shed aw n ths State that the husband, durng coverture and as between hmsef
and the wfe, has absoute and e cusve rght to the contro, use, possesson,
rents, ssues, and profts of property hed as tenants by the entrety. The com-
mon-aw rue st prevas. (Davs v. ass, 188 N. C, 200, 12 S. ., 566; Dynum
v. Wcker, 1 1 N. C, 95, 53 S. ., 78, 115 m. St. Rep., 675; ank of Greenve
v. Oornto, 161 N. C, 3 1, 3 2, 77 S. ., 222; Dorsey v. rkand, 177 N. C, 520, 523,
99 S. ., 07; Smonton v. Corneus, 98 N. C, 33, 37, S. ., 38; ryant v. ryant,
193 N. C, 372,137 S. ., 188, 51 . L. R., 1100; 30 C. ., 567.)
In vew of the foregong, t s hed that renta ncome derved from
North Carona rea property hed by husband and wfe as tenants by
the entrety beongs to the husband, and he aone s ta abe on such
ncome for Federa ncome ta purposes. owever, gans and osses
from the sae of such property may, for such purposes, be dvded
equay between the spouses. (Cf. I. T. 157 , C. . II-, 1 3 (1923).)
There s aso presented n the nstant case the queston whether the
rendton of servces by ether or both of the spouses n connecton wth
the property hed by them as tenants by the entrety woud have any
bearng on the dvson of renta ncome or gans from sae of the
property. In vew of the decsons n dwn F. Sandberg v. Comms-
soner (8 T. C, 23, acquescence, C. . 19 7-1, ) and George . ren-
nen v. Commssoner ( T. C, 1260, acquescence, C. . 19 5, 2), t s
hed that the fact that part of the renta ncome or gan from sae of
the property s attrbutabe to the rendton of servces by ether or
both of the spouses has no bearng on the dvson of such ncome or
Income derved on and after September 1, 19 7, the effectve date
of the Pennsyvana Communty Property ct, from the separate
property of a husband or wfe domced n Pennsyvana, and com-
pensaton earned by ether spouse on and after such date, consttute
communty ncome for Federa ncome ta purposes.
Secton 29.51-1: Indvdua returns.
19 7-2 -1269
I. T. 3879
INT RN L R NU COD .
dvce s requested whether ncome derved on and after September
1, 19 7, the effectve date of the Pennsyvana Communty Property
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59
29.51-1.
ct, from the separate property of a husband or wfe domced n
Pennsyvana, and compensaton earned by ether spouse on and after
such date, consttute communty ncome for Federa ncome ta pur-
poses.
The ureau hed n I. T. 3870 (page 57, ths uetn) that a husband
and wfe who are domced n Pennsyvana are entted to ncude
n ther separate Federa ncome ta returns one-haf of ther commu-
nty ncome receved or accrued on and after September 1, 19 7, the
effectve date of the Pennsyvana Communty Property ct ( ct No.
550 of the Genera ssemby of the Commonweath of Pennsyvana
(19 7 sesson), approved uy 7, 19 7).
The Pennsyvana Communty Property ct provdes n part as
foows:
Secton 1. property of the husband, both rea and persona, owned or camed
by hm before marrage, or before the effectve date of ths act, whchever s ater,
and that acqured afterwards by gft, devse or descent, or receved as compensa-
ton for persona n|ures, sha be hs separate property.
Sec. 2. property of the wfe, both rea and persona, owned or camed by
her before marrage, or before the effectve date of ths act, whchever Is ater,
and that acqured afterwards by gft, devse or descent, or receved as compensa-
ton for persona n|ures, sha be her separate property.
Sec. 3. property acqured by ether the husband or wfe durng marrage
nnd after the effectve date of ths act, e cept that whch s the separate prop-
erty of ether, as herenawve defned, sha be deemed the communty or common
property of the husband and wfe, and each sha be vested wth an undvded
one-haf nterest theren, and a the effects whch the husband and wfe possess
at the tme the marrage may be dssoved sha be regarded as common effects
or gans uness the contrary be satsfactory proved.
Sec. . The wfe sha have the management and contro and may dspose
of her separate property and that porton of the common or communty property,
consstng of her earnngs, a rents. Interest, dvdends and other ncome from
her separate property and a other common or communty property, the tte
to whch stands n her name. The husband sha have the management and
contro and may dspose of hs separate property and a communty property,
the management, contro, dsposton of whch s not conferred upon the wfe
hereby.
From an e amnaton of sectons 1 and 2 of the act dennng separate
property of the respectve spouses, t w be seen that no menton
s made of the rents, ssues, profts, and ncome from such property.
It w be noted, however, that under secton 3 of the act a property
acqured by ether the husband or wfe durng marrage and after
the effectve date of the act, e cept that whch s the separate prop-
erty of ether, as herenabove denned s deemed to be communty
or common property. From a readng of secton 3 n connecton wth
sectons 1 and 2, there appears to be no reasonabe doubt that ncome
from separate property s communty property nasmuch as such
ncome s not ncuded n the defntons of separate property. Further-
more, secton of the act provdes that the wfe sha have the manage-
ment and contro and may dspose of her separate property and that
porton of the common or communty property, consstng of her earn-
ngs, a rents, nterest, dvdends and other ncome from her separate
property and a other common or communty property, the tte to
whch stands n her name. Itacs supped.
ad the egsature of Pennsyvana desred to treat ncome from
separate property as the separate ncome of the owner, ths coud
easy have been accompshed by so provdng n the defnton of
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29.51-1.
60
separate property. Ths was done by Caforna (sectons 162 and 163,
Caforna Cv Code, 19 1) and by Washngton (sectons 6890 and
6891, Remngton s Revsed Statutes, 1932). The communty property
aws of those States specfcay provde that the rents, ssues, and
profts from separate property or ether spouse are hs or her separate
property. The Pennsyvana aw defnng communty ncome s
smar to the aw of Te as whch s sent as to the treatment of ncome
from separate property, but whch ncome n genera has been hed
to be communty ncome. (See G. C. M. 137 2, C. . III-2, 181
(193 ); Commssoner v. Ted . Wson et a., 76 Fed. (2d), 766;
and Commssoner v. nna Davs Terry, 69 Fed. (2d), 969, Ct. 1). 862,
C. . III-2, 273 (193 ).)
Wth respect to the effect of the management, contro, and dspos-
ton of the property (secton of the act), the Unted States Supreme
Court has hed that a State aw s nvestture of the husband wth Droad
powers n ths respect by no means negatves the wfe s present nterest
as coowner. (See Poe v. Seaborn, 282 U. S., 101, Ct. D. 259, C. . I -2,
202 (1930).) The management, contro, and power of sae of such
communty property does not make t the soe property of the
one n whose name the property s recorded. (See Warburton v. Whte,
176 U. S., 8 .) In Te as, the wfe aso has the management, contro,
and power of dsposa of her earnngs and ncome from her separate
estate, but n genera such ncome s communty ncome and s dvsbe
between the two spouses for Federa ncome ta purposes. (See
opkns v. acon, 282 U. S., 122, Ct. D. 260, C. . I -2, 201 (1930).)
Generay, the determnaton of property rghts of a husband and
wfe under the communty property aw of a State s governed by the
decsons of the courts of that State. In the absence of any such court
decsons n the State of Pennsyvana, and n vew of the above-quoted
provsons of Pennsyvana aw, t s hed that ncome derved on and
after September 1, 19 7, the effectve date of the Pennsyvana Com-
munty Property ct, from the separate property of a husband or
wfe domced n Pennsyvana, and compensaton earned by ether
spouse on and after such date, consttute communty ncome for Fed-
era ncome ta purposes.
In the case of unncorporated busnesses, such as soe propretorshps
and partnershps, the preparaton of proft and oss statements as of the
cose of busness on ugust 31, 19 7, s, of course, the most desrabe
and accurate method of aocaton between communty and noncom-
munty ncome, and such acton shoud be taken n a cases where t s
practcabe. owever, n those cases where t s not practcabe or
reasonabe for the propretors of busnesses to take such acton, the
proraton of the ncome for the caendar year 19 7 on a tme bass w
be acceptabe. In vew of the effectve date of the act, September 1,
19 7, such proraton may be accompshed on a day or monthy bass,
that s, ether 2 3/365 or 8/12 ( ) of the tota ncome for the caendar
year 19 7 w represent noncommunty ncome, and ether 122/365
or /12 ( ) of the tota ncome for the caendar year 19 7 w repre-
sent communty ncome. (Cf. C. . Wrghtsman v. Commssoner, 111
Fed. (2d), 227: bert . ouston v. Commssoner, 31 . T. ., 188;
and I. T. 1576, C. . II-, 1 (1923).)
Consstent wth the we-estabshed pocy of the ureau there
may be emnated, before the above-mentoned proraton of ncome
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29.51-1.
s made, tems of ncome or deducton ceary and accuratey deter-
mned to be attrbutabe to a partcuar perod (the perod before the
effectve date of the communty property aw or the perod after the
effectve date of the aw) and after such proraton s made, the em-
nated tems w be added to (f tems of ncome) or deducted from
(f deductbe tems) the ncome derved by proraton for the perod
to whch such tems are appcabe.
Secton 29.51-1: Indvdua returns. 19 7-25-12711
I. T. 3882
INT RN L R NU COD .
Income derved on and after uy 5, 19 7, the effectve date of the
Oregon Communty Property ct, from the sept.ate property of a
husband or wfe domced n Oregon, and compensaton earned by
ether spouse on and after such date, consttute communty ncome
for Federa Income ta purposes.
dvce s requested whether ncome derved on and after uy 5,
19 7, the effectve date of the Oregon Communty Property ct, from
the separate property of a husband or wfe domced n Oregon, and
compensaton earned by ether spouse on and after such date, consttute
communty ncome for Federa ncome ta purposes.
The ureau hed n I. T. 3868 (page 9, ths uetn) that a husband
and wfe who are domced n Oregon are entted to ncude n ther
separate Federa ncome ta returns one-haf of ther communty
ncome receved or accrued on and after uy 5, 19 7, the effectve
date of the Oregon Communty Property ct (chapter 525, Oregon
Laws of 19 7).
The Oregon Communty Property ct provdes n part as foows:
Secton 1. property of the husband, both rea a/d persona, owned or
camed by hm before marrage or before the effectve date of ths act, whchever
s ater, and that acqured afterwards by gft, devse or descent, or receved as
compensaton for persona n|ures, sha be hs separate property.
Sec. 2. property of the wfe, both rea and persona, owned or camed
by her before marrage or before the effectve date of ths act, whchever s ater,
and that acqured afterwards by sft, devse or descent, or receved as com-
pensaton for persona In|ures, sha be her separate property.
Sec. 3. property acqured by ether the husband or wfe durng marrage
and after the effectve date of ths act, e cept that chch s the separate property
of ether as heren defned, sha be deemed the communty or common property
of the husband and wfe, and each sha be vested wth an undvded one-haf
Interest theren; and a the effects whch the husband and wfe possess at the
tme the marrage may be dssoved sha be regarded as common effects or gans
uness the contrary be satsfactory proved. Itacs supped.
Sec . The wfe sha have the management and contro and may dspose
of her separate persona property and that porton of the common or communty
persona property consstng of her earnngs and a rents, nterest, dvdends and
other ncome from her separate property and a other common or communty
persona property, the tte to whch stands n her name. The husband sha
have the management and contro and may dspose of hs separate persona
property and a communty persona property, the management, contro and
dsposton of whch s not conferred upon the wfe hereby; provded, however,
nether spouse sha convey or encumber the communty rea property uness the
other spouse on n the e ecuton of the deed, mortgage or any other Instruments.
Itacs supped.
From an e amnaton of sectons 1 and 2 of the act defnng separate
property of the respectve spouses, t w be seen that no menton s
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29.52-1.
02
made of the rents, ssues, profts, and ncome from such property.
It w be noted, however, that under secton 3 of the act a property
acqured by ether the husband or wfe durng marrage and after the
effectve date of the act, e cept that whch s the separate property
of ether as heren defned, s deemed to be communty or common
property. From a readng of secton 3 n connecton wth sectons
1 and 2, there appears to be no reasonabe doubt that ncome from
separate property s communty property nasmuch as such ncome s
not ncuded n the defntons of separate property. ad the egs-
ature of Oregon desred to treat ncome from separate property as
the separate ncome of the owner, ths coud easy have been accom-
pshed by so provdng n the defnton of separate property. Fur-
thermore, secton of the act provdes that the wfe sha have the
management and contro and may dspose of her separate persona
property and that porton of the common or communty persona
property consstng of her earnngs and a rents, nterest, dvdends,
and other ncome from her separate property and a other common
or communty persona property, the tte to whch stands n her
name.
Generay, the determnaton of property rghts of a husband and
wfe under the communty property aw of a State s governed by the
decsons of the courts of that State. In the absence of any such
court decsons n the State of Oregon, and n vew of the above-quoted
Srevsons of Oregon aw, t s hed that ncome derved on ana after
uy 5, 19 , the effectve date of the Oregon Communty Property
ct, from the separate property of a husband or wfe domced n
Oregon, and compensaton earned by ether spouse on and after such
date, consttute communty ncome tor Federa ncome ta purposes.
S CTION 52. CORPOR TION R TURNS.
Secton 29.52-1: Corporaton returns. 19 7-21-12662
I. T. 3871
INT RN L R NU COD . ...
Upon presentaton of the facts to the coector, a corporaton whch
has ceased busness operatons, has retaned no assets, and has no
Income, may be reeved from fng Federa ncome ta returns even
though the corporaton has not bsen formay dssoved.
dvce s requested whether a corporaton whch has ceased opera-
tons, retanng no assets and havng no ncome, may be reeved from
fng Federa ncome ta returns.
The nstant corporaton ceased busness operatons n October, 1936.
and durng the caendar year 19 6 t receved no ncome from any source
whatever. The baance sheet as of December 31, 19 6, shows assets
consstng of notes and accounts recevabe and good w. The greater
porton of the notes and accounts recevabe was owed to the corpora-
ton by a bank whch cosed ts doors n 1930. The State bankng
authortes apped the amount owed by the bank n reducton of ac-
counts payabe by the corporaton to the bank. The baance of the
notes and accounts recevabe s uncoectbe because of the appcabe
State statutes of mtaton. The good w account s merey a book-
keepng fgure, the corporaton n fact havng no good w.
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63
5 29.52-1.
Secton 29.52-1 of Reguatons 111 provdes n part as foows:
corporaton havng an e stence durng any porton of a ta abe
year Is requred to make a return. corporaton s not In e stence
after It ceases busness and dssoves, retanng no assets, whether or not under
State aw t may thereafter be treated as contnung as a corporaton for certan
mted purposes connected wth wndng up Its affars, such as for the purpose
of sung and beng sued. If the corporaton has vauabe cams for whch t w
brng sut durng ths perod, t has retaned assets, and It contnues In
e stence.
There s no specfc provson n the reguatons wth respect to the
necessty of fng a Federa ncome ta return n the case of a corpora-
ton whch has ceased busness operatons and has not been formay
dssoved. Wth respect to a newy organzed corporaton, secton
29.52-1 of Reguatons 111 further provdes:
corporaton whch has receved a charter, but has never perfected
ts organzaton, whch has transacted no busness and had no Income from any
source, may upon presentaton of the facts to the coector be reeved from the
necessty of makng a return as ong as It remans n an unorganzed condton. In
the absence of a proper showng to the coector such a corporaton w be requred
to make n return.
In amn Chevroet Co. v. Commssoner (3 T. C, 1076), pursuant
to a resouton of the board of drectors, the ta payer dstrbuted a of
ts assets to ts stockhoders on une 29, 19 0, sub|ect to ts abtes,
but dd not surrender ts charter. One of the questons was whether
the ureau correcty treated the e cess profts ta return fed for. the
caendar year 19-10 as a return for the s months perod ended une 30,
19 0. The Ta Court sustaned the ureau s acton, statng n part:
It may be conceded that techncay the pettoner had a ega e stence for the
entre caendar year 19 0. Under the aws of the C6mmonweath of Pennsyvana
a corporaton s charter s not canceed by a compete qudaton of the corpora-
ton. Some acton must be taken ether by the corporate offcers or by the proper
State authortes for the canceaton of the charter before the corporate e stence
ceases. /
It does not foow from ths that a corporaton may not be dssoved for the
purpose of the ncome and e cess profts ta pror to the date that Its charter Is
canceed. There may be a de facto dssouton even though there Is no de |ure
dssouton. There can be no doubt that upon the stpuated facts there was a
de facto dssouton of the pettoner corporaton on une 30, 19 0. Thereafter
the corporaton had no capta, no Income, and no e penses. It was a mere empty
she.
There s no sound bass for hodng that a de |ure dssouton s
requred n connecton wth Federa ncome ta returns whereas a
de facto dssouton s suffcent n regard to Federa e cess profts ta
returns. Therefore, reef from the necessty of fng a Federa n-
come ta return n a case n whch a de facto dssouton has occurred
may be regarded as sub|ect to admnstratve contro smar to that
whch s appcabe n the case of a corporaton whch has never
perfected ts organzaton, whch has transacted no busness, and had
no ncome from any source.
ccordngy, t s hed that upon presentaton of the facts to the
coector, a corporaton whch has ceased busness operatons, has
retaned no assets, and has no ncome, may be reeved from fng
Federa ncome ta returns even though the corporaton has not been
formay dssoved.
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29.53-2.
6
S CTION 53. TIM ND PL C FOR
FILING R TURNS.
Secton 29.53-2: tensons of tme for fng 19 7-15-12593
returns. Mm. 6157
( so Secton 58, Secton 29.58-8.)
tensons of tme for fng ncome ta returns, decaratons of
estmated ta , statements of ncome ta wthhed, and returns of
nformaton, Form 990.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C, uy 1,19 .7.
Coectors of Interna Revenue and Others Concerned:
1. Under the provsons of secton 29.53-2, Reguatons 111, author-
ty for grantng e tensons of tme for fng ncome ta returns s
deegated to coectors of nterna revenue. Secton 29.58-8, Regua-
tons 111, contans a smar deegaton of authorty wth respect to
decaratons of estmated ta . The authorty of coectors to grant
e tensons was formery mted by pocy announcements ssued from
tme to tme by the Commssoner, ana appcatons for e tensons
beyond certan specfed perods were transmtted to the ureau for
consderaton.
2. Requests for e tensons whch, under the pocy announcements
referred to n the foregong paragraph were transmtted to the ureau,
were handed, pror to November 1, 19 3, by the Income Ta Unt.
ffectve November 1, 19 3, |ursdcton over the grantng of e ten-
sons of tme for fng ncome ta returns, decaratons of estmated
ta , and statements of ncome ta wthhed at the source on wages
was transferred to the ccounts and Coectons Unt of the ureau.
Coectors of nterna revenue are authorzed, under genera super-
vson of the Deputy Commssoner, ccounts and Coectons Unt, to
grant e tensons of tme for fng ncome ta returns, decaratons
of estmated ta , statements of ncome ta wthhed, and certan
nformaton returns, wthn the perods prescrbed by statute, n
accordance wth the rues and poces herenafter set forth.
3. Durng recent years, a concerted effort has been made by the
ureau to effect a reducton n the number of e tensons of tme
granted. Through cooperaton of coectors of nterna revenue, very
gratfyng resuts aong ths ne have been obtaned. though t s
the desre of the ureau that ths effort be contnued, cognzance must
be taken of crcumstances whch affect the abty of some ta payers
to fe returns on or before the due date. Reasons for requestmg an
e tenson of tme shoud be gven sympathetc consderaton when
such reasons appear to be bona fde. Coectors w be e pected to
deny requests or e tensons based on frvoous or nadequate reasons
and to dscourage requests for more tme than crcumstances appear to
warrant. On the other hand, t s desred that coectors observe the
pocy of grantng reasonabe e tensons of tme n a cases n whch
there appears to be a rea need for such acton. The terms, perods,
and condtons of e tensons to be granted are herenafter outned
wth respect to varous types of returns.
. Corporaton ncome ta returns. request for an e tenson of
tme for fng a corporaton ncome ta return must be sgned by an
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65
20.53-2.
offcer or duy authorzed agent of the corporaton. anket requests
by accountants or others w not be recognzed, but a parent cor-
poraton may request e tensons for ts subsdares where a conso-
dated return s to be fed. In such cases, the name and address of each
member of the affated group for whch the e tenson s desred must
be ncuded n the appcaton therefor and, f any such member s
ocated n a coecton dstrct other than the one n whch the parent
corporaton s ocated and the appcaton s fed, the parent corpora-
ton sha mmedatey notfy the coector for such other dstrct of
any e tenson granted. tensons granted to corporatons w be
condtoned upon the fng of tentatve returns and payment of one-
fourth of the ta shown thereon to be due on or before the statutory
date upon whch the returns are requred to be fed. tentatve re-
turn must be prepared on the approprate ncome ta form, showng
the name and address of the ta payer and the estmated amount, f
any, of the ta due. The tems and schedues shown on the form need
not be fed n. owever, the affdavt on the tentatve return must be
e ecuted n the same manner as s requred on the fna return. In-
terest s coectbe at the rate of 6 per cent per annum on the dfference
between the amounts of ta shown on the tentatve and fna returns,
computed from the due date of each nstament to and ncudng the
date of payment. If an e tenson s granted too ate to permt the
fng of a tentatve return on or before the due date, the coector
may f a date not more than 10 days thereafter for compance wth
a tentatve return requrement. In such cases, nterest at the rate of
6 per cent per annum w be added to the amount pad wth the tenta-
tve return. In any case n whch an e tenson s granted beyond the
due date for payment of the second nstament of ta , the terms of
the e tenson must provde for payment of that nstament upon the
bass of the estmated ta shown on the tentatve return. In so far
as practcabe, e tensons of tme granted to corporatons shoud be
mted to 30 days and shoud rarey e ceed 60 days. owever, co-
ectors are authorzed to grant further e tensons of tme wthn the
statutory mtaton of 6 months when the crcumstances ceary war-
rant such acton. If a corporaton requestng an e tenson states n
ts request that there w be no ta due upon ts fna return, an e -
tenson of tme may be granted wthout requrng a tentatve return.
(For specfc e tenson of tme granted n every case for fng returns
of ncome by foregn corporatons whch mantan an offce or pace of
busness wthn the Unted States, domestc corporatons whch trans-
act ther busness and keep ther records and books of accounts abroad,
and domestc corporatons whose prncpa ncome s from sources
wthn possessons of the Unted States, see secton 29.53-3(a), (2),
(3), and ( ) of Reguatons 111.)
5. Indvdua ncome ta returns. Coectors are authorzed to
grant e tensons of tme for fng ndvdua ncome ta returns, con-
dtoned upon the fng of a return on Form 10 0 and payment of
nterest upon the ta , pus any addtons thereto, from the cue date of
the return to the date of payment. Indvdua e tensons shoud be
mted n the frst nstance to a perod of one month. s n the case
of corporatons, however, coectors are authorzed to grant to n-
dvduas further e tensons of tme, wthn statutory mtatons,
when ceary warranted by the crcumstances. Tentatve returns w
not be requred of ndvduas other than estates, trusts, and certan
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29.53-2.
G8
nonresdent aens herenafter referred to. No e tenson of tme w
be granted for fng a return upon whch the coector s requred
to compute the ta under secton 51(f) of the Interna Revenue Code.
Nether w an e tenson of tme be granted for fng a return whch,
under the provsons of secton 58(d) (3) of the Code, s consdered
as a decaraton of estmated ta or the amendment of a decaraton.
(For specfc e tenson of tme granted n every case for fng re-
turns of ncome by mercan ctzens resdng or traveng abroad,
ncudng persons n mtary or nava servce on duty outsde the
Unted States, see secton 29.53-3(a) (5) of Reguatons 111.)
6. Decaratons of estmated ta . though authorty e sts n the
statute for grantng an e tenson of tme for fng a decaraton of
estmated ta , t s beeved that the number of appcatons for e -
tensons of ths type w be sma. It s proper for coectors to
nform appcants for ths type of e tenson to the effect that ony a
reasonabe estmate s requred and that any estmate made pror to
the fourth quarter may be amended. If, however, a ta payer shows
that he s unabe to make a reasonabe estmate by the norma due
date, or f hs request s receved too ate for any other acton, he
may be granted a reasonabe e tenson of tme. n e tenson of tme
for fng an amended decaraton may aso be granted. Such an
e tenson w, however, be granted ony for reasons persona to the
ta payer, such as serous or protracted ness, death n the mmedate
famy of the ta payer occurrng cose to the date when the decaraton
s due, unavodabe absence from home, and smar reasons. Under
no crcumstances w an e tenson of tme for fng an amended
decaraton be granted for purey busness reasons or because the ta -
payer can not obtan professona assstance for ts preparaton. In
the case of a decaraton, or an amended decaraton, an e tenson of
tme for fng automatcay e tends, for the perod of the e tenson,
the tme for makng payment wthout nterest. tensons of tme
for fng decaratons, or amended decaratons, shoud be mted n
so far as practcabe, to a perod of not more than 15 days. (For
specfc e tenson of tme granted n every case for fng decaratons
of estmated ta otherwse due on or before the 15th day of the thrd
month of the ta abe year by Unted States ctzens who are outsde
the States of the Unon, the Dstrct of Coumba, and awa on
the 15th day of the thrd month of the ta abe year, see secton
29.58-8 of Reguatons 11L)
7. Returns of estates and trusts and certan nonresdent aens.
states and trusts, athough treated as ndvduas for the purpose
of computng the amount of ncome ta due, are not sub|ect to the
provsons of the Interna Revenue Code reatng to coecton of n-
come ta at the source on wages, nor are they requred to fe decara-
tons or make advance payments of estmated ta . Requests for
e tensons receved from estates and trusts shoud, therefore, be
granted n the same manner as those receved from corporatons, . e.,
condtoned upon the fng of tentatve returns and payment of one-
fourth of the ta shown thereon to be due. smar rue shoud be
apped n the case of nonresdent aens wth respect to whom wth-
hodng of ta at the source on wages s not appcabe. (For specfc
e tenson of tme granted n every case for fng nonta abe returns
of ncome by fducares for estates or trusts, see secton 29.53-3(6) of
Reguatons 111.)
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67
29.53-2.
8. Statements of ncome ta wthhed. Secton 1625(c) of the
Interna Revenue Code provdes:
(c) tenson of Tme. The Commssoner, under such reguatons as he
may prescrbe wth the approva of the Secretary, may grant to any empoyer
a reasonabe e tenson of tme (not n e cess of thrty days) wth respect to
the statements requred to be furnshed under ths secton.
It s antcpated that a number of empoyers w request e tensons
of tme for furnshng these statements to empoyees and for fng
the dupcates whch are requred to be fed wth the return of ncome
ta wthhed for the fourth quarter of each year. Snce most em-
poyees w need ths nformaton to prepare ther returns, e tensons
of ths type w be strcty mted. Coectors are authorzed to
grant such e tensons ony when the request s based upon crcum-
stances whch coud not reasonaby have been foreseen and provded
for n advance, and then for no more than 15 days. (For specfc
e tenson of tme granted n every case for furnshng statements
(Wthhodng Recepts Forms W-2) requred by secton 1625(a)
of the Code upon termnaton of empoyment wth respect to any
empoyee whose empoyment s defntey termnated durng the ca-
endar year, see secton 05.501 (b) of Reguatons 116.)
9. Other returns. Reasonabe e tensons of tme may be granted
for suffcent cause for fng partnershp returns (Forms 1065), n-
formaton returns (Forms 1087,1096, and 1099), returns of ta wth-
hed at source under sectons 1 3 and 1 of the Interna Revenue
Code (Forms 1013 and 10 2), and returns of nformaton (Forms
990) by organzatons e empt from ncome ta . No tentatve returns
w be requred. No e tenson of tme may be granted for fng a
quartery return of ncome ta wthhed on wages (Form W-).
(For specfc e tenson of tme granted n every case for fng returns
of ncome by foregn partnershps, see secton 29.53-3(a) (1) of
Reguatons 111.)
10. Form of appcaton. No partcuar formaty w be requred,
n connecton wth requests for e tensons heren consdered, other
than that they be n wrtng, propery sgned by the ta payer or a
duy authorzed agent, and ceary set forth the partcuar ta or
nformaton return, decaraton, or statement, ncudng the ta abe
year or perod thereof, wth respect to the tme for the fng or
furnshng of whch e tenson s desred, and aso a fu recta of
the causes for the deay, to ad the coector n determnng the perod
of e tenson, f any, whch w be granted. Such a request n the
form of a etter w suffce as an appcaton. If, by reason of ness,
absence, or other good cause, a ta payer s unabe to sgn a request
for e tenson, any person standng n cose persona or busness rea-
tonshp to hm may do so, provded the reasons and reatonshp
are stated, n whch case the sgner of the request sha be consdered
as a duy authorzed agent for ths purpose.
11. Records and reports. Coectors w mantan a record of a
e tensons granted or dened. Ths may be done by preparng an
e tra carbon copy of the etter grantng or denyng such e tenson,
or by any other practcabe method. On or before uy 31 of each
year, coectors w prepare reports to the Commssoner wth respect
to the number of e tensons requested, granted, and dened durng
the fsca year ended une 30.
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29.5 -1.
68
12. Stampng of returns. Snce copes of e tenson etters may
frequenty become detached from returns, coectors w stamp on a
returns, wth respect to whch e tensons were granted, the words
u tenson granted to ; , the date to be fed n wth
a datng stamp or wth pen and nk. If stamps are not avaabe for
ths purpose, requston shoud be made prompty.
13. tensons by the Commssoner. Despte the fact that broad
authorty for grantng e tensons of tme s deegated to coectors of
nterna revenue, t s antcpated that many ta payers w address
ther appcatons for such e tensons to the Commssoner. It w
be the genera pocy to refer any such appcaton receved by the
Commssoner to the approprate coector f suffcent tme e sts for
t to reach the coector s offce and be acted upon before the due date
for fng the return wth respect to whch the e tenson s requested.
Nothng n ths mmeograph sha be taken to precude the grantng
of an e tenson by the Commssoner n any case n whch the crcum-
stances warrant such acton.
1 . Ths mmeograph supersedes Mmeographs 3361 (C. . I -2, 69
(1925)), 3759 (C. . III-2, 123 (1929)), 3789 (C. . I -1, 126
(1930)), 150 (C. . III-1,71 (193 )), and 58 (C. . 1937-1, 97),
and aso a other pror nstructons and pocy announcements reatng
generay to the type of e tensons heren consdered.
15. Correspondence reatng to the contents of ths mmeograph
shoud refer to ts number and to the symbos C: Co.
os r D. Nt|nan, r.,
C ommssoner.
pproved uy 1,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
S CTION 5 . R CORDS ND SP CI L R TURNS.
Secton 29.5 -1: Records and ncome ta forms. 19 7-19-126 1
I. T. 3866
INT RN L R NU COD .
cceptabty, for Federa Income ta purposes, of mcrofm re-
productons of records.
dvce s requested whether mcrofm reproductons of records are
acceptabe for Federa ncome ta purposes.
Secton 5 of the Interna Revenue Code provdes n part that every
person abe to any ta mposed under Chapter 1 of the Code or for
the coecton thereof sha keep such records as the Commssoner,
wth the approva of the Secretary, may from tme to tme prescrbe.
Under secton 29.5 -1 of Reguatons 111, every person, wth certan
e ceptons not matera here, s requred to keep such permanent books
of account or records, ncudng nventores, as are suffcent to estab-
sh the amount of the gross ncome and the deductons, credts, and
other matters requred to be shown n any return under Chapter 1
of the Code. Such books or records are requred to be kept at a
tmes avaabe for nspecton by nterna revenue offcers, and sha
be retaned so ong as the contents thereof may become matera n
the admnstraton of any nterna revenue aw.
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69
29.55(b)- .
It woud be undesrabe and mpractcabe for the ureau to at-
tempt to make ta determnatons on the bass of mcrofm reproduc-
tons of genera books of account, such as cash books, |ournas, voucher
regsters, edgers, etc. owever, no ob|ecton w be nterposed to
the retenton by ta payers of ony mcrofm reproductons of sup-
portng records of detas, such as payro records, canceed checks,
nvoces, vouchers, etc., provded the foowng condtons are met:
(1) the ta payer w retan mcrofmed copes so ong as the contents
thereof may become matera n the admnstraton of any nterna
revenue aw; (2) the ta payer w provde approprate factes
for preservaton of the fms and for the ready nspecton and oca-
ton of the partcuar records, ncudng a pro|ector for vewng the
records, n the event nspecton s necessary for ta purposes; and (3)
the ta payer w be ready to make any transcrptons of the nforma-
ton contaned on the mcrofm whch may be requred.
S CTION 55. PU LICITY OF R TURNS.
Secton 29.55 (b)-: Inspecton of returns. 19 7-2 -12709
T. D.5591
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT
38. INSP CTION OF R TURNS.
Revokng paragraph 16 of Treasury Decson 359 C. . I-2,
305 (1932) , as amended, reatng to pubc decsons n respect of
overas8essments of ncome, profts, estate, and gft ta es aowed n
e cess of 20,000.
Treasury Department,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
(a) Pursuant to the provsons of secton 55(a) of the Interna
Revenue Code (53 Stat., 29; 26 U. S. C, 55(a)) ; secton 257(a) of
the Revenue ct of 1926; secton 55 of the Revenue ct of 1928;
secton 55 of the Revenue ct of 1932, as amended bv secton 218(h)
of the Natona Industra Recovery ct; secton 55(a) of the Reve-
nue cts of 193 , 1936, and 1938 ( Stat., 51; 5 Stat., 809; 7 Stat.,
189; 8 Stat, 209, 698; 9 Stat., 1671; 52 Stat., 78), paragraph 16 of
Treasury Decson 359, approved December 13, 1932 C. . I-2,
305 (1932)1, as amended by Treasurv Decson 583, approved ugust
29, 1935 C. . I -2, 318 26 CFR, 58.100 , s hereby revoked.
(b) ecause of the revocaton of ecutve Order No. 7165 of u-
gust 29,1935, upon whch such paragraph 16 s based, t s found that
t s mpractcabe to ssue ths Treasury decson wth notce and pub-
c procedure thereon under secton (a) of the dmnstratve Pro-
cedure ct, approved une 11, 19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad ct.
(c) Ths Treasury decson sha be effectve upon ts fng for pub-
caton n the Federa Regster.
ohn W. Sntdek,
Secretary of the Treasury.
pproved.
akrt S. Truman,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster November 18, 19 7, 11.21 a. m.)
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8 29.58-8.1
.70
CUTI ORD R R OC TION OF CUTI ORD R NO. 7165 OF UGUST
20, 1935, R L TING TO T PR P R TION ND PU LICITY OF D CISIONS
IN R SP CT OF O R SS SSM NTS OF INCOM . PROFITS, ST T , ND
GIFT T S LLOW D IN C SS OF 20,000.
y vrtue of the authorty vested n me by secton 55(a) of the In-
terna Revenue Code (53 Stat., 29; 26 U. S. C, 55(a)), secton 257(a)
of the Revenue ct of 1926; secton 55 of the Revenue ct of 1928;
secton 55 of the Revenue ct of 1932, as amended by secton 218(h)
of the Natona Industra Recovery ct; and secton 55(a) of the
Revenue cts of 193 , 1936, and 1938 ( Stat., 51; 5 Stat., 809:
7 Stat., 189; 8 Stat, 209, 698 ; 9 Stat., 1671; 52 Stat, 78); ecu-
tve Order No. 7165 of ugust 29,1935, reatng to the preparaton and
pubcty of decsons n respect of overassessments of ncome, profts,
estate, and gft ta es aowed n e cess of 20,000 s hereby revoked.
Ths order sha become effectve upon ts fng for pubcaton n
the Federa Regster.
arry S. Truman.
The Whte ouse,
November 18,19 7.
(0906)
(Fed wth the Dvson of the Federa Regster November 18,19 7, 11.21 a. m.)
S CTION 58. D CL R TION OF STIM T D
T Y INDI IDU LS.
Secton 29.58-8: tenson of tme for fng
decaratons.
INT RN L R NU COD .
Gr antng e tensons of tme for fng decaratons. (See Mm. 6157,
page 6 .)
SU C PT R C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T ON
CORPOR TIONS.
19 7-15-1259
I. T. 3860
INT RN L R NU COD ND R NU CT OF 1938. .
corporaton whch otherwse quafes for e empton under
sectons 101(1 ) of the Interna Revenue Code and the Revenue ct
of 1038 w not be dened e empton from Federa ncome ta aton
under those provsons of aw soey because ts capta stock s
owned by others than an e empt organzaton f such stock owner-
shp confers no rghts to dvdends or profts.
I. T. 320 (C. . 1930-1 (Part 1), 121) modfed.
Reconsderaton has been gven to I. T. 326 (C. . 1939-1 (Part 1),
121), whch hods that a budng corporaton, ncorporated for the
partcuar purpose of budng and mantanng a chapter house for
a fraternty, the stock of whch s hed by others than an e empt or-
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71
29.113(a)-2.
ganzaton, s not entted to e empton from Federa ncome ta aton
under the provsons of secton 101(1 ) of the Revenue ct of 1938.
The anguage of secton 101(1 ) of the Revenue ct of 1938 s
amost dentca wth that of secton 101(1 ) of the Interna Revenue
Code. Those sectons provde for the e empton from Federa n-
come ta aton of corporatons organzed for the e cusve purpose of
hodng tte to property, coectng ncome therefrom, and turnng
over the entre amount thereof, ess e penses, to an organzaton whch
tsef s e empt from Federa ncome ta aton. The mere fact that
the capta stock of such a corporaton s owned by others than an
e empt organzaton s not beeved to be suffcent n tsef to warrant
dena of e empton from Federa ncome ta aton, f such stock
ownershp confers no rghts to receve dvdends or profts at any
tme.
ccordngy, I. T. 326 , supra, s modfed to provde that f the
capta stock of the budng corporaton theren nvoved s hed by
others than an e empt organzaton and f the hoders of such stock
coud n no case receve any dvdends or profts, a the ncome from
the property hed by the budng corporaton, ess e penses, beng
pad over to an organzaton whch tsef s e empt from ta , the cor-
poraton s entted to e empton from Federa ncome ta aton under
secton 101(1 ) of the Revenue ct of 1938. It foows that the cor-
foraton s aso entted to e empton under secton 101(1 ) of the
nterna Revenue Code.
SUPPL M NT . COMPUT TION OP N T INCOM .
S CTION 112(g). R COGNITION OF G IN OR LOSS:
D FINITION OF R ORG NIZ TION.
Secton 19.112(g)-3: changes soey of stock
or securtes, or property, soey for stock or
securtes, n pursuance of pan of reorgan-
zaton.
INT RN L R NU COD .
change of stock for new stock and new debenture bonds n re-
captazaton havng no egtmate corporate busness purpose.
(SeeCt. D. 1G87, page 79.)
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
Secton 29.113(a)-2: Genera rue. 19 7-1 -12583
( so Secton 29.113(a) (10)-1; Secton 118, L T. 3858
Secton 29.118-1.)
INT RN L R NU COD .
Determnaton of the bass for computng gan or oss on the subse-
quent sae or other dsposton of securtes of a reorganzed corpora-
ton, acqured upon settement of a seres of contracts to buy and se
such securtes when ssued, nvovng the appcabty of the
frst In, frst out rue and the aocaton of nondeductbe wash
88.16 OSSCS
L T. 3721 (C. . 19 5,16 ) suppemented.
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29.113(a)-2.
72
dvce s requested as to the bass for computng gan or oss for
Federa ncome ta purposes on the subsequent sae or other dspos-
ton of securtes of a reorganzed corporaton acqured upon sette-
ment of a seres of contracts to buy and se such securtes when
ssued. The nqury nvoves the appcabty of the frst n, frst
out rue prescrbed n sectons 29.22(a)-8 and 29.118-1 (d) of Regu-
atons 111 and the aocaton of nondeductbe wash sae osses under
secton 113(a) (10) of the Interna Revenue Code.
The treatment of varous types of transactons n connecton wth
tradng n securtes on a when ssued bass was rued upon n L T.
3721 (C. . 19 5, 16 ), and the dscusson and concusons set forth
heren may be consdered as suppementary to queston and answer
2(a) (2) n I. T. 3721.
In the nstant case, the reorganzaton of the corporaton has been
hed by the ureau to be a ta abe transacton. The settement date
for the when ssued transactons was ugust 26,19 6. None of the
ta payers nvoved (herenafter referred to as customers) was a deaer
n securtes. In each of the four typca cases presented, the custom-
er s contracts to buy securtes when ssued were for a greater
number of shares than the number of shares he had contracted to se,
so that upon fna settement each customer actuay acqured a cer-
tan number of shares of newy ssued securtes. It w be observed
from the foowng e ampes and dscusson that the short-term cap-
ta gans resutng from matchng buy and se contracts are ta -
abe n the year of the settement, whereas osses, beng nondeductbe
under secton 118 of the Interna Revenue Code, are aocabe to the
cost of the newy ssued securtes acqured, under a prncpe smar
to that prescrbed n secton 29.118-1 (d) of Reguatons 111.
C S 1.
Customer entered nto contracts to buy and se common stock
when ssued as foows:
uy contracts.
Se contracts.
Date.
Number of
shares.
Prce.
Date.
Number of
Prce
May IS, 19 5
100 at 18
1,800
,000
6,200
uy 15,19 8
200 at 32.....
uy 15, 19 6
200 at 20
200 at 31
uno 15, 19 6
600
12,000
200.
6. 00
On ugust 26,19 6, a of the contracts were setted by the broker
wthout nstructons from the customer who pad hm 5,600. Three
hundred shares of stock were credted to the customer s account.
On October 1,19 6, the customer sod 100 shares at 30, and the broker
made devery from the 300 shares whch had been credted to s
account on ugust 26,19 6.
though the contracts were setted by the broker wthout nstruc-
tons from the customer, the shares receved pursuant to each of the
buy contracts can be dentfed by certfcate numbers or accordng
to the date of the buy contract and the purchase prce, provded such
dentfcaton s made upon recept of the securtes on the settement
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73
29.113(a)-2.
date. If such dentfcaton s made, the manner n whch the se
contract was actuay setted governs the determnaton of whch
shares have been sod and whch have been retaned by the ta payer.
(Cf. ames . Davdson v. Commssoner, 305 U. S., , Ct. D. 1366,
C. . 1938-2, 227.)
The frst n, frst out rue prescrbed n secton 29.22(a)-8 of
Reguatons 111 s not appcabe to stock purchased on a when
ssued bass, because the buy contracts are a setted on the sette-
ment date and the shares receved pursuant to such contracts are
receved smutaneousy. owever, f the stock receved on the sette-
ment date pursuant to the buy contracts s not propery marked for
dentfcaton purposes, then a rue smar to the frst n, frst out
rue shoud be apped and the shares of stock used to sette the se
contract shoud be charged aganst the shares of stock acqured pur-
suant to the earest buy contracts.
ssumng that the broker actuay devered (1) 100 shares pur-
chased at 18 pursuant to the contract dated May 15, 19 5, and 100
shares purchased at 20 pursuant to the contract dated uy 15, 19 5,
n settement of the se contract, and (2) 100 shares purchased at 20
on uy 15, 19 5, to cover the sae made on October 1, 19 6 (or that
the securtes receved pursuant to the buy contracts were not propery
marked for dentfcaton purposes), the transactons outned shoud
be treated as foows:
Transacton.
Cost of
shares.
Sae
proceeds.
Short-term
capta gan.
Less: 200 shares devered ug. 28,19 6, In settement of se contract
(100 at 18 pus 100 at 20)
12,000
3,800
6, 00
3,000
2,600
Less: Shares devered to cover sae made Oct. 1,19 6 (100 at 20)
8,200
2,000
1,000
ass of 200 shares retaned (200 at 31) _
6,200
9, 00
3,600
C S 2.
Customer entered nto contracts to buy and se common stock
when ssued as foows:
uy contracts.
Se contracts.
Date.
Number of
shares.
Prce.
Date.
Number of
shares.
Prce.
May 18, 19 8
100 at 18
1,800
,000
6,200
uy 18, 19 6
200 at 32
6, 00
uy 15,19 8
200 at 20
200 at 31
une 18,19 6 .... ....
500
12,000
200
6, 00
Pror to ugust 26, 19 6, customer nstructed the broker to de-
ver the stock to be acqured pursuant to the buy contract dated une
15,19 6, aganst the se contract. On ugust 26, 19 6, a of the con-
tracts were setted, and customer pad the broker 5,600 and re-
ceved 300 shares of stock.
77338 8 6
s
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29.113(a)-2. 7
The transactons outned shoud be treated as foows:
Transacton.
Cost of
shares.
Sae pro-
ceeds.
Short-term
capta gan.
600 shares receved ug. 26,10 6, pursuant to buy contracts
12,000
6,200
Less: 200 shares devered ug. 26,10 6, In settement of se contract
(200 at 31)
0, 00
200
ass of SOOsharesrctaned (100 at 18 pus 200 at 20)
5,800
C S 3.
Customer C entered nto contracts to buy and to se common stock
when ssued as foows:
uy contracts.
Se contracts.
Date.
Number of
shares.
Prce.
Date.
Number of
shares.
Prce.
May 15,19 5..
1C0 at 18
,fC0
3,800
3. CC0
6, CO
Feb. 15,19 6
200 at 27
5. 0
une 15, 19 5
200 at 19
May 15,19 8
1C0 nt 20
200 at 32
COO
15,000
200
5, 91
Pror to ugust 26, 19 6, customer C nstructed the broker to de-
ver the stock acqured pursuant to the buy contract dated uy 15,
19 6, aganst the se contract. On ugust 26,19 6, the contracts were
setted, and customer C pad the broker 9,600 and receved 00 shares
of stock.
The transactons outned shoud be treated as foows:
Transacton.
Cost of
shares.
Sae
proceeds.
Nondeduct-
be oss.
600 shares receved ug. 26,19 6, pursuant to buy contracts _.
15,000
6, 00
Less: 200 shares devered ug. 28,19 6, In settement of se contract
(200 at 32) .
5, 00
1,000
00 retaned shares acqured ug. 26,19 6:
Date.
Number of
shares.
Cost.
May 15, 19 5
100 at 18..
200 at 19 .
100 at 30..
1,800
3,800
3,000
une 15, 19 5.
8,600
The oss of 1,000 s nondeductbe because of acquston of substan-
tay dentca stock by purchase wthn the 61-day perod prescrbed
n secton 118 of the Code and secton 29.118-1 of Reguatons 111.
Secton 29.118-1 (d) of Reguatons 111 s not appcabe to ths case
snce the 00 retaned shares were acqured smutaneousy on the set-
tement date, and there s no other provson n the reguatons whch
specfcay covers the present stuaton. It s hed, however, that a
prncpe smar to that prescrbed n secton 29.118-1 (d) s appcabe.
ccordngy, the shares of stock sod w be matched wth an equa
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75
29.113(a)-2.
number of shares of stock acqured n accordance wth the order of
acquston of the buy contracts. The new bass of the retaned shares,
ad|usted n accordance wth the provsons of secton 113(a) (10) of
the Code and secton 29.113(a) (10)-1, e ampe (2), of Reguatons
111, Is as foows:
Number of hares.
Date.
Nondeduct-
be oss.
Od bass.
New bass.
100 at IS
May 15,10 8
une 15.19 .1
uno 15.19 5
May 15,19 6
1500
500
1,800
1,800
1.900
3,000
2,300
2. 00
1.900
3,000
OOat t
100at 19
100 at 30--
00
1,000
8,600
9.C00
C S .
Customer D entered nto contracts to buy and se common stocc
when ssued as foows:
uy contracts.
Se contracts.
Date.
Number of
shares.
Prce.
Date.
Number of
shares.
Prce.
an. IS, 19 6..._
300 at 26. ...
7,800
Sept. 15,19 5
100 at 22
2,200
Mar. 15, 19 0
300 at 28
a 00
800
16,200
100 -
2,200
On ugust 26, 19 6, a of the contracts were setted wthout any
nstructons from customer D, and customer D pad the broker 1 ,000
and receved 500 shares of stock.
ssumng that the broker actuay devered 100 shares purchased
at 26 pursuant to the contract dated anuary 15,19 6, n settement of
the se contract (or that the securtes receved pursuant to the buy
contracts were not propery marked for dentfcaton purposes), the
transactons outned shoud be treated as foows:
Cost of
shares.
Sae
Nonde-
ductbe
oss.
600 shares receved ug. 26.19 6, pursuant to buy contracts...
Less: 100 shares devered ug. 26, 19 6, n settement of se con-
tract (100 at 26)
ass of 500 shares retaned:
16,200
2,600
2,200
S|f
Number of shares.
200 at 26
300 at 28
Cost.
5,200
8, 00
13,600
The oss of 00 s nondeductbe because of acquston of substan-
tay dentca stock by purchase wthn the 61-day perod prescrbed
n secton 118 of the Code and secton 29.118-1 of Reguatons 111.
,-
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29.113(a)-2.
76
The new bass of the retaned shares, ad|usted n accordance wth
the provsons of secton 113(a) (10) or the Code and secton
29.113(a) (10)-1, e ampe (1), of Reguatons 111, s as foows:
Number of shares.
Date.
Nondeduct-
be oss.
Od bass.
New bass.
an. 15,19 8
an. 16, 19 6
Mar. 16,19 8
00
2,600
2.600
8, 00
0,000
2.600
8, 00
SOCL
00
13,600
1 ,000
Secton 29.113(a)-2: Genera rue. 19 7-16-12610
( so Secton 29.113(a) ( )-.) L T. 3862
INT RN L R NU COD .
The bass (unad|usted) for determnng gan or oss upon the sae
of Lousana communty property by the e ecutor or admnstrator
of a deceased husband s estate s (1) wth respect to the wdow s
one-haf share of such property, the cost or other bass of such share
to the communty, and (2) wth respect to the husband s one-haf
share, the far market vaue thereof as of the date of hs death.
dvce s requested as to the bass for determnng gan or oss, for
Federa ncome ta purposes, upon the sae of Lousana communty
property by the e ecutor or admnstrator of a deceased husband s
estate, wth partcuar reference to the effect, f any, of secton 811
(e) (2) of the Interna Revenue Code, as added by secton 02(b) (2)
of the Revenue ct of 19 2, reatng to the ncuson n the estate of
a decedent, for Federa estate ta purposes, of the nterest of the
survvng spouse n the communty property.
Secton 113 (a) of the Interna Revenue Code provdes that the bass
(unad|usted) of property, for the purpose of determnng gan or oss,
sna be ts cost, e cept n certan specfed nstances. Secton
113(a) (5)of the Code, one of these e ceptons, reads n part as foows:
(5) Property transmtted at death. If the property was acqured by
bequest, devse, or nhertance, or by the decedent s estate from the decedent,
the bass sha be the far market vaue of such property at the tme of sucn
acquston. In the case .pf an eecton made by the e ecutor under
secton 811 (|), the tme of acquston of the-property sha, for the purpose
of ths paragraph, be the appcabe vauaton date of the property prescrbed
by such secton n determnng the vaue of the gross estate.
The ast sentence of the above-quoted porton of secton 113(a) (5)
of the Code was added by secton 1 (a) of the Revenue ct of 19 2.
Secton 1 (b) of the Revenue ct of 19 2 provdes that the sentence
so added sha be appcabe ony wth respect to property ncudbe
n the gross estate of a decedent dyng after the date of enactment
(October 21,19 2) of the Revenue ct of 19 2.
Under secton 113(a) (5) of the Code, supra, the proper gan or oss
bass of the communty property n tne nstant case depends upon
whether the wdow acqured her one-haf share of such property by
nhertance, or as outrght owner thereof, or whether a of the com-
munty property was acqured by the deceased husband s estate from
the decedent. .
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77
29.113(a)-2.
Wth respect to Lousana communty property, t has been hed
that the wfe has a present vested nterest n such property equa to
that of her husband and that she s the owner of one-haf of the
communty ncome. (See ender v. Wam Pfaff, 282 U. S., 127,
Ct. D. 261, C. . I -2, 200 (1930).) Upon the death of the husband,
ths ownershp of the wfe does not cease. The Supreme Court of
Lousana, n 19 3, n Successon of Wener (203 La., 6 9,1 So. (2d),
75, 77, 80- 81), n speakng of the nterest of the wfe n the
communty property, sad:
That ths communty Is a partnershp n whch the husband and wfe own
equa shares, ther tte thereto vestng at the very Instant such property s
acqured, s we setted n ths State ctatons

Unke the wfe s nterest In the common aw States, where ont
tenances and tenances by the entrety abde, the wfe s nterest n the com-
munty property n Lousana s more than a mere e pectancy or hope and her
husband s death s not the force that generates her tte thereto and her rghts
theren. Over a hundred years ago, n the case of D on v. D on s ecutors
( La., 188, 23 m. Dec., 78), ths court hed that the rghts of the wfe, as we
as those of the husband, n and to the marta gans, grow out of the marrage
contract tsef and do not orgnate ony when t s dssoved, and ths s now
our setted aw She s the haf-partner and owner of a acqustons
made durng the e stence of the communty, whether they be property or
ncome. She has the same prvege as her husband of dsposng of her nterest
theren by w, and, n the absence of a w, at her death her nterest n the
communty property passes to her ega hers n the same manner as her husband s
nterest theren passes to hs ega hers n the absence of a w. mphass
supped by the court
though the entre communty property, when there are com-
munty debts, passes under the contro of the e ecutor or e ecutors of
the husband s successon Successon of McLean, 12 La. nn., 222;
remer et a. v. remer, 121 La., 8 , 6 So., 600; Fontenot et a. v.
Fontenot et a., 157 La., 511, 102 So., 590) and quoad ts admns-
traton s regarded as ther property so that the entre ncome
receved from such property durng the perod of admnstraton s
ta abe to the decedent s estate state of unt enderson et a. v.
Commssoner, Docket No. 111 03, Ta Court memorandum opnon
entered December 1 , 19 3), and athough the wfe s share of the
communty property s resduary n character n the sense that t w
be reduced by the communty debts, t s cear, under the foregong
quotaton from Successon of Wener, supra, that the death of the
husband was not the generatng source of the wfe s tte or rght to
one-haf of the communty property but that she acqured such tte
and rght under the marrage contract.
Inasmuch as the wdow, under the aws of Lousana, retans her
nterest n an undvded one-haf of the communty property after
the death of her husband, and does not take her share as a egatee,
devsee, or her, but as outrght owner, t foows that her share of
the communty property s not acqured by bequest, devse, or nhert-
ance, nor s t acqured by the deceased husband s estate from the
decedent. Therefore, the provsons of secton 113(a) (5) of the Code,
supra, are not appcabe to the wfe s undvded one-haf share of
the communty property. owever, that secton of the Code s ap-
pcabe wth respect to the deceased husband s share of such property,
as t s acqured by the decedent s estate from the
decedent.
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29.113(a)(10)-1.
78
The mere fact that the entre communty property s ncuded n the
deceased husband s gross estate under tne provsons of secton
811(e) (2) of the Code for Federa estate ta purposes s not ncon-
sstent wth the concuson that under secton 113(a) of the Code,
supra, the bass of the wdow s one-haf share of the communty
property, for determnng gan or oss, s cost (ad|usted) to the com-
munty. The Supreme Court of the Unted States, n uphodng the
consttutonaty of secton 811 (e) (2) of the Code n Fernandez v.
Samue G. Wener et a. (326 U. S., 3 0, Ct. D. 1657, C. . 19 6-1 270).
stated that the power of Congress to mpose death ta es s not mted
to the ta aton of transfers at death, but e tends to the creaton, e er-
cse, acquston, or renqushment of any power or ega prvege
whch s ncdent to the ownershp of property. The Court stated that
under the Lousana communty property aws the death of the hus-
band termnates hs contro over the wdow s share of the communty
roperty, and for the frst tme brngs her haf of such property nto
er fu and e cusve possesson, contro, and en|oyment, ana that
the death of the wfe berates her husband s share from the restrc-
tons whch the e stence of the communty had paced upon hs con-
tro of t. It s the cessaton of these powers and remova of these re-
strctons whch are ta ed under secton 811(e) (2) of the Code and
not the transfer of the property tsef. The Court further noted that
the rghts n the property sub|ect to these powers and restrctons
were n every sense vested from the moment the communty began.
Thus, t s ready seen that the one-haf nterest of the wdow n
the communty property s ta ed under secton 811(e) (2) of the Code
not because tne wfe nherts her one-haf share from the deceased
husband, but because of the foregong shfts n ega reatonshps.
ccordngy, t s hed that the bass (unad|usted) for determnng
gan or oss upon the sae of Lousana communty property by the
e ecutor or admnstrator of a deceased husband s estate s (1) wth
respect to the wdow s one-haf share of such property, the cost or
other bass of such share to the communty, and (2) wth respect to the
husband s ene-haf share, the far market vaue thereof as of the date
of hs death. (See I. T. 3808, C. . 19 6-2, 58, reatng to the bass of
Te as communty property under smar crcumstances.)
Secton 29.113(a) (5)-: ass of property
acqured by bequest, devse, or nhertance.
INT RN L R NU COD .
Deceased husband s one-haf share of Lousana communty property
sod by e ecutor or admnstrator of hs estate. (See L T. 3862,
page 76.)
Secton 29.113(a) (10)-1: Stocks or securtes
acqured n wash saes.
INT RN L R NU COD .
Securtes of a reorganzed corporaton acqured upon settement
of a seres of contracts to buy and se such securtes when ssued.
(See. T. 3858, page 71.)
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79 19.115-9.
S CTION 11 . SIS FOR D PR CI TION
ND D PL TION.
Secton 19.11 -1: ass for aowance of depre-
caton and depeton.
INT RN L R NU COD .
Chromte ore used for refractory purposes. (See Ct. D. 169 ,
page 28.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
Sucton 19.115-3: arnngs or profts.
INT RN L R NU COD .
change of stock for new stock and new debenture bonds n re-
captazaton havng no egtmate corporate busness purpose.
(SeeCtD. 1687, beow.)
Secton 19.115-9: Dstrbuton n redempton 19 7-15-12595
or canceaton of stock ta abe as a dv- Ct. D. 1687
dend.
( so Secton 112(g), Secton 19.112(g)-3;
Secton 115, Secton 19.115-3.)
INCOM T INT RN L R NU COD D CISION OF SUPR M COURT.
1. Dvdends Reorganzaton Recaptazaton Dstrbuton or
RNINGS ND PROFITS.
corporaton whose stock was owned, e cept for one share, by the
pettoner In No. 287 and hs wfe and another corporaton whose
stock was owned, e cept for a few shares, by the pettoner In No.
209, each changed ts capta structure under a pan of reorganzaton
and ssued stock and debenture bonds n e change for stock. t the
tme of the transactons each corporaton had earnngs and profts
suffcent to cover the vaue of the debenture bonds. ed: The ds-
trbuton of debentures In each case was a ta abe dvdend under
secton 115 (a) and (g) of the Interna Revenue Code and there was
no ta -free reorganzaton under secton 112 of the Code. Whe
there was a technca recaptazaton there was no recaptaza-
ton wthn the meanng of secton 112(g) of the Code. For the
purpose of that secton nothng con be a recaptazaton uness
t partakes of those characterstcs of a reorganzaton whch under-
e the purpose of Congress n postponng the ta abty. The
creaton of new corporate obgatons whch are transferred to stock-
hoders n reaton to ther former hodngs, so as to produce, for a
practca purposes, the same resut as a dstrbuton of cash earnngs
of equvaent vaue, can not obtan ta mmunty because cast n the
form of a recaptazaton-reorganzaton. reorganzaton
whch s merey a vehce, however eaborate or eegant, for convey-
ng earnngs from accumuatons to the stockhoders s not a re-
organzaton under secton 112 of the Code. The facts woud
equay sustan the mposton of the ta on the debentures under
secton 112(c) (1) of the Code.
2. Decsons ffrmed.
Decsons of the Unted States Crcut Court of ppeas, Thrd
Crcut (155 Fed. (2d), 237, and 155 Fed. (2d), 2 6), affrmng the
decsons of The Ta Court ( T. C, 897, and 5 T. C, 351), affrmed.
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19.115-9.
80
Supremk Court of the Unted States.
287. . Robert arey, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
209. dam . dams, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Crcut Court of ppeas for the Thrd Crcut.
une 16, 19 7.
OPINION.
Mr. ustce Frankfurter devered the opnon of the Court.
The proper constructon of provsons of the Interna Revenue Code reatDg
to corporate reorganzatons Is Invoved In both these cases. Ther Importance
to the Treasury as we as to corporate enterprse ed us to grant certorar.
(329 U. S., 695 ; 329 U. S., 701.) Whe there are dfferences In deta to whch
we sha refer, the two cases may be dsposed of n one opnon.
In the azey case, No. 287, the Commssoner of Interna Revenue assessed
an ncome ta defcency aganst the ta payer for the year 1039. Its vadty
depends on the ega sgnfcance of the recaptazaton n that year of a.famy
corporaton In whch the ta payer and hs wfe owned a but one of the com-
pany s |OOO shares. These had a par vaue of 100. Under the pan of reor-
ganzaton the ta payer, hs wfe, and the hoder of the addtona share were to
turn In ther od shares and receve In e change for each od share fve new shares
of no par vaue, but of a stated vaue of 60, and new debenture bonds, havng
a tota face vaue of 00,000, payabe n 10 years but caabe at any tme. c-
cordngy, the ta payer receved 3,990 shares of the new stock for the 798 shares
of hs od hodng and debentures n the amount of 319,200. t the tme of
these transactons the earned surpus of the corporaton was 855,783.82.
The Commssoner charged to the ta payer as ncome the fu vaue of the
debentures. The Ta Court affrmed the Commssoner s determnaton, aganst
the ta payer s contenton that as a recaptazaton the transacton was a
ta -free reorganzaton and that the debentures were securtes In a corpora-
ton a party to a reorganzaton, e changed soey for stock or securtes n such
corporaton n pursuance of a pan of reorganzaton, and as such no gan
s recognzed for ncome tar purposes. (Interna Revenue Code, sectons
112(g) (1) ( ) and 112(b) (3).) The Ta Court found that the recaptazaton
had no egtmate corporate busness purpose and was therefore not a reor-
ganzaton wthn the statute. The dstrbuton of debentures, It concuded,
was a dsgused dvdend, ta abe as earned Income under sectons 22(a) and
115 (a) and (g). ( T. C, 897.) The Crcut Court of ppeas for the Thrd
Crcut, sttng en banc, affrmed, two udges dssentng. (155 Fed. (2d), 237.)
Uness a transacton s a reorganzaton contempated by secton 112(g), any
e change of stock or securtes n connecton wth such transacton, can not
be n pursuance of the pan of reorganzaton under secton 112 (b) (3). Whe
secton 112(g) nforms us that reorganzaton means, among other thngs,
a recaptazaton, t does not nform us what recaptazaton means.
Recaptazaton n connecton wth the Income ta has been part of the
revenue aws snce 1921. ( 2 Stat., 227, 230, secton 202(c) (2).) Congress has
never defned t and the Treasury reguatons shed ony mted ght (Treasury
Reguatons 103, secton 19.112(g).) One thng s certan. Congress dd not
ncorporate some technca concept, whether that of accountants or of other
specasts, nto secton 112(g), assumng that there Is agreement among spe-
casts as to the meanng of recaptazaton. nd so, recaptazaton as used
n secton 112(g) must draw ts meanng from ts functon In that.secton. It s
one of the forms of reorganzaton whch obtans the prveges afforded by secton
112(g). Therefore, recaptazaton must be construed wth reference to the
presuppostons and purpose of secton 112(g). It was not the purpose of the
reorganzaton provson to e empt from payment of a ta what as a practca
matter s reazed gan. Normay, a dstrbuton by a corporaton, whatever
form t takes, s a defnte and rather unambguous event. It furnshes the
proper occason for the determnaton and ta aton of gan. ut there are cr-
cumstances where a forma dstrbuton, drecty or through e change of secur-
tes, represents merey a new form of the prevous partcpaton n an enterprse.
Invovng no change of substance In the rghts and reatons of the nterested
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81
19.115-9.
partes one to another or to the corporate assets. s to these, Congress has
sad that they are not to be deemed sgnfcant occasons for determnng ta abe
gan.
These consderatons undere secton 112(g) and they shoud domnate the
scope to be gven to the varous sectons, a of whch converge toward a common
purpose. ppcaton of the anguage of such a revenue provson Is not an
e ercse n framng abstract defntons. In a seres of cases ths Court has
wthhed the benefts of the reorganzaton provson n stuatons whch mght
have satsfed provsons of the secton treated as nert anguage, because they
were not reorganzatons of the knd wth whch secton 112, n ts purpose and
partcuars, concerns tsef. (See Pneas Ice d Cod Storage Co. v. Convm -
soner, 287 U. S., 62 Ct. D. 630, C. . II-1, 161 (1933) ; Gregory v. Ieverng,
293 U. S., 65 Ct D. 911, C. . I -1, 193 (1935) ; he Tue v. cofed, 308
U. S., 15 Ct. D. 1 32, C. . 19 0-1, 151 .)
Congress has not attempted a defnton of what s recaptazaton and we
sha foow ts e ampe. The search for reevant meanng s often satsfed not
by a fute attempt at abstract defnton but by prckng a ne through concrete
appcatons. Meanng frequenty Is but up by assured recognton of what
does not come wthn a concept the content of whch s In controversy. Snce a
recaptazaton wthn the scope of secton 112 s an aspect of reorganzaton,
nothng can be a recaptazaton for ths purpose uness t partakes of those
characterstcs of a reorganzaton whch undere the purpose of Congress
n postponng the ta abty.
No doubt there was a recaptazaton of the azey corporaton In the sense
that the symbos that represented ts capta were changed, so that the fsca
bass of ts operatons woud appear very dfferenty on ts books. ut the form
of a transacton as refected by correct corporate accountng opens questons as
to the proper appcaton of a ta ng statute; t does not cose them. Corporate
accountng may represent that correspondence between change In the form of
capta structure and essenta Identty n fact whch s of the essence of a trans-
acton reeved from ta aton as a reorganzaton. What Is controng s that
a new arrangement ntrnscay partake of the eements of reorganzaton whch
undere the congressona e empton and not merey gve the appearance of t
to accompsh a dstrbuton of earnngs. In the case of a corporaton whch has
undstrbuted earnngs, the creaton of new corporate obgatons whch are
transferred to stockhoders n reaton to ther former hodngs, so as to produce,
for a practca purposes, the same resut as a dstrbuton of cash earnngs of
equvaent vaue, can not obtan ta Immunty because cast n the form of a
recaptazaton-reorganzaton. The governng ega rue can hardy be stated
more narrowy. To attempt to do so woud ony chaenge astuteness- n evadng
It. nd so t s hard to escape the concuson that whether In a partcuar case a
paper recaptazaton s no more than an admssbe attempt to avod the conse-
quences of an outrght dstrbuton of earnngs turns on detas of corporate
affars, udgment on whch must be eft to The Ta Court (See Dobson v.
CommUsoner, 820 U. 8., 89 Ct. D. 1597, O. . 19 , 66 .)
What have we here No doubt, If the azey corporaton had ssued the
debentures to azey and hs wfe wthout any recaptazaton, t woud have
made a ta abe dstrbuton. Instead, these debentures were Issued as part of a
famy arrangement, the ony addtona Ingredent beng an unreated modf-
caton of the capta account. The debentures were found to be worth at east
ther prncpa amount, and they were vrtuay cash because they were caabe
at the w of the corporaton whch In ths case was the w of the ta payer.
One does not have to pursue the motves behnd actons, even n the more ascer-
tanabe forms of purpose, to fnd, as dd The Ta Court, that the whoe arrange-
ment took ths form Instead of an outrght dstrbuton of cash or debentures,
because the atter woud undoubtedy have been ta abe Income whereas what
was done coud, wth a show of reason, cam the sheter of the Immunty of a
recaptazaton-reorganzaton.
The Commssoner, The Ta Court and the Crcut Court of ppeas agree that
nothng was accompshed that woud not have been accompshed by an outrght
debenture dvdend. nd snce we fnd no msconcepton of aw on the part of
The Ta Court and the Crcut Court of ppeas, whatever may have been ther
choce of phrasng, ther appcaton of the aw to the facts of ths case must
stand. reorganzaton whch s merey a vehce, however eaborate or
eegant, for conveyng earnngs from accumuatons to the stockhoders Is not a
reorganzaton under secton 112. Ths dsposes of the case as a matter of aw,
snce the facts as found by The Ta Court brng them wthn t. nd even If
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29.117-1.
82
ths transacton were deemed a reorganzaton, the facts woud equay sustan
the Imposton of the ta on the debentures under secton 112(c) (1) and (2).1
(Commssoner v. state of edford, 325 U. S., 283 Ct D. 16 1, C. . 19 5, 357 .)
In the dams ease, No. 209, the ta payer owned a but a few of the 5,91
shares of stock outstandng out of an authorzed 6,000, par vaue 100. y a pan
of reorganzaton, the authorzed capta was reduced by haf, to 295,700, d-
vded nto 5,91 shares of no par vaue but havng a stated vaue of 50 per share.
The 5,91 od shares were canceed and the corporaton ssued In e change there-
for 5,91 shares of the new no-par common stock and 6 per cent 20-year debenture
bonds n the prncpa amount of 295,700. The e change was made on the bass
of one new share of stock and one 50 bond for each od share. The od capta
account was debted n the sum of 591, 00, a new no-par capta account was
credted wth 295,700, and the baance of 295,700 was credted to a Debenture
Payabe account. The corporaton at ths tme had accumuated earnngs
nvaabe for dstrbuton n a sum not ess than 16 ,51 .82, and ths account was
eft unchanged. t the tme of the e change, the debentures had a vaue not ess
than 16 ,208.82.
The Commssoner determned an ncome ta defcency by treatng the de-
benture bonds as a dstrbuton of the corporaton s accumuated earnngs. The
Ta Court sustaned the Commssoner s determnaton (5 T. C, 351), and the
crcut court of appeas affrmed. (155 Fed. (2d), 2 6.) The case s governed
by our treatment of the azey case. The fndng by The Ta Court that the
reorganzaton had no purpose other than to acheve the dstrbuton of the earn-
ngs, s unaffected by the bookkeepng deta of eavng the surpus account un-
affected. (See secton 115(b), and Commssoner v. Wheeer, 32 U. S., 5 2, 5 6
Ct. D. 1637, C. . 19 5, 3 9, 851 .)
Other cams rased have been consdered but ther re|ecton does not ca for
dscusson.
udgments affrmed.
Mr. ustce Douo as and Mr. ustce ubton dssent In both cases for the rea-
sons stated n the ont dssent of udges Mars and Goodrch In the court beow.
( azey v. Commssoner, 155 Fed. (2d), 237, 2 .)
n amount pad as consderaton for the transfer of a quor
cense consttutes a capta Investment whch must be carred on the
books of the transferee as a capta asset unt such tme as the
cense Is agan transferred or termnated.
dvce s requested reatve to the treatment, for Federa ncome
ta purposes, to be gven an amount pad to the hoder of a cense
ssued under authorty of the Caforna cohoc everage Contro
ct as consderaton for the assgnment or transfer of such cense.
In the case under consderaton, an ndvdua hods a cense to en-
gage n the on-sae quor busness, whch cense was ssued by the
State oard of quazaton of the State of Caforna. The cense
s renewabe each year at a cost of 525. The number of censes ssued
s mted, and t appears to be the usua practce of the State board of
equazaton to renew a cense upon appcaton therefor. It s stated
that a person hodng such a cense has no property rght theren;
that when a censee transfers or assgns a cense, the transferee or
assgnee does not receve the same cense whch the transferor or
assgnor hed; and that athough the censee s prveged to transfer
s amended by Supreme Court order of October 13, 19 7.
S CTION 117. C PIT L G INS ND LOSS S.
19 7-22-12673
I. T. 3873
INT RN L R NU COD .
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83
29.117- .
or assgn hs cense, hs agreement to transfer or assgn merey paces
the transferee or assgnee n a poston to appy for a new cense, ssu-
ance of whch s wthn the dscreton of the State board of equa-
zaton.
In The ston Co. v. Unted States (86 Ct, Cs., 136, 21 Fed. Supp.,
267), a sut for the recovery of ncome ta es, the ta payer owned 382
saoon cense renewa rghts n the cty of Chcago, 2 9 of whch
had been acqured by transfer or assgnment at a cost of 258,575.70.
though the renewa of saoon censes n the cty of Chcago rested
entrey wthn the dscreton of the admnstratve authortes, t had
been the practce of such authortes to ssue censes to hoders of
od censes or to regstered assgnees of orgna hoders. s the
number of saoon censes whch mght be ssued was mted n num-
ber, the renewa rghts had a substanta vaue. The court con-
cuded that the renewa rghts consttuted property whch was
sub|ect to purchase, sae, and assgnment, separate from the busness
tsef, and that the oss resutng from the worthessness and abandon-
ment of such property n 1919 was deductbe from gross ncome, as a
oss under secton 23 (a) ( ) of the Revenue ct of 1918, ctng W-
Uam Zakon v. Commssoner (7 . T. ., 687, acquescence, page 5,
ths uetn); Mc voy Company v. Commssoner (10 . T. ., 1017,
acquescence, page 3, ths uetn); and est rewery Co. v. Comms-
soner (16 . T. ., 135 , acquescence, C. . III-2, 5 (1929)).
The fe of the property n a cense, whch property s created by
the custom of annua cense renewa, can not be estmated wth any
degree of certanty. Consequenty, a deducton for deprecaton or
obsoescence may not be aowed, nor may a deducton be aowed as
a busness e pense snce the asset has an economcay usefu fe be-
yond the ta abe year.
In vew of the foregong, t s hed that an amount pad as consdera-
ton for the transfer of a quor cense consttutes a capta nvest-
ment whch must be carred on the books of the transferee as a capta
asset unt such tme as the cense s agan transferred or termnated.
Secton 29.117- : Determnaton of perod for 19 7-15-12596
whch capta assets are hed. G. C. M. 25301
( so Secton 117, Secton 19.117- .)
INT RN L R NU COD ND P IO R NU L WS.
Under the provsons of secton 117(h) (1) of the Interna Revenue
Code and correspondng provsons of pror revenue a vs, the hodng
perod of property receved In a ta -free e change ncudes the
hodng perod of the property e changed therefor, even though the
atter property was not a capta asset when It was e changed.
G. C. M. 621 ( C. . -2, 5 (1926)) and G. C. M. 11557 (C. R II-1,
128 (1933)) modfed.
Reference s made to the decson n Commssoner v. veon ock
Gracey et a. (159 Fed. (2d), 32 ) whch affrmed n part a decson
of The Ta Court of the Unted States (5 T. C, 296, acquescences, page
2 of ths uetn). That decson hed, under the provsons of sec-
ton 117(h) (1) of the Interna Revenue Code, that the hodng perod
of property receved n a ta -free e change ncudes the hodng perod
of the property e changed therefor, even though the atter property
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29.118-1.
8
was not a capta asset when t was e changed. The decson of the
court s contrary to the concuson reachedn G. C. M. 621 (C. .
-2, 5 (1926)), promugated under the Revenue cts of 192 and
1926, and G. C. M. 11557 (C. . II-1,128 (1933)), promugated under
the Revenue ct of 1928.
In the Gracey case, t appears that the ta payer, on February 10,
19 0. n a ta -free transacton fang wthn the provsons of secton
112(b) (5) of the Code, e changed an o we drng rg for stock n
a corporaton. e had hed the rg as a member of a partnershp unt
October 31,1939, and as an ndvdua thereafter unt the date of the
e change. The rg havng been sub|ect to an aowance for depreca-
ton, was not a capta asset n hs hands at the tme of the e change.
Part of the stock thus acqured by hm was sod on March 6, 19 0,
and 50 per centum of the recognzed gan was reported as communty
gan from the sae of a capta asset hed for more than 2 months.
The Unted States Crcut Court of ppeas for the Ffth Crcut
affrmed The Ta Court s hodng that the ta payer, n determnng
the hodng perod for the stock, coud ncude the perod durng whch
he hed the rg.
Secton 117(h) (1) of the Code does not e pressy provde that the
property e changed must be a capta asset n order to permt the
ncuson of the hodng perod of such property n determnng the
.hodng perod of the property receved. The ony condton pre-
scrbed n the statute s that for the purpose of determnng gan or
oss from the e change, the property receved must have the same
bass n whoe or n part n the hands of the ta payer as the property
e changed.
In vew of the foregong, t s now the poston of ths offce that
the hodng perod of property receved n a ta -free e change n-
cudes the hodng perod of the property e changed therefor, even
though the atter property was not a capta asset when t was
e changed.
G. C. M. 621 (C. . -2,5 (1926)) and G. C. M. 11557 (C. . II-1,
128 (1933)), supra, are modfed n so far as they hod that a ta -
payer may tack the hodng perod of propertes e changed to the
hodng perod of capta assets receved therefor ony to the e tent
that the propertes e changed were capta assets at the tme of the
e change.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 118. LOSS FROM W S S L S OF
STOC OR S CURITI S.
Secton 29.118-1: Losses from wash saes
of stock or securtes.
INT RN L R NU COD .
Losses sustaned upon settement of a seres of contracts to buy and
se securtes of a reorganzed corporaton when ssued. (See
I. T. 3858, page 71.)
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85
29.110-3.
S CTION 119. INCOM FROM SOURC S WIT IN
UNIT D ST T S.
Secton 29.119-8: Sae of persona property. 19 7-22-1267
G. C. M. 25131
INT RN L R NU COD ND PRIOR R NU L WS.
s a genera rue, for the purpose of determnng the source of
ncome attrbutabe to the sae of persona property, a sae s con-
summated at the pace where the seer surrenders a hs rght, tte,
and nterest to the buyer. Where bare ega tte s retaned by the
seer, the sae w be deemed to have occurred at the tme and pace
of passage to the buyer of benefca ownershp and rsk of oss.
Where the saes transacton s arranged for the prmary purpose
of ta avodance, the foregong rues w not be apped. In such
cases, a factors of the transacton, such as negotatons, e ecuton
of the agreement, ocaton of the property, and pace of payment, w
be consdered, and the sue w be treated as havng been consum-
mated at the pace where the substance of the sae occurred.
G. C. M. 850 (C. . I -2, 35 (1930)) revoked, and G. C. M.
13 75 (C. . III-2, 22 (193 )) modfed. Recommended that I. T.
25 9 (C. . I -2, 360 (1930)) be revoked and that I. T. 2806 (C. .
III-2, 78 (193 )) be modfed.
In vew of acquescence (page 2, ths uetn) by the Commssoner
n ast Coast O Co., S. ., v. Commssoner (31 . T. ,, 558), recon-
sderaton has been gven to G. C. M. 859 (C. . I -2, 35 (1930)),
whch hods that the pace of e ecuton of a contract of sae s the
decsve factor n determnng the pace of sae and, hence, n determn-
ng whether the source of ncome resutng from such a contract s
wthn or wthout the Unted States. dopton of that rue was ac-
companed by a reversa (I. T. 25 9, C. . I -2, 360 (.1930)) of the
ong-standng poston of the ureau that, generay, n a saes trans-
acton, the pace where tte passes determnes the source of ncome.
The concuson reached n G. C. M. 859 , supra, was based n part on
the opnon n Compana Genera de Tabacos de Fpnos v. Coector
(279 U. S., 306), certan parts of whch were deemed to be susceptbe
of an nterpretaton that the pace where a contract of sae s entered
nto s the decsve factor n determnng the pace of sae and thus the
source of ncome. In ast Coast O Co., S. ., v. Commssoner, supra
(affrmed, 85 Fed. (2d), 322, certorar dened, 299 U. S., 608), the
oard stated n part as foows:
s we read t, the Compana Genera case n no wse vares the estabshed
rue that the pace where tte passes Is the pace of sae. There a ta (arsng
under provsons of the Phppne ncome ta aw smar to the provsons of
the 1918 and 1921 cts here matera) was mposed upon net ncome receved
from sources wthn the Phppne Isands.
The ta payer pantff was a corporaton whch produced and purchased prod-
ucts wthn the Isands and dsposed of them n the Unted States through a branch
agency. Under the aw, the profts on the saes were sub|ect to the Phppne
ta , uness the saes were made n the Unted States. The case was submtted
to the Court upon a stpuaton to the effect that the saes were made n the
Unted States, sub|ect however to fna confrmaton by the pantff n the Ph-
ppnes. Under that stpuaton the Court coud not but concude that when con-
frmaton was gven, the sae became compete, and that t was not compete
unt confrmaton was gven. The stpuaton was consstent ony wth the
proposton that property n the goods passed, eo nstant, upon the confrmaton
made n the Phppnes that the pace of sae s where the fna act of the seer,
causng tte to pass, was done. nd to that effect was respondent s argument
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1 1.
86
to the Court The Court dd not say that the pace where Is made an e ecutory
contract of sae s necessary the pace of sae; It dd not set asde the rue that
a sae Is consummated when and where the property In the goods passes. (See
rskey Co., 29 . T. ., 987 acquescence, page 1, ths uetn .)
See aso Ronrco Corporaton v. Commssoner ( . T. ., 1130,
acquescence, C. . 19 , 2 ) and The oon Co. v. Commssoner
( 5 . T. ., 8 , acquescence, page 1, ths uetn).
In vew of the foregong, ths offce adopts the genera rue that,
for the purpose of determnng the source of ncome attrbutabe to
the sae of persona property, a sae s consummated at the pace where
the seer surrenders a hs rght, tte, and nterest to the buyer. In
cases n whch the bare ega tte s retaned by the seer, the sae
w be deemed to have occurred at the tme and pace of the passage
to the buver of the benefca ownershp and the rsk of oss. (See
Ronrco Corporaton v. Commssoner, supra.) owever, n any case
n whch the saes transacton s arranged n a partcuar manner for
the prmary purpose of ta avodance, the foregong ru.es w not
be apped. (See aspare Cohn, Inc., v. Commssoner, 35 . T. .,
6 6.) In such cases, a factors of the transacton, such as negota-
tons, the e ecuton of the agreement, the ocaton of the property, and
the pace of payment, w be consdered, and the sae w be treated
as havng been consummated at the pace where the substance of the
sae occurred.
G. C. M. 859 , supra, s revoked, and G. C. M. 13 75 (C. . III-2,
22 (193 )) s modfed to the e tent t s nconsstent herewth. It s
recommended that I. T. 25 9, supra, be revoked, and that I. T. 2806
(C. . III-2, 78 (193 )) be modfed to the e tent t s nconsstent
herewth.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 29.119-8: Sae of persona property. 19 7-22-12670
I. T. 3875
INT RN L R NU COD ND PRIOR R NU L WS.
In accordance wth the recommendaton n G. C. M. 25131 (page 85,
ths uetn), I. T. 25 9 (C. . I -2, 360 (1930)) s revoked and
I. T. 2806 (C. . III-2, 78 (193 )) s modfed to the e tent t s
nconsstent wth G. C. M. 25131.
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 1. CONSOLID T D R TURNS.
Reguatons 10 , Secton 23.11: Conso- 19 7-18-12631
dated returns for subsequent years. Mm. 617
ecton to fe consodated or separate returns In the case of
affated groups wth ta abe years endng In 19 7.
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87
1 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, ugust 12,19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. In I. T. 3821 (C. . 19 6-2, 72) t was hed that affated groups
whch fed consodated ncome and e cess profts ta returns for fsca
years ended n 19 6 woud not have a new eecton to fe separate
returns for fsca years endng n 19 7. I. T. 385 (C. . f9 7-, 57)
revoked I. T. 3821 and hed that affated groups wth fsca years end-
ng n 19 7 mght fe separate returns for such years notwthstandng
the fact that consodated returns were fed for the pror years.
Snce, however, I. T. 385 was not pubshed unt une 16,19 7, some
affated groups whch otherwse woud have fed separate returns
for fsca years endng n 19 7 fed consodated returns n reance on
I. T. 3821. . .
2. In vew of ths stuaton, where affated groups wth fsca years
endng n 19 7 fed consodated ncome ta returns on or before
ugust 15, 19 7; consderaton w be gven to requests by such aff-
ated groups for e tensons of tme (not to e ceed s months from the
due dates for such returns) n whch to fe separate returns for such
fsca years. Where affated groups eect to fe separate returns
wthn the perod of any e tenson granted, the consodated returns
prevousy fed w be treated as tentatve returns wthn the mean-
ng of secton 23.10(6) of Reguatons 10 ; and as provded n such
reguatons, the payments made n connecton therewth must be
ad|usted n a manner satsfactory to the Commssoner.
3. requests for e tensons of tme under ths mmeograph shoud
be addressed to the Commssoner of Interna Revenue, Washngton
25, D. C, for the attenton of IT : P: C .
Geo. . Schoeneman,
Commssoner.
Reguatons 10 , Secton 23.11: Consodated 19 7-2 -12695
returns for subsequent years. I. T. 3880
nterna revenue code.
ecton wth respect to fng separate Federa Income ta returns
for the caendar year 19 7 by affated corporatons whch fed
consodated Federa Income ta returns for the caendar year
19 6.
dvce s requested whether affated corporatons whch fed con-
sodated Federa ncome ta returns for the caendar year 19 6 may
eect to fe separate Federa ncome ta returns for the caendar year
19 7.
Secton 1 1(a) of the Interna Revenue Code, as amended, provdes
n part as foows:
(a) Prvege to Fe Consodated Income and cess-Profts-Ta Re-
turns. The makng of consodated returns sha be upon the condton
that the affated group sha make both a consodated Income-ta return and
a consodated e cess-profts-ta return for the ta abe year, and that a corpo-
ratons whch at any tme durng the ta abe year have been members of the
affated group makng a consodated Income-ta return consent to a the con-
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29.1 3-1.
88
sodated ncome- and e eess-profts-ta reguatons prescrbed under subsecton
(b) pror to the ast day prescrbed by aw for the fng of such return.
Secton 23.f (a) of Reguatons 10 , as amended, reatng to con-
sodated ncome ta returns of affated corporatons, provdes n part
as foows:
(a) Consodated Returns Requred for Subsequent Years.
If a consodated return s made under these reguatons for any ta abe year,
a consodated return must be made for each subsequent ta abe year durng
whch the affated group remans n e stence uness (2) Chapter
1 of the Code to the e tent appcabe to corporatons, or these reguatons whch
have been consented to, have been amended and any such amendment s of a
character whch makes ess advantageous to affated groups as a cass the con-
tnued fng of consodated returns,
It s hed that the aw appcabe to the fng of consodated Federa
ncome ta returns has been so amended as to make ess advantageous
to affated groups as a cass the contnued fng of such returns,
wthn the meanng of secton 23.11(a) of Reguatons 10 , as
amended, for the caendar year 19 7. ccordngy, affated corpo-
ratons whch fed consodated Federa ncome ta returns for the
caendar year 19 6 may, notwthstandng the fng of such returns,
fe separate Federa ncome ta returns for the caendar year 19 7.
S CTION 1 3. WIT OLDING OF T T SOURC .
Secton 29.1 3-1: Wthhodng ta at source.
INT RN L R NU COD .
Ta on nonresdent aen wfe s share of communty ncome. (See
I. T. 3859, page 98.)
Secton 29.1 3-1: Wthhodng ta at source. 19 7-2 -12698
( so Secton 29.1 3-3; Secton 1 , Secton T. D. 5580
29.1 -2; Secton 211, Secton 29.211-7;
Secton 231, Secton 29.231-1.) .
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29 ND
P RT 7.
Reguatons 111 amended to conform to the Unted 8tates-Unted
ngdom ncome ta conventon, and Treasury Decson 5532 C. .
19 6-2, 73 amended to smpfy wthhodng refatons under such
conventon.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 111 26 CFR, Part 29 to the
ncome ta conventon between the Unted States and the Unted
ngdom of Great rtan and Northern Ireand, sgned pr 16,
19 5, and effectve (for the purposes of Unted States ncome and
e cess profts ta es) for ta abe years begnnng on or after anuary
1, 19 5, and n order to further smpfv the procedure outned n
Treasury Decson 5532, approved ugust 23, 19 6 C. . 19 6-2, 73 .
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89
29.1 3-1.
26 CFR, 7.500-7.511, ncusve , reatng to wthhodng of the ta
at the source under such conventon, such reguatons are amended
as foows:
Paragraph 1. Secton 29.1 3-1, as amended by Treasury Decson
5357, approved pr 19, 19 C. . 19 , 307 26 CFR, 29.1 3-1 ,
s further amended by nsertng the foowng n the frst paragraph
thereof mmedatey foowng (See paragraph 111 of the ppend
to these reguatons.) :
s to rates of wthhodng pursuant to the ta conventon and protoco between
the Unted States and the Unted ngdom, see Treasury Decson 5532, approved
ugust 23, 19 6 26 CFR, 7.50O-7.D11, ncusve .
Par. 2. Secton 29.1 3-3, as amended by Treasury Decson 5517,
approved une 12,19 6 C. . 19 6-2,8 26 CFR, 29.1 3-3 , s further
amended by nsertng mmedatey precedng the penutmate para-
graph thereof the foowng new paragraph:
s to tems of ncome receved on or after anuary 1, 19 5, by resdents of the
Unted ngdom (ncudng foregn corporatons) and not sub|ect to the wth-
hodng provsons of the Interna Revenue Code, see the ta conventon and
protoco between the Unted States and the Unted ngdom and Treasury
Decson 5532 26 CFR, 7.500-7.511, ncusve .
Par. 3. Secton 29.1 -2 26 CFR, 29.1 -2 s amended
( ) y nsertng n Tabe II at the end thereof mmedatey after
( ) y strkng out 6 n the ast ne of the tabe, pror to ts
amendment by ths Treasury decson, and nsertng 7 n eu
thereof.
Par. . Secton 29.211-7, as amended by Treasury Decson 5 3,
approved March 2,19 5 C. . 19 5,231 26 CFR, 29.211-7 , s further
amended by nsertng as the ast sentence of the second paragraph
thereof the foowng:
s to tems of ncome receved n ta abe years begnnng on or after anuary 1,
19 5, by ndvdua resdents of the Unted ngdom, see Treasury Decson 5509,
approved uy 3, 19 7 page 100, ths uetn .
Par. 5. Secton 29.231-1, as amended by Treasury Decson 5 3
26 CFR, 29.231-1 s further amended by nsertng as the ast sentence
of the second paragraph t hereof the foowng:
s to tems of ncome receved n ta abe years begnnng on or after anuary
1, 19 5, by foregn corporatons managed and controed n the Unted ngdom
and not havng a permanent estabshment n the Unted States, see Treasury
Decson 5569, approved uy 3, 19 7.
Par. 6. Treasury Decson 5532, approved ugust 23, 19 6, s
amended by strkng out the thrd paragraph from the end of secton
7.502(a) 26 CFR, 7.502(a) thereof and nsertng n eu thereof the
foowng:
Form 1001 -U must be fed for each three caendar year perod and the frst
such form fed by the ta payer wth any wthhodng agent shoud be fed not
ater than 20 days precedng the date of the frst payment of ncome n such
77338 8 7
R GUL TIONS 111.
6. Resdents (ncudng corporatons) of the Unted
ngdom
_ See Treasury Decson 5532,
approved ugust 23, 19 6.
TR SURY D CISION 5532.
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29.165-6.
90
perod. If the ta payer fes such form wth the wthhodng agent n the caendar
year 19 6 or n any subsequent caendar year no addtona Form 10O1 -T need
be fed pror to the end of the two caendar years mmedatey foowng the
caendar year n whch such form s so fed uness te Commssoner notfes the
wthhodng agent that an addtona Form 1001 -C must be fed by the
ta payer at an earer date.
Ths Treasury decson s pubshed wthout pror genera notce
of ts proposed ssuance for the reason that notce and pubc rue
makng procedure n connecton herewth are hereby found to be
unnecessary snce ths Treasury decson makes ony mnor technca
amendments to Reguatons 111 and amends Treasury Decson 5532
so as to e tend the perod for whch certan forms are requred. See
secton (a) of the dmnstratve Procedure ct, approved une
11 19 6.
Ths Treasury decson sha be effectve on and after the thrty-frst
day of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat, 32; 26 U. S. C, 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 20, 19 7.)
Secton 29.1 3-3: empton from wthhodng.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5580, page 88.)
S CTION 1 . P YM NT OF CORPOR TION
INCOM T T SOURC .
Secton 29.1 -2: ds to wthhodng agents n
determnng abty for wthhodng of ta .
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5580, page 88.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1G5. MPLOY S TRUSTS.
Secton 29.1C5-6: Ta abty of benefcary 19 7-20-12652
under a trust whch meets the requrements G. C. M. 25358
of secton 165(a).
INT RN L R NU COD .
The ong-term capta gans provsons of secton 165(b) of the
Interna Revenue Code, reatng to ta abty of amounts dstrbuted ,
to benefcares of empoyees trusts, are appcabe ony wth respect
to quafed trusteed pans and do not e tend to a nontrustced annuty
contract. -
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91
29.165-6.
n opnon s requested whether the capta gans provsons of
secton 165(b) of the Interna Revenue Code are appcabe wth
respect to a tota dstrbuton pad wthn one ta abe year to an
empoyee or hs benefcary, on account of the empoyee s separaton
from the servce, under a group annuty contract meetng the requre-
ments of secton 165(a) of the Code where the amount s not pad
by a trust.
It s contended that the conte t of secton 162 of the Revenue ct of
19 2, amendng secton 165 of the Code, strongy suggests the reason-
abeness of nterpretng the anguage any such trust, as used n
secton 165(b) of the Code, to mean any such pan for purposes
of carryng out the ntent of Congress, and. that such conte t contans
no word or provson opposed to such an nterpretaton.
Secton 165(b) of the Code, reatng to the ta aton of the bene-
fcares of an e empt empoyees trust, reads as foows:
(b) Ta abty op enefcary. The amount actuay dstrbuted or made
avaabe to any dstrbutee by any such trust sha be ta abe to hm, n the
year In whch so dstrbuted or made avaabe, under secton 22(b) (2) as f It
were an annuty the consderaton for whch s the amount contrbuted by the
empoyee, e cept that f the tota dstrbutons payabe wth respect to any
empoyee are pad to the dstrbutee wthn one ta abe year of the dstrbutee
on account of the empoyee s separaton from the servce, the amount of such
dstrbuton to the e tent e ceedng the amounts contrbuted by the empoyee,
sha be consdered a gan from the sae or e change of a capta asset hed for
more than 6 months.
In the opnon of ths offce the anguage of secton 165(b) of the
Code s unambguous, and t s cear that t reates ony to the ta aton
of the benefcary of a quafed empoyees trust. (See secton
29.165- of Reguatons 111.) Ths constructon s based upon the
use of the words The amount actuay dstrbuted or made avaabe
to any dstrbutee by any such trust. Itacs supped. The refer-
ence must be to a trust descrbed n subsecton (a). trust so
descrbed s e empt from Federa ncome ta for a ta abe year f t
meets certan requrements. Under such a constructon, the above-
quoted provson woud have the same effect f t read substantay
as foows: The amount actuay dstrbuted or made avaabe to any
dstrbutee by any trust that s e empt under secton 165(a) durng
the year wthn whch t made the dstrbuton sha be ta abe to hm
n the year n whch so dstrbuted or made avaabe Such
nterpretaton s borne out by Senate Report No. 1631, Seventy-seventh
Congress (C. . 19 2-2, 50 ), submtted by the Commttee on Fnance
on the Revenue of 19 2. In e panng the effect of the provsons
of proposed secton 165(b) of the Code, t s stated at page 138 of the
Senate report (C. . 19 2-2, 607):
The provsons of the ouse b wth respect to secton 165(b), concernng
the ta aton of the benefcary of a trust whch meets the requrements of secton
165(a), have not been changed e cept to take care of the stuaton where an
empoyee receves the tota dstrbutons that he Is entted to under the pan n
one ta abe year on account of hs separaton from the servce. In such a case,
t s provded that the amount of such dstrbutons to the e tent that It e ceeds
the amounts contrbuted by the empoyee sha be consdered a gan from the
sae or e change of a capta asset hed for more than s months. For e ampe,
If under a proft-sharng trust, the tota dstrbutons to whch an empoyee s
entted are pad to the empoyee In the year n whch he retres or severs hs
connecton wth hs empoyer, or to hs wdow f he des durng the course of hs
empoyment, the amount receved by the empoyee or wdow to the e tent t
e ceeds the empoyee s contrbutons w be consdered a gan from the sae or
e change of a capta asset hed for more than s months.
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19.201(a)- .
92
Nothng s contaned n the foregong e panaton upon whch to
remse a egsatve ntent to confer the capta gans beneft on bene-
cares under group annuty contracts.
The dffcuty wth the contenton whch has been advanced s that t
nvoves a constructon of the statute whch woud be tantamount to
nterpoatng a provson whch Congress dd not see ft to nsert. In
other words, the effect of the contenton made s that the ureau shoud
suppy what s beeved by the ta payer to be an omsson n secton
165(b) of the Code by addng a provson whch woud permt ump-
sum dstrbutons under nontrusteed annuty pans to be treated as
capta gans. In Goud v. Goud (2 5 U. S., 151, 153) the Supreme
Court of the Unted States commented on ths pont as foows:
In the nterpretaton of statutes evyng ta es t s the estabshed rue not to
e tend ther provsons, by mpcaton, beyond the cear mport of the anguage
used, or to enarge ther operatons so as to embrace matters not specfcay
ponted out.
It s true the Goud decson goes on to state that n case of doubt
statutes are construed most strongy aganst the Government and n
favor of the ctzen2 and t s aso true that the ordnary appcaton
of the stated prncpe nvoves constructon n favor of the ta payer.
Nevertheess, the ogc of the above-quoted anguage s equay app-
cabe n a stuaton such as the one here nvoved, where t s sought to
broaden the effect of secton 165(b) of the Code so as to provde cap-
ta gans treatment for ump-sum payments under nontrusteed pans.
It may be argued that such an nterpretaton s desrabe but, even so,
t s beeved that f Congress had ntended to e tend the capta gans
treatment to dstrbutons under such pans t woud have so provded
n the wordng of the statute. Moreover, as ndcated above, secton
29.165-6 of Reguatons 111 nterprets secton 165(b) of the Code as
beng appcabe ony to the ta aton of the benefcary of an empoyees
trust.
For the reasons ndcated above; t s the opnon of ths offce that
the capta gans provsons of secton 165(b) of the Interna Revenue
Code are appcabe ony to tota dstrbutons made from or pursuant
to quafed trusteed pans.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 201(a). T ON LIF INSUR NC
COMP NI S: D FINITION.
Secton 19.201 (a)-: Lfe nsurance companes: 19 7-21-12663
Defnton. Ct. D. 1692
( so Secton 203(a), Secton 19.203(a) (2)-.)
INCOM T INT RN L R NU COD D CISION OF COURT.
L Lfe Insurance Company Reserve Funds ed for Fufment
of Contracts.
corporaton ssung poces of Insurance on the assessment pan
s not a fe nsurance company wthn the defnton of secton
201 (a) of the Interna Revenue Code athough ts reserve funds hed
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19.201(a)- .
for the fufment of Its contracts comprse more than 50 per centum
of Its tota reserve funds, where such reserve was not hed for the
e cusve purpose of the fufment of the obgatons of the poces.
The mortuary fund mantaned by the corporaton, pursuant to ts
by-aws and the State aw, not ony for the payment of pocy cams
and e penses ncdenta thereto but aso for other purposes, Is not the
reserve hed for the fufment of fe nsurance contracts requred
by secton 10.203(a) (2)- of Reguatons 103. The power to use for
genera purposes nterest earned by the assets n reserve consttutes
an authorty to use the mortuary fund for such a purpose and pre-
vents the fund from meetng the crtera for a reserve fund contem-
pated by the statutory defnton.
2. Decson Reversed.
Decson of The Ta Court of the Unted States (6 T. C, 73)
reversed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Commssoner of Interna Revenue, pettoner, v. Natona Reserve Insurance Co.,
respondent.
160 Fed. (2d), 956.
Upon petton to revew a decson of The Ta Court of the Unted States.
efore Denman, Stephens, and one, Crcut udges.
pr 3, 19 7.
OPINION.
Denman, Crcut udge: The Commssoner seeks revew of a decson of The
Ta Court hodng that the appeee, an rzona corporaton ssung poces of
nsurance on the assessment pan, herenafter caed the Company, was a fe
nsurance company wthn the defnton of secton 202(a) of the Interna Revenue
Code and hence not abe for ncome ta defcences found by the Commssoner
for the ta years 1939 and 19 0 to be due on ts Income from assessment recepts
for those years.
The Commssoner found that the Company was a mutua nsurance company
ta abe under secton 207 of the Interna Revenue Code. The Company does
not contest ths fndng of the Commssoner f t be not a fe nsurance company
wthn secton 201(a).
The net ta abe ncome of a fe nsurance company s the gross ncome from
nterest, dvdends and rents ess, nter aa, the amount paced n ts reserve
fund, descrbed n secton 203(a) of the Revenue Code.1
Seeton-201(a) of the Code provdes:
S C. 201. T ON LIF INSUR NC COMP NI S.
(a) Defnton. When used n ths chapter the term fe nsurance com-
pany means an Insurance company engaged n the busness of ssung fe n-
surance and annuty contracts (ncudng contracts of combned fe, heath, and
1 S C. 203. N T INCOM OP LIF INSUR NC COMP NI S.
(a) Genera Rue. In the case of a fe Insurance company the term net Income
means the gross ncome ess

(2) Reserve funds. n amount equa to per centum of the mean of the reserve
funds requred by aw and hed at the begnnng and end of the ta abe year, e cept
that n the case of any such reserve fund whch Is computed at a ower Interest
assumpton rate, the rate of 3 per centum sha be substtuted for per centum
Itacs supped.
Secton 202(b) provdes:
(b) Reserve Funds Requred by Law, Defned. The term reserve funds requred
by aw ncudes, In the case of assessment nsurance, sums actuay deposted by any
company or assocaton wth State or Terrtora offcers pursuant to aw as guaranty
or reserve funds, and any funds mantaned under the charter or artces of Incorporaton
of the company or assocaton e cusvey for the payment of cams arsng under cer-
tfcates of membershp or poces ssued upon the assessment pan and not sub|ect to any
other use.
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19.201(a)- .
9
accdent Insurance), the reserve funds of whch, hed for the fufment of such
contracts, comprse more than 50 per centum of ts tota reserve funds.
The Company has a reserve fund for such nsurance contracts and the Comms-
soner concedes that t e ceeded the 50 per cent requred by secton 201(a) for
the years 1939 and 19 0. The soe queston on ths appea s whether the fund
was hed for the fufment of such contracts.
The Company admts ts mortuary fund, whch t cams compes wth secton
201(a), supra, was created by t under the rzona aw, Its poces and by-aws.
The Ta Court s fndngs show that ths mortuary fund so created was hed to
pay pocy cams and e penses ncdenta thereto; n addton t found t was
hed to (a) pay attorney s fees and the necessary e pense of handng a contested
or dsputed cam; (6) make the depost wth the State treasurer requred by
rzona aw whch was sub|ect to a en of a the Company s credtors; (c) pay
for the e pense of organzng a ega reserve fe nsurance company; (d) make
refunds to pocyhoders of e cessve premums, n the nature of dvdends,
and (e) appy the nterest earned by the assets n the fund to payment of genera
e penses.
( ) The Commssoner cams that the phrase fufment of such contracts
does not ncude the ega e penses n determnng whether ther fufment re-
qures payment Such e penses he contends are but the necessary busness of
an nsurance company. owever, the appcabe Treasury reguatons ndcate
the contrary. Treasury Reguatons 103, secton 19.201 (a)- provdes that the
reserve referred to n secton 201(a) of the Revenue Code must conform wth
secton 19.203(a) (2)- of the reguatons defnng Reserve funds.
Wth respect to the busness e penses, the atter secton provdes that the
reserve does not ncude reserves requred to be mantaned to provde for the
ordnary runnng e penses of a busness defnte n amount, and whch must be
currenty pad by every company from ts ncome f ts busness s to contnue, such
as ta es, saares, rensurance and unpad brokerage: . Itacs supped.
It seems nconcevabe that f the Treasury regarded the attorney s fees n
determnng whether the fufment of the contracts of nsurance as not
a part of such fufment, but were ordnary runnng e penses currenty
pad, t so woud have stated n ths reguaton. Ths nterpretaton s fortfed
by the other succeedng specfc e emptons from payment from the reserve of
the reserve or net vaue of rsks rensured n other sovent companes to
the e tent of the rensurance; reserve for premums pad n advance; annua and
deferred dvdends; accrued but unsetted pocy cams; osses ncurred but un-
reported ; abty on suppementary contracts not Invovng fe contngences;
estmated vaue of future premums whch have been waved on poces after
proof of tota and permanent dsabty. Itacs supped.
( ) The Commssoner contends that the moneys of the Company s reserve
deposted n the State treasury amountng to 2,000 n 1939 and 2,789. 7 n 19 0,
are not hed for the fufment of the nsurance contracts. Ths depost of part of
the reserve wth the State treasurer s requred by secton 53-605 (a), (b) and (e)
of the rzona Code.
owever, such depost s not e cusvey for the fufment of the nsurance
contracts, for under secton 53-605(d)
ny unsetted fna |udgment of a court of ths State sha be a en on the
deposts of money or securtes prescrbed by secton 608b secton 53-605 , and
sub|ect to e ecuton after thrty (30) days from entry of fna |udgment. If sad
depost s depeted thereby t sha be repenshed wthn nnety (90) days.
53-C05. Depost of Money oe Securty. (a) very beneft corporaton organzed
or operatng under the provsons of ths act, before recevng a certfcate of authorty
to transact busness, sha In addton to the requrements of secton 009b secton 03-611 ,
depost wth the State treasurer, to be by hm hed In trust for the beneft and protecton
ot the corporaton s members, the sum of one thousand doars ( 1,000). Thereafter a
further sum of one thousand doars ( 1,000), dvded Into tweve (12) equa monthy
payments, begnnng thrty (30) days after the certfcate of authorty s ssued, sha be
kewse deposted wth the State treasurer. Faure to pay any such monthy payment
sha automatcay cance the corporaton s certfcate of authorty.
(b) In addton to sad deposts every such corporaton sha, not ater than Pebruarv
1, 19 0, and on or before February 1 of each year thereafter, depost wth the State
treasurer, to he by hm hed n trust as herenafter provded, for the beneft and protecton
of the members of the corporaton, a further sum equa to one doar ( 1.00) for each
one thousand doars ( 1,000) of protecton n force on December 31 of the precedng vear.
begnnng as of December 31, 1939, unt a tota of ten thousand doars ( 10,000) has been
deposted
(c) Sad depost may be consdered as a part of any requred reserve of the corporaton
and sha not be sub|ect to wthdrawa so ong as the corporaton has any contract or
other abty outstandng
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95
19.201(a)- .
ny fna |udgment we coud be one for 100,000 arsng from the neggent
kng of four occupants of an automobe n a coson wth the Company s
automobe engaged n busness of the Company In whch the atter s agent s
at faut Such compete wpng out of ths porton of the reserve coud n no
sense be a fufment of the nsurance contracts.
The guaranty or reserve funds deposted wth State offcas under secton
202(b), supra, we consder to be e|usdem geners wth the succeedng funds
there descrbed as any funds mantaned under the charter or artces of ncor-
poraton of the company or assocaton e cusvey for the payment of cams
arsng under certfcates of membershp or poces ssued upon the assessment
pan and not sub|ect to any other use. The funds so deposted wth the rzona
treasurer do not compy wth Treasury Reguatons 103, secton 19.203(o)-,
supra.
(C) Under the Company s by-aws ts mortuary reserve fund s aso hed sub|ect
to pay for the e pense of organzng a dfferent company a ega reserve company.
We agree wth The Ta Court s udge Dsney s dssentng statement that I am
atogether unabe to comprehend how a mortuary fund, sub|ect to be drawn upon
to set up a ega reserve fe nsurance company can be sad to be hed for the
fufment of the Insurance contracts. It Is noted that the ma|orty opnon dd
not even menton ths Important fact.
The crcumstance that the fund may not have been debted n the ta abe years
wth the e penses of organzng a ega reserve company Is rreevant. The
mortuary fund was estabshed and was hed to pay such e penses, whether or
not any were ncurred durng a partcuar year.
(D) rtce I of the Company s by-aws requred the drectors to ssue each
year to each member whose payments had not apsed a certfcate showng the
member s share n the savngs n the mortuary fund. Under ths provson the
Company was requred by the rzona Corporaton Commsson to make refunds
to pocyhoders of premums coected n e cess of the cost of nsurance out of the
mortaty fund, and the amounts so refunded ( 1,597.93 n 1939 and ,15 .18 n
19 0) were treated In ts books as dvdends. ute ceary a fund sub|ect to be
depeted by the -amounts of e cess premums n the nature of dvdends s not a
reserve fund hed for fufment of Insurance contracts. Compare the cases
whch decde that a reserve hed to pay dvdends or coupons representng dv-
dends to pocyhoders are mere abty or sovency reserves and not fe nsurance
reserves In the technca sense. New York Lfe Insurance Co. v. otcers, 283
U. S., 2 2 Ct D. 337, C. . -, 8 (1931) ; everng v. Inter-Mountan Lfe
Insurance Co., 29 U. S., 686 Ct. D. 950, C. . I -1, 339 (1935) ; everng v.
Montana Lfe Insurance Co., 8 Fed. (2d), 623 (C. C. . 9) ; Contnenta ssurance
Co. v. Unted States, 8 Fed. Supp., 7 (C. Cs.) ; Massachusetts Mutua Lfe Insur-
ance Co. v. Unted States, 56 Fed. (2d), 897 (C. Cs.) Ct. D. 502, C. . I-1, 296
(1932) ; Mnnesota Mutua Lfe Insurance Co. v. Unted States, 66 C. Cs., 81,
certorar dened, 279 U. S., 856; qutaoe Lfe ssurance Socety v. Commssoner,
33 . T. ., 708, 716-717; Mdand Mutua Lfe Insurance Co. v. Commssoner,
19 . T. ., 765.) See secton 19.203(a) (2)- of Treasury Reguatons 103, whch
provdes that the term reserves does not Incude amounts mantaned for annua
and deferred dvdends.
The Ta Court seems to have recognzed that the payment of these dvdends
from the mortuary fund was not a payment to fuf contracts. owever, t
attempted to |ustfy ts hodng that the mortuary fund was hed to fuf contracts
on the theory that the payment of dvdends dd not n fact reduce the reserve n
the ta abe years beow ega requrements. ut ths, of course, s mmatera to
the Issue under the statute. Snce the Company mantaned ony one reserve
fund, ts mortuary fund, and snce ths fund was sub|ect to Invason for premum
refunds, It does not meet the statutory test whch specfes a reserve fund hed ony
to fuf contracts.
( ) Secton 53-609(b) of the rzona Code permtted the nterest earned by the
assets of the corporaton, whether deposted wth the State treasurer or otherwse
Invested, to be used for genera operatng e penses. No e cepton s made of In-
terest earned on the assets set asde n a reserve fund. Ths authorzes use of
the mortuary fund for such e penses, for the reason that nterest earned by the
assets comprsng a reserve fund s consdered as a part of the fund. The cassc
defnton of a reserve fund, stated n Maryand Casuaty Co. v. Unted States (251
U. 8., 8 2) and Incorporated n secton 19.203(a) (2)- of Treasury Reguatons
103, s that t Is a sum of money, varousy computed or estmated, whch wth
accretons from nterest, s set asde to mature or qudate future unaccrued and
contngent cams. The reguaton aso states that ony funds dependent upon
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29.202-1.
9G
Interest earnngs for ther mantenance w be consdered as reserves. nd Con-
gress has aways consdered nterest on the reserve fund as of the same character
as the prncpa of the fund, so far as protecton for pocyhoders s concerned.
(See for a fu dscusson, Commssoner v. Monarch Lfe Insurance Co., 11 Fed.
(2d), 31 (C. O. . 1). See aso everng v. Oregon Insurance Co., 311 U. S.,
267, 269 Ct. D. 1 76 (C. . 19 0-2, 23 , 235) ; Massachusetts Mutua Lfe Insur-
ance Co. v. Unted States, 56 Fed. (2d), 897, 899 (C. Cs.) Ct. D. 502 (C. . I-1,
296-297 (1932)) .)
Whe ones v. Okahoma en. Lfe ssn. (151 Fed. (2d), 505 (C. C. . 10) )
hed that authorty to use the Interest earned by the fund nvoved n that case
for genera e penses dd not prevent the fund from quafyng as a reserve fund
hed to fuf contracts, ths concuson was reached because (at page 509):
Under the Okahoma statutes and the by-aws of the assocaton, nterest
earned by the emergency fund of the assocaton does not accrue to the fund and
s no part thereof. ence, use of the nterest for e penses can not be sad to be
a use of the fund.
In the nstant case secton 53-609 (b) of the rzona Code does not provde that
nterest earned sha not be part of the mortuary or reserve fund. Nor does the
Company s by-aws so provde. rtce I of the Company s by-aws merey
prescrbes a death beneft fund and an e pense fund, but does not stpuate that
a Interest earned sha go nto the e pense fund. On the contrary, t s stated
that the e pense fund sha consst of ony membershp and regstraton fees, frst
month s payments of assessments and renstatements, 50 per cent of the foowng
11 months payments nnd 33 per cent of a subsequent payments, thus e cudng
nterest earned by the mortuary fund.
The power to use Interest earned by the assets In reserve for genera e penses
consttutes an authorty to use the mortuary fund for such a purpose and pre-
vents the fund from meetng the crtera for a reserve fund contempated by the
statutory defnton.
The Company contends that snce In nether ta years was ts reserve for
the fufment of Its pocy cams an amount ess than the 50 per cent of
ts tota reserve fund, It has comped wth secton 201(a) of the Code. We do
not agree. The fund was hed for these fve other purposes and hence not for
the e cusve purpose of the fufment of the obgatons of the poces. It Is
Immatera that possbe drans on the reserve dd not happen so to reduce t
beow ts mnmum In these partcuar years.
The Ta Court s In error n hodng that the Company was a fe nsurance
company ta abe under secton 201(a) of the Code and n not determnng Its
ta as a mutua nsurance company under secton 207.
The decson of The Ta Court Is reversed.
S CTION 202. D UST D NORM L-T
N T INCOM .
Secton 29.202-1: Reserve and other pocy 1M7-26-12721
abty credt for ad|usted norma-ta net T. D. 5595
ncome.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 81, 19 1.
Fgure to be used In determnng reserve and other pocy
abty credt for fe nsurance companes.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C, December 19, 19 .7.
To Offcers and mpoyees of the Treasury Department and Others
Concerned:
Paragraph 1. y vrtue of the authorty vested n me by secton
202(b) of the Interna Revenue Code, as amended by secton 163 of
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97
29.20 -2.
the Revenue ct of 19 2 (53 Stat., 71, 5G Stat., 870; 26 U. S. C. and
Sup., 202(b)), t s hereby determned that the fgure to be used n
computng the reserve and other pocy abty credt of fe nsur-
ance companes for the ta abe year 19 7 sha be 1.00G6.
Par. 2. It s found that notce and pubc procedure are unnecessary,
snce the fgure announced n ths Treasury decson s computed from
nformaton contaned n the ncome ta returns of fe nsurance
companes for the year 19 6 whch are not open to pubc nspecton.
The pubc accordngy can not effectvey partcpate n the determ-
naton of sfCh fgure.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 20, 19 7, 8. 7 a. m.)
S CTION 203(a). N T INCOM OF LIF INSUR NC
COMP NI S: G N R L RUL .
Secton 19.203(a) (2)-: Reserve funds.
INT RN L R NU COD .
Reserve fund not hed for e cusve purpose of fufment of obga-
tons of poces. (See Ct. D. 1692, page 92.)
S CTION 20 . INSUR NC COMP NI S OT R
T N LIF OR MUTU L.
Secton 29.20 -2: Gross ncome. 19 7-25-12715
T. D.5593
TITL 20 INT RN L R NU . C PT R I, SU C PT R . P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1.
mendng secton 29.20 -2 of Reguatons 111, reatng to gross
ncome of nsurance companes other than fe or mutua and mutua
marne nsurance companes and mutua tre nsurance companes
Issung perpetua poces.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On March 12, 19 7, notce of proposed rue makng reatng to the
gross ncome of certan nsurance companes was pubshed n the
Federa Regster (12 F. R., 1688). fter consderaton of a such ree-
vant matter as was presented by nterested persons regardng the pro-
posa, the foowng amendment to Reguatons 111 26 CFR, Part 29
s hereby adopted.
Secton 29.20 -2, as amended by Treasury Decson 5387, approved
uy 1,19 C. . 19 , 336 26 CFR, 29.20 -2 , s further amended
by addng at the end thereof a new paragraph to read as foows:
For ta abe years begnnng after December 31, 19 6, that part of the deduc-
ton for osses Incurred whch represents an ad|ustment to osses pad
|
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29.211-7.
OS
for savage and rensurance recoverabe sha, e cept as herenafter pro-
vded, ncude a savage n course of qudaton, and a rensurance In process
of coecton not otherwse taken nto account as a reducton of osses pad,
outstandng at the end of the ta abe year. Savage n course of qudaton In-
cudes a property (other than cash), rea or persona, tangbe or ntangbe,
e cept that whch may not be ncuded by reason of e press statutory provsons
(or rues and reguatons of an nsurance department) of any State or Terrtory
or the Dstrct of Coumba n whch the company transacts busness. Such
savage n course of qudaton ha be taken nto account to the e tent of the
vaue thereof at the end of the ta abe year as determned from a far and rea-
sonabe estmate based upon ether the facts n each case or the company s
e perence wth smar cases. Cash receved durng the ta abe year wth
respect to tems of savage or rensurance sha be taken nto account In com-
putng osses pad durng suc ta abe year. To the e tent attrbutabe to osses
pad pror to anuary 1, 19 7, savage and rensurance sha be accounted for
n accordance wth the practce of the company as refected In Its Income ta
return for the year 19 6.
(Ths Treasury decson s ssued under authorty contaned n sec-
tons 62 and 3791 of the Interna Revenue Code (53 Stat., 32, 67; 26
U. S. C, 62, 3791).)
Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved December 2, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster December 9, 19 7.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 211. T ON NONR SID NT LI N
INDI IDU LS.
Secton 29.211-7: Ta aton of nonresdent 19 7-1 -1258
aen ndvduas. I. T. 3859
( so Secton 1 3, Secton 29.1 3-1.)
INT RN L R NU COD .
Ta abty of a nonresdent aen wfe s share of communty
ncome, wth partcuar reference to the abty of the husband to
wthhod Federa Income ta on such ncome.
s dvce s requested reatve to the ta abty, for Federa ncome
ta purposes, of the ncome of a nonresdent aen wfe, the ownershp
of whch ncome s soey attrbutabe to the fact that her husband s
domced n a communty property State. dvce s aso requested
as to the abty of the husband to wthhod Federa ncome ta on
such ncome.
It has been hed that so ong as the marrage reatonshp contnues
the domce of a husband n a communty property State f es the
domce of the wfe n that State. (See Pau Cavanagh v. Comms-
soner, 2 . T. ., 1037, affrmed, 125 Fed. (2d), 366, and erbert
Marsha v. Commssoner, 1 . T. ., 106 , acquescences, page 3 of
ths uetn.) owever, the fact that a wfe s domced n a com-
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29.211-7.
munty property State for the purpose of a dvson of the communty
ncome does not answer the queston whether she s a resdent of the
Unted States. The terms domce and resdence are not
synonymous. (See Chares W. owrmg v. owers, 2 Fed. (2d),
918, T. D. 16 , C. . II-1, 98 (1928), certorar dened, 277 U. S.,
608.) ccordngy, the wfe of a ctzen or resdent of the Unted
States may be a nonresdent aen for ncome ta purposes notwth-
standng the fact that under the State aw she s consdered as havng
a domce n ths country. The resdence of such a wfe must be
determned by appyng the rues set forth n sectons 29.211-1 to
29.211-5 of Reguatons 111.
In genera, under the aws of the communty property States, the
wfe has a present vested nterest n the communty property whch s
equa to that of her husband, and one-haf of the communty ncome
may be reported by her n her separate Federa ncome ta return.
(See Poe v. . G. Seaborn, 282 U. 3.. 101, Ct. D. 259, C. . I -2, 202
(1930); Goode v. /. . och, 282 U. S.. 118, Ct. D. 262, C. . I -2,199
(1930) ; ender v. Wam Pfaff, 282 U. S., 127, Ct. D. 261, C. . I -2,
200 (1930) ; opkns v. C. W. acon, 282 U. S., 122, Ct. D. 260, C. .
I -2, 201 (1930); and Unted States v. Robert . Macom, 282 U. S.,
792.) though the husband has the management and contro of the
communty property and s agent for the communty estate, he s not
the agent for the wfe for Federa ncome ta purposes n the absence
of a power of attorney to that effect. e, therefore, can not be re-
qured to fe a return on behaf of hs wfe. Furthermore, where hs
wfe s a nonresdent aen, a |ont return may not be fed. (See sec-
ton 51(b) of the Code.)
Secton 1 3(b) of the Interna Revenue Code provdes n part as
foows:
(b) Nonkesdent ens. persons, In whatever capacty actng,
havng the contro, recept, custody, dsposa, or payment of Interest
dvdends, rent, saares, wages, premums, annutes, compensatons, remunera-
tons, emouments, or other f ed or determnabe annua or perodca gans,
profts, and ncome (but ony to the e tent that any of the above tems consttutes
gross ncome from sources wthn the Unted States), of any nonresdent aen
ndvdua, sha deduct and wthhod from such annua
or perodca gans, profts, and Income a ta equa to 30 per centum
thereof
In vew of the foregong, t s hed that n cases where the husband s
domced n a communty property State, and the wfe s a nonresdent
aen, the husband s requred to wthhod the ta prescrbed under
secton 1 3(b) of the Code, supra, or such ta as may be prescrbed by
treaty, and to pay such ta to the coector of nterna revenue. (See
secton 1 3(c) of the Code.) Faure of the husband to deduct, wth-
hod, and pay such ta may render hm abe to the penates pre-
scrbed by secton 1 5 (a) and (b) of the Code.
If the Federa ncome ta abty of the nonresdent aen wfe has
not been fuy satsfed by wthhodng under secton 1 3(b) of the
Code, and she has not fed or caused to be fed a Federa ncome ta
return accountng for the addtona ta due, the Commssoner or a
coector of nterna revenue may, pursuant to authorty conferred by
secton 3612 of the Code, make a return for her whch s suffcent for
a ega purposes. ny ta whch the wfe does not pay upon notce
and demand from the coector may be coected by dstrant aganst, or
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29.211-7.
100
evy upon, communty property under the management and contro of
the husband, or any other property of the wfe whch the husband has
n hs possesson or contro. (See sectons 276 (c) and 3710 (a) and (b)
of the Code.)
Secton 29.211-7: Ta aton of nonresdent aen 19 7-16-12597
ndvduas. T. D. 5569
( so Secton 231, Secton 29.231-1.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 7. T -
TION PURSU NT TO TR TI S. SU P RT UNIT D INGDOM; T L
T RS GINNING FT R D C M R 31, 19 .
Reguatons affectng the ta aton of nonresdent aens who are
resdents of the Unted ngdom and foregn corporatons managed
and controed n the Unted ngdom under the ncome ta conven-
ton and protoco between the Unted States and the Unted ng-
dom, procamed by the Presdent of the Unted States on uy 30,
19 6.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
On February 22, 19 7, notce of proposed rue makng under the
ncome ta conventon and suppementary protoco between the Unted
States and the Unted ngdom of Great rtan and Northern Ire-
and, both of whch were procamed by the Presdent of the Unted
States on uy 30, 19 6, was pubshed n the Federa Regster (12
F. R., 1236). fter consderaton of a such reevant matter as
was presented by nterested persons regardng the proposa, the fo-
owng reguatons are adopted for the purposes of such conventon
and protoco (see secton 7.51 ).
Secton.
7.512. Introductory.
7.513. ppcabe provsons of the Interna Revenue Code.
7.51 . Scope of the conventon.
7.515. Defntons.
7.510. Scope of conventon wth respect to determnaton of ndustra or com-
merca profts.
7.517. Contro of a domestc enterprse by a Unted ngdom enterprse.
7.51S. Income from operaton of shps and arcraft.
7.51 ). empton from, or reducton n rate of, Unted States ta In the case
of dvdends, nterest, royates, natura resource royates, and rea
property rentas.
7.520. Government wages, saares, pensons, and smar remuneratons.
7.521. Compensaton for abor or persona servces.
7.522. Pensons and fe annutes.
7.523. Capta gans.
7.52 . Dvdends and nterest pad by a Unted ngdom corporaton.
7.525. Unted ngdom corporatons empton from Federa ta aton wth
respect to accumuated profts or undstrbuted ncome.
7.528. stng professors or teachers.
7.527. Remttances.
7.528. Credt aganst Unted States ta abty for ncome ta pad or deemed
to have been pad to the Unted ngdom.
7.529. d|ustment of ta abty of nonresdent aens who are resdents of the
Unted ngdom and of Unted ngdom corporatons.
7.530. Recproca admnstratve assstance.
7.531. Informaton to be furnshed n due course.
7.532. Informaton n specfc cases.
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101
29.211-7.
Secton 7.512. Introductory. The ncome ta conventon between
the Unted States and the Unted ngdom of Great rtan and
Northern Ireand, sgned pr 16, 19 5, and suppementary protoco,
sgned at Washngton on une 6,19 6, both of whch were procamed
by the Presdent of the Unted States on uy 30, 19 6, and effectve
(for the purposes of Unted States ncome and e cess profts ta es)
for ta abe years begnnng on or after anuary 1, 19 5 (herenafter
referred to as the conventon), provde as foows:
TICI. I.
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the Unted States of merca :
The Federa ncome ta es, Incudng surta es and e cess profts ta es
(herenafter referred to as Unted States ta ).
(6) In the Unted ngdom of Great rtan and Northern Ireand:
The ncome ta (ncudng surta ), the e cess profts ta and the natona
defense contrbuton (herenafter referred to as Unted ngdom ta ).
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng party subsequenty to
the date of sgnature of the present conventon or by the government of any
terrtory to whch the present conventon s e tended under rtce II.
rtce II.
(1) In the present conventon, uness the conte t otherwse requres:
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense means the States, the Terrtores of
aska and of awa, and the Dstrct of Coumba.
(6) The term Unted ngdom means Great rtan and Northern
Ireand, e cudng the Channe Isands and the Ise of Man.
(c) The terms terrtory of one of the contractng partes and terr-
tory of the other contractng party mean the Unted States or the Unted
ngdom as the conte t requres.
(d) The term Unted States corporaton means a corporaton, asso-
caton or other ke entty created or organzed n or under the aws of the
Unted States.
(e) The term Unted ngdom corporaton means any knd of |urdca
person created under the aws of the Unted ngdom.
(/) The terms corporaton of one contractng party and corporaton
of the other contractng party mean a Unted States corporaton or a
Unted ngdom corporaton as the conte t requres.
(g) The term resdent of the Unted ngdom. means any person
(other than a ctzen of the Unted States or a Unted States corporaton)
who s resdent n the Unted ngdom for the purposes of Unted ngdom
ta and not resdent n the Unted States for the purposes of Unted States
ta . corporaton s to be regarded as resdent In the Unted ngdom f
ts busness s managed and controed n the Unted ngdom.
(h) The term resdent of the Unted States means any ndvdua who
Is resdent n the Unted States for the purposes of Unted States ta and
rot resdent n the Unted ngdom for the purposes of Unted ngdom
ta , and any Unted States corporaton and any partnershp created or
organzed n or under the aws of the Unted States, beng a corporaton or
partnershp whch s not resdent n the Unted ngdom for the purposes
of Unted ngdom ta .
() The term Unted ngdom enterprse means an ndustra or
commerca enterprse or undertakng carred on by a resdent of the Unted
ngdom.
(/) The term Unted States enterprse means an ndustra or commer-
ca enterprse or undertakng carred on by a resdent of the Unted States.
(fc) The terms enterprse of one of the contractng partes and enter-
prse of the other contractng party mean a Unted States enterprse or a
Unted ngdom enterprse, as the conte t requres.
(I) The term permanent estabshment when used wth respect to an
enterprse of one of the contractng partes means a branch, management,
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29.211-7.
102
factory or other f ed pace of busness, but does not ncude an agency uness
the agent has, and habtuay e ercses, a genera authorty to negotate and
concude contracts on behaf of such enterprse or has a stock of merchandse
from whch he reguary fs orders on ts behaf. n enterprse of one of
the contractng partes sha not be deemed to have a permanent estabsh-
ment n the terrtory of the other contractng party merey because t carres
on busness deangs n the terrtory of such other contractng party through
a bona fde commsson agent, broker, or custodan actng n the ordnary
course of hs busness as such. The fact that an enterprse of one of the
contractng partes mantans n the terrtory of the other contractng party
a f ed pace of busness e cusvey for the purchase of goods or merchandse
sha not of tsef consttute such f ed pace of busness a permanent estab-
shment of such enterprse. The fact that a corporaton of one contractng
party has a subsdary corporaton whch s a corporaton of the other con-
tractng party or whch s engaged n trade or busness n the terrtory of
such other contractng party (whether through a permanent estabshment or
otherwse) sha not of Itsef consttute that subsdary corporaton a perma-
nent estabshment of ts parent corporaton.
(2) For the purposes of rtces I, II, III, I , and I a resdent of the
Unted ngdom sha not be deemed to be engaged n tra|p or busness n the
Unted States In any ta abe year uness such resdent has a permanent estabsh-
ment stuated theren In such ta abe year. The same prncpe sha be apped,
mutats mutands, by the Unted ngdom n the case of a resdent of the Unted
States.
(3) In the appcaton of the provsons of the present conventon by one of
the contractng partes any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch t has under the aws of that
contractng party reatng to the ta es whch are the sub|ect of the present
conventon.
rtce III.
(1) Unted ngdom enterprse sha not be sub|ect to Unted States ta n
respect of ts ndustra or commerca profts uness It s engaged n trade or
busness n the Unted States through a permanent estabshment stuated
theren. If t s so engaged, Unted States ta may be mposed upon the entre
ncome of such enterprse from sources wthn the Unted States.
(2) Unted States enterprse sha not be sub|ect to Unted ngdom ta
n respect of ts ndustra or commerca profts uness t Is engaged n trade
or busness n the Unted ngdom through a permanent estabshment stuated
theren. If t Is so engaged, Unted ngdom ta may be mposed upon the
entre ncome of such enterprse from sources wthn the Unted ngdom:
Provded that nothng n ths paragraph sha affect any provsons of the aw
of the Unted ngdom regardng the mposton of Unted ngdom e cess
profts ta and natona defense contrbuton In the case of nterconnected
companes.
(3) Where an enterprse of one of the contractng partes Is engaged In trade
or busness n the terrtory of the other contractng party through a permanent
estabshment stuated theren, there sha be attrbuted to such permanent estab-
shment the ndustra or commerca profts whch t mght be e pected to
derve f t were an ndependent enterprse engaged n the same or smar
actvtes under the same or smar condtons and deang at arm s ength wth
the enterprse of whch t s a permanent estabshment, and the profts so
attrbuted sha, sub|ect to the aw of such other contractng party, be deemed
to be ncome from sources wthn the terrtory of such other contractng party.
( ) In determnng the Industra or commerca profts from sources wthn
the terrtory of one of the contractng partes of an enterprse of the other
contractn party, no profts sha be deemed to arse from the mere purchase
of goods or merchandse wthn the terrtory of the former contractng party
by such enterprse.
htce I .
Where an enterprse of one of the contractng partes, by reason of ts partc-
paton n the management, contro or capta of an enterprse of the other
contractng party, makes wth or mposes on the atter, n ther commerca or
fnanca reatons, condtons dfferent from those whch woud be made wth an
ndependent enterprse, any profts whch woud but for those condtons have
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103
29.211-7.
accrued to one of the enterprses but by reason of those condtons have not so
accrued, may be Incuded In the profts of that enterprse and ta ed accordngy.
rtce .
(1) Notwthstandng the provsons of rtces III and I of the present con-
venton, profts whch an ndvdua (other than a ctzen of the Unted States)
resdent n the Unted ngdom or a Unted ngdom corporaton derves from
operatng shps documented or arcraft regstered under the aws of the Unted
ngdom, sha be e empt from Unted States ta .
(2) Notwthstandng the provsons of rtces III and I of the present con-
venton, profts whch a ctzen of the Unted States not resdent n the Unted
ngdom or a Unted States corporaton derves from operatng shps documented
or arcraft regstered under the aws of the Unted States, sha be e empt from
Unted ngdom ta .
(3) Ths artce sha be deemed to have superseded, on and after the 1st
day of anuary, 19 5, as to Unted States ta , and on and after the 6th day of
pr, 19 5, as to Unted ngdom ta , the arrangements reatng to recproca
e empton of shppng profts from ncome ta effected between the Government
of the Unted States and the Government of the Unted ngdom by e change of
notes dated ugust 11, 192 , November 18, 192 , November 20, 192 , anuary 15,
1925, February 13, 1925, and March 16, 1925, whch sha accordngy cease to
have effect.
rtce I.
(1) The rate of Unted States ta on dvdends derved from a Unted States
corporaton by a resdent of the Unted ngdom who s sub|ect to Unted ng-
dom ta on such dvdends and not engaged n trade or busness n the Unted
States sha not e ceed 15 per cent: Provded that such rate of ta sha not
e ceed 5 per cent f such resdent s a corporaton controng, drecty or Ind-
recty, at east 95 per cent of the entre votng power n the corporaton payng
the dvdend, and not more than 25 per cent of the gross ncome of such payng
corporaton Is derved from Interest and dvdends, other than Interest and dv-
dends receved from Its own subsdary corporatons. Such reducton of the rate
to 5 per cent sha not appy If the reatonshp of the two corporatons has been
arranged or s mantaned prmary wth the Intenton of securng such reduced
rate.
(2) Dvdends derved from sources wthn the Unted ngdom by an nd-
vdua who s (a) a resdent of the Unted States, (6) sub|ect to Unted States
ta wth respect to such dvdends, and (c) not engaged In trade -or busness
n the Unted ngdom, sha be e empt from Unted ngdom surta .
(3) ther of the contractng partes may termnate ths artce by gvng wrt-
ten notce of termnaton to the other contractng party, through dpomatc chan-
nes, on or before the 30th day of une n any year after the year 19 5, and In
such event paragraph (1) hereof sha cease to be effectve as to Unted States
ta on and after the 1st day of anuary, and paragraph (2) hereof sha cease
to be effectve as to Unted ngdom ta on and after the 6th day of pr, In
the year ne t foowng that n whch such notce s gven.
rtce II.
(1) Interest (on bonds, securtes, notes, debentures, or on any other form of
Indebtedness) derved from sources wthn the Unted States by a resdent of the
Unted ngdom who Is sub|ect to Unted ngdom ta on such nterest and not
engaged n trade or busness n the Unted States, sha be e empt from Unted
States ta ; but such e empton sha not appy to such nterest pad by a Unted
States corporaton to a corporaton resdent n the Unted ngdom controng,
drecty or ndrecty, more than 50 per cent of the entre votng power In the
payng corporaton.
(2) Interest (on bonds, securtes, notes, debentures, or on any other form of
Indebtedness) derved from sources wthn the Unted ngdom by a resdent
of the Unted States who Is sub|ect to Unted States ta on such nterest and not
engaged In trade or busness n the Unted ngdom, sha be e empt from Unted
ngdom ta ; but such e empton sha not appy to such nterest pad by a cor-
poraton resdent n the Unted ngdom to a Unted States corporaton con-
trong, drecty or Indrecty, more than 50 per cent of the entre votng power
n the payng corporaton.
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29.211-7.
10
rtce III.
(1) Royates and other amounts pad as consderaton for the use of, or for
the prvege of usng, copyrghts, patents, desgns, secret processes and formuae,
trade-marks, and other ke property, and derved from sources wthn the Unted
States by a resdent of the Unted ngdom who s sub|ect to Unted ngdom
ta on such royates or other amounts and not engaged In trade or busness n
the Unted States, sha be e empt from Unted States ta .
(2) Royates and other amounts pad as consderaton for the use of, or for
the prvege of usng, copyrghts, patents, desgns, secret processes and formuae,
trade-marks, and other ke property, and derved from sources wthn the Unted
ngdom by a resdent of the Unted States who s sub|ect to Unted States ta
on such royates or other amounts and not engaged n trade or busness n the
Unted ngdom, sha be e empt from Unted ngdom ta .
(3) For the purpose of ths artce the term royates sha be deemed to
ncude rentas n respect of moton pcture fms.
rtce I .
(1) The rate of Unted States ta on royates In respect of the operaton of
mnes or quarres or of other e tracton of natura resources, and on rentas
from rea property or from an Interest In such property, derved from sources
wthn the Unted States by a resdent of the Unted ngdom who Is sub|ect to
Unted ngdom ta wth respect to such royates or rentas and not engaged In
trade or busness In the Unted States, sha not e ceed 15 per cent: Provded
that any such resdent may eect for any ta abe year to be sub|ect to Unted
States ta as f such resdent were engaged In trade or busness n the Unted
States.
(2) Royates n respect of the operaton of mnes or quarres or of other
e tracton of natura resources, and rentas from rea property or from an
nterest n such property, derved from sources wthn the Unted ngdom by
an ndvdua who s (a) a resdent of the Unted States, (o) sub|ect to Unted
States ta wth respect to such royates and rentas, and (o) not engaged In
trade or busness n the Unted ngdom, sha be e empt from Unted ngdom
surta .
rtce .
(1) ny saary, wage, smar remuneraton, or penson pad by the Govern-
ment of the Unted States to an ndvdua (other than a rtsh sub|ect who s
not aso a ctzen of the Unted States) In respect of servces rendered to the
Unted States In the dscharge of governmenta functons, sha be e empt from
Unted ngdom ta .
(2) ny saary, wage, smar remuneraton, or penson pad by the Govern-
ment of the Unted ngdom to an ndvdua (other than a ctzen of the Unted
States who s not aso a rtsh sub|ect) n respect of servces rendered to the
Unted ngdom n the dscharge of govermenta functons, sha be e empt
from Unted States ta .
(3) The provsons of ths artce sha not appy to payments n respect of
servces rendered n connecton wth any trade or busness carred on by ether
of the contractng partes for purposes of proft.
rtce I.
(1) n ndvdua who s a resdent of the Unted ngdom sha be e empt
from Unted States ta upon compensaton for persona (ncudng professona)
servces performed durng the ta abe year wthn the Unted States f (a) he s
present wthn the Unted States for a perod or perods not e ceedng n the
aggregate 183 days durng such ta abe year, and (6) such servces are per-
formed for or on behaf of a person resdent n the Unted ngdom.
(2) n ndvdua who s a resdent of the Unted States sha be e empt from
Unted ngdom ta upon profts, emouments, or other remuneraton n respect
of persona (ncudng professona) servces performed wthn the Unted ng-
dom n any year of assessment f (a) he s present wthn the Unted ngdom
for a perod or perods not e ceedng n the aggregate 183 days durng that year,
and (6) such servces are performed for or on behaf of a person resdent n
the Unted States.
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105
29.211-7.
(3)1 The provsons of ths artce sha not appy to the compensaton, profts,
emouments, or other remuneraton of pubc entertaners such as State, moton
pcture, or rado artsts, muscans, and athetes.
btce II.
(1) ny penson (other than a penson to whch rtce appes), and any
fe annuty, derved from sources wthn the Unted States by an ndvdua
who s a resdent of the Unted ngdom sha be e empt from Unted States ta .
(2) ny penson (other than a penson to whch rtce appes), and any
fe annuty, derved from sources wthn the Unted ngdom by nu ndvdua
who s a resdent of the Unted States sha be e empt from Unted ngdom ta .
(3) The term fe annuty means a stated sum payabe perodcay at
stated tmes, durng fe or durng a specfed or ascertanabe perod of tme,
under an obgaton to make the payments In consderaton of money pad.
btce III.
(1) Sub|ect to secton 131 of the Unted States Interna Ttevenue Code as n
effect on the 1st day of anuary, 19 5, Unted ngdom tas. sha be aowed as
a credt aganst Unted States ta . For ths purpose, the recpent of a dvdend
pad by a corporaton whch s a resdent of the Unted ngdom sha be deemed
to have pad the Unted ngdom ncome ta approprate to such dvdend f
such recpent eects to ncude n hs gross ncome for the purposes of Unted
States ta the amount of such Unted ngdom ncome ta .
(2) Sub|ect to such provsons (whch sha not affect the genera prncpe
hereof) as may be enacted n the, Unted ngdom, Unted States ta payabe
n respect of ncome from sources wthn the Unted States sha be aowed as
a credt aganst any Unted ngdom ta payabe n respect of that ncome.
Where such ncome s an ordnary dvdend pad by a Unted States corporaton,
such credt sha take nto account (n addton to any Unted States ncome ta
deducted from or mposed on such dvdend) the Unted States ncome ta m-
posed on such corporaton n respect of ts profts, and where t s a dvdend pad
on partcpatng preference shares and representng both a dvdend at the f ed
rate to whch the shares are entted and an addtona partcpaton n profts,
such ta on profts sha kewse be taken nto account n so far as the dvdend
e ceeds such f ed rate.
(3) For the purposes of ths artce, compensaton, profts, emouments, and
other remuneraton for persona (Incudng professona) servces sha be
deemed to be Income from sources wthn the terrtory of the contractng party
where such servces are performed.
rtce I .
resdent of the Unted ngdom not engaged n trade or busness In the
Unted States sha be e empt from Unted States ta on gans from the sae or
e change of capta assets.
btce .
Dvdends and nterest pad on or after the 1st day of anuary, 19 5, by a
Unted ngdom corporaton sha be e empt from Unted States ta e cept
where the recpent s a ctzen of or a resdent of the Unted States or a Unted
States corporaton.
btce I.
Unted ngdom corporaton sha be e empt from Unted States ta on ts
accumuated or undstrbuted earnngs, profts, ncome, or surpus, f ndvduas
who are resdents of the Unted ngdom contro, drecty or Indrecty, through-
out the ast haf of the ta abe year, more than 50 per cent of the entre votng
power n such corporaton.
rtce II.
(1) The Unted States Income ta abty for any ta abe year begnnng
pror to anuary 1, 1936, of any ndvdua (other than a ctzen of the Unted
1 Paragraph (3) of rtce I was deeted by the protoco approva une 6, 19 6.
77338 8 -8
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29.211-7.
106
States) resdent In the Unted ngdom, or of any Unted ngdom corporaton,
remanng unpad on the date of sgnature of the present conventon, may be
ad|usted on a bass satsfactory to the Unted States Commssoner of Interna
Revenue: Provded that the amount to be pad n settement of such abty
sha not e ceed the amount of the abty whch woud have been determned If
(a) the Unted States Revenue ct of 1930 (e cept n the case of a Unted
ngdom corporaton n whch more than 50 per cent of the entre votng power
was controed, drecty or ndrecty, throughout the atter haf of the ta -
abe year, by ctzens or resdents of the Unted States), and
(6) rtces and I of the present conventon,
had been n effect for such year. If the ta payer was not, wthn the meanng
of such Revenue ct, engaged n trade or busness n the Unted States and had
no offce or pace of busness theren darng the ta abe year, the amount of n-
terest and penates sha not e ceed 50 per cent of the amount of the ta wth
respect to whch such nterest and penates have been computed.
(2) The Unted States ncome ta unpad on the date of sgnature of the
present conventon for any ta abe year begnnng after the 31st day of De-
cember, 1935, and pror to the 1st day of anuary, 19 5, n the case of an In-
dvdua (other than a ctzen of the Unted States) resdent of the Unted ng-
dom, or n the case of any Unted ngdom corporaton sha be determned as
f the provsons of rtces and I of the present conventon had been
n effect for such ta abe year.
(3) The provsons of paragraph (1) of ths artce sha not appy
(a) uness the ta payer fes wth the Commssoner of Interna Revenue
on or before the 31st day of December, 19 7, a request that such ta abty
be so ad|usted and furnshed such nformaton as the Commssoner may
requre; or v
(6) In any case n whch the Commssoner s satsfed that any de-
fcency n ta s due to fraud wth ntent to evade the ta .
rtce III.
professor or teacher from the terrtory of one of the contractng partes
who vsts the terrtory of the other contractng party for the purpose of teach-
ng, for a perod not e ceedng two years, at a unversty, coege, schoo, or other
educatona nsttuton n the terrtory of such other contractng party sha
be e empted by such other contractng party from ta on hs remuneraton for
such teachng for such perod. .
rtce I .
student or busness apprentce from the terrtory of one of the contractng
partes who s recevng fu-tme educaton or tranng n the terrtory of the
other contractng party sha be e empted by such other contractng party from
ta on payments made to hm by persons wthn the terrtory of the former con-
tractng party for the purposes of hs mantenance, educaton, or tranng.
btce .
(1) The ta aton authortes of the contractng partes sha e change such
nformaton (beng nformaton avaabe under the respectve ta aton aws of
the contractng partes) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of statu-
tory provsons aganst ega avodance n reaton to the ta es whch are the
sub|ect of the present conventon. ny Informaton so e changed sha be treated
as secret and sha not be dscosed to any person other than those concerned
wth the assessment and coecton of the ta es whch are the sub|ect of the
present conventon. No Informaton sha be e changed whch woud dscose
any trade secret or trade process.
(2) s used n ths artce, the term ta aton authortes means, n the
case of the Unted States, the Commssoner of Interna Revenue or hs author-
zed representatve; In the case of the Unted ngdom, the Commssoners
of Inand Revenue or ther authorzed representatve; and, In the case of any
terrtory to whch the present conventon s e tended under rtce II, the
competent authorty for the admnstraton n such terrtory of the ta es to
whch the present conventon appes.
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107
29.211-7.
btce I.
(1) The natonas of one of the contractng partes sha not, whe resdent n
the terrtory of the other contractng party, be sub|ected theren to other or more
burdensome ta es than are the natonas of such other contractng party resdent
n ts terrtory.
(2) The term natonas as used n ths artce means
(a) n reaton to the Unted ngdom, a rtsh sub|ects and rtsh
protected persons, from the Unted ngdom or any terrtory wth respect
to whch the present conventon Is appcabe by reason of e tenson made by
the Unted ngdom under rtce II; and
( ) In reaton to the Unted States, Unted States ctzens, and a per-
sons under the protecton of the Unted States, from the Unted States or
any terrtory to whch the present conventon s appcabe by reason of
e tenson made by the Unted States under rtce II;
and ncudes a ega persons, partnershps, and assocatons dervng ther
status as such from,-or created or organzed under, the aws n force n any terr-
tory of the contractng partes to whch the present conventon appes.
(3) In ths artce the word ta es means ta es of every knd or descrpton,
whether Natona, Federa, State, provnca, or muncpa.
rtce II.
(1) ther of the contractng partes may, at the tme of e change of nstru-
ments of ratfcaton or thereafter whe the present conventon contnues n force,
by a wrtten notfcaton of e tenson gven to the other contractng party through
dpomatc channes, decare Its desre that the operaton of the present conventon
sha e tend to a or any of ts coones, overseas terrtores, protectorates, or
terrtores In respect of whch t e ercses a mandate, whch Impose ta es sub-
stantay smar n character to those whch are the sub|ect of the present con-
venton. The present conventon sha appy to the terrtory or terrtores named
In such notfcaton on the date or dates specfed In the notfcaton (not beng
ess than 60 days from the date of the notfcaton), or, f no date s specfed n
respect of any such terrtory, on the s teth day after the date of such notfcaton,
uness, pror to the date on whch the conventon woud otherwse become ap-
pcabe to a partcuar terrtory, the contractng party to whom notfcaton s
gven sha have nformed the other contractng party n wrtng through dpo-
matc channes that It does not accept such notfcaton as to that terrtory. In
the absence of such e tenson, the present conventon sha not appy to any such
terrtory.
(2) t any tme after the e praton of one year from the entry nto force
of an e tenson under paragraph (1) of ths artce, ether of the contractng
partes may, by wrtten notce of termnaton gven to the other contractng
party through dpomatc channes, termnate the appcaton of the present
conventon to any terrtory to whch t has been e tended under paragraph (1),
and n such event the present conventon sha cease to appy, s mouths after
the date of such notce, to the terrtory or terrtores named theren, but wth-
out affectng ts contnued appcaton to the Unted States, the Unted ngdom,
or to any other terrtory to whch t has been e tended under paragraph (1)
hereof.
(3) In the appcaton of the present conventon n reaton to any terrtory
to whch t s e tended by notfcaton by the Unted States or the Unted
- ngdom references to the Unted States or, as the case may be, the Unted
ngdom sha be construed as references to that terrtory.
( ) The termnaton n respect of the Unted States or the Unted ngdom
of the present conventon under rtce I or of rtce I sha, uness
otherwse e pressy agreed by both contractng partes, termnate the appca-
ton of the present conventon or, as the case may be, that artce to any
terrtory to whch the conventon as been e tended by the Unted States or
the Unted ngdom.
(5) The provsons of the precedng paragraphs of ths artce sha appy
to the Channe Isands and the Ise of Man as f they were coones of the
Unted ngdom.
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29.211-7.
108
rtce III.
(1) The present conventon sha be ratfed and the nstruments of ratfcaton
sha be e changed at Washngton as soon as possbe.
(2) Upon e change of ratfcatons, the present conventon sha have effect
(a) as respects Unted States ta , for the ta abe years begnnng on
or after the 1st day of anuary, 19 5;
(6) (1) as respects Unted ngdom ncome ta , for the year of assess-
ment begnnng on the 6th day of pr, 19 5, and subsequent years; ()
as respects Unted ngdom surta , for the year of assessment begnnng
on the 6th day of pr, 19 , and subsequent years; and () as respects
Unted ngdom e cess profts ta and natona defense contrbuton, for
any chargeabe accountng perod begnnng on or after the 1st day of pr,
10 5, and for the une pred porton of any chargeabe accountng perod
current at that date.
, mcL I .
(1) The present conventon sha contnue n effect Indefntey but ether of
the contractng partes may, on or before the 30th day of une In any year after
the year 19 , gve to the other contractng party, through dpomatc channes,
notce of termnaton and, In such event, the present conventon sha cease to
be effectve
(a) as respects Unted States ta , for the ta abe years begnnng on
or after the 1st day of anuary n the year ne t foowng that n whch
such notce Is gven;
(6) (1) as respects Unted ngdom ncome ta , for any year of assess-
ment begnnng on or after the 6th day of pr n the year ne t foowng
that n whch such notce s gven; () as respects Unted ngdom surta ,
for any year of assessment begnnng on or after the 6th day of pr n
the year n whch such notce s gven; and ( ) as respects Unted ngdom
e cess profts ta and natona defense contrbuton, for any chargeabe
accountng perod begnnng on or after the 1st day of pr n the year
ne t foowng that n whch such notce s gven and for the une pred
porton of any chargeabe accountng perod current at that date.
(2) The termnaton of the present conventon or of any artce thereof
sha not have the effect of revvng any treaty or arrangement abrogated by
the present conventon or by treates. prevousy concuded between the con-
tractng partes.
In wtness whereof the above-mentoned penpotentares have sgned the
present conventon and have aff ed thereto ther seas.
Done at Washngton, n dupcate, on the 16th day of pr, 19 5.
For the Government of the Unted States of merca:
. R. Stettnus, r.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
afa .
rnoTOcoL.
The Government of the Unted States of merca and the Government of
the Unted ngdom of Great rtan and Northern Ireand,
Desrng to concude a suppementary protoco modfyng n certan respects
the conventon for the avodance of doube ta aton and the preventon of fsca
evason wth respect to ta es on ncome whch was sgned at Washngton on
pr 16, 19 5,
ave agreed as foows:
rtce I.
Paragraph (3) of rtce I of the conventon of pr 16, 19 5, for the avod-
ance of doube ta aton and the preventon of fsca evason wth respect to
ta es on ncome sha be deemed to be deeted and of no effect
rtce II.
Ths protoco, whch sha be regarded as an ntegra part of the sad conventon,
sha be ratfed and the nstruments of ratfcaton thereof sha be e changed
at Washngton.
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109
29.211-7.
In wtness whereof the undersgned penpotentares, beng authorzed thereto
by ther respectve Governments, have sgned ths protoco and have aff ed
thereto ther seas.
Done at Washngton, In dupcate, ths 6th day of une, 19 6.
For the Government of the Unted States Of merca:
ames F. yrnes,
Secretary of State of the Unted States of merca.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
ohn afour,
s Ma|esty s nvoy traordnary and Mnster
Penpotentary n Washngton.
Sec. 7.513. ppcabe Provsons of the Interna Revenue
Code. The Interna Revenue Code provdes n part as foows:
C PT R 1. INCOM T .

S C. 22. GROSS INCOM .

(b) cusons from Gross Income. The foowng tems sha not
be Incuded n gross ncome and sha be e empt from ta aton under
ths chapter:

(7) Income e empt under treaty. Income of any knd, to the
e tent requred by any treaty obgaton of the Unted States;

S C. 62. RUL S ND R GUL TIONS.
The Commssoner, wth the approva of the Secretary, sha prescrbe
and pubsh a needfu rues and reguatons for the enforcement of ths
chapter.
Pursuant to secton G2 of the Interna Revenue Code, and other
provsons of the nterna revenue aws, the foowng reguatons,
whch are desgnated as sectons 7.51 to 7.532, are hereby prescrbed
and a reguatons nconsstent herewth are modfed accordngy:
Sec. 7.51 . Scope of the Conventon. The prmary purposes of the conven-
ton, to be accompshed on a recproca bass, are to avod doube ta aton upon
ma|or tems of ncome derved from sources n one country by persons resdent
n the other country, and to e change fsca nformaton compementary to other
provsons of the conventon, ncudng those reatng to avodance of doube
ta aton.
The specfc casses of ncome from sources wthn the Unted States e empt
under the conventon from Unted States ta for ta abe years begnnng on or
after anuary 1, 19 5, are:
(a) Industra and commerca profts of a Unted ngdom enterprse havng
no permanent estabshment n the Unted States ( rtce III) ;
(6) Income derved by a nonresdent aen who s a resdent of the Unted
ngdom, or by a Unted ngdom corporaton, from the operaton of shps
documented or arcraft regstered, under the aws of the Unted ngdom
( rtce ) ;
(c) Interest and royates (ncudng fm rentas) derved by a nonresdent
aen who s a resdent of the Unted ngdom or by a foregn corporaton man-
aged and controed n the Unted ngdom f such aen or corporaton (1) s
sub|ect to Unted ngdom ta upon such nterest or royates, and (2) has no
permanent estabshment n the Unted States (but such e empton does not
appy to nterest pad to such foregn corporaton controng the corporaton
payng such nterest) ( rtces II and III) ;
(d) Compensaton and pensons pad by the Unted ngdom to ndvduas
(other than a ctzen of the Unted States who s not aso a rtsh sub|ect)
for servces rendered to the Unted ngdom n the dscharge of ts governmenta
functons ( rtce );
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29.211-7.
110
(e) Compensaton for persona servces derved by a nonresdent aen who
s a resdent of the Unted ngdom If (1) such aen s present n the Unted
States for a perod or perods not e ceedng 183 days durng the ta abe year,
and (2) such servces are performed for, or on behaf of, a person resdent n
the Unted ngdom ( rtce I) ;
(f) Pensons (other than pensons pad by the Government of the Unted
States) and fe annutes derved by nonresdent aen ndvduas resdng In
the Unted ngdom ( rtce II) ;
(g) Gans from the sae or e change of capta assets by a nonresdent aen
who s a resdent of the Unted ngdom or by a foregn corporaton managed
and controed n the Unted ngdom, f such aen or corporaton has no
permanent estabshment n the Unted States ( rtce I ) ;
(ft) Dvdends and nterest pad on or after anuary 1, 19 5, by a corpora-
ton organzed under the aws of the Unted ngdom to a nonresdent aen
or foregn corporaton ( rtce ) ;
( ) Remuneraton derved from teachng n the Unted States for a perod
of not more than two years by a professor or teacher who s from the terrtory
of the Unted ngdom, but who s temporary present n the Unted States
( rtce III) ;
(/) Remttances from sources wthn the Unted ngdom receved In the
Unted States by a nonresdent aen ndvdua who s from the terrtory of
the Unted ngdom but who Is temporary present n the Unted States for
the purpose of educaton, or tranng, such .remttances beng for the purpose
of hs mantenance, educaton, or tranng ( rtce I ).
The conventon aso reduces to 15 per cent the rate of ta otherwse Imposed
upon dvdends, natura resource royates, and/ rentas from rea property, de-
rved by a nonresdent aen who s resdent n the Unted ngdom or by a
foregn corporaton managed and controed n the Unted ngdom If such
aen or corporaton meets the tests of abty to Unted ngdom ta and
absence of permanent estabshment n the Unted States set out n paragraph
(c) of ths secton wth respect to e empton n the case of nterest and royates.
s to e empton from wthhodng of the ta at the source n the case of nterest,
royates, pensons, and fe annutes and reducton n the rate of ta from 30
per cent to 15 per cent In the case of dvdends, natura resource royates, and
rentas arsng from rea property, see Treasury Decson 5532 C. . 19 6-2,
73 26 C T, 7.500 to 7.511 .
The conventon does not affect the abty to Unted States ncome ta aton
of sub|ects of the Unted ngdom who are resdents of the Unted States e cept
that such Indvduas are entted to the benefts of rtce (reatng to Unted
ngdom Government saares and the ke), of rtce III(1) (reatng to
credt for Unted ngdom ncome ta ), and of rtce I (reatng to equaty
of ta aton). cept as provded In rtce wth respect to a ctzen of the
Unted States who s aso a rtsh sub|ect and n rtce III reatng to the
credt for ncome ta , the conventon does not affect ta aton by the Unted
States of a ctzen of the Unted States or of a domestc corporaton, even though
such ctzen s resdent n the Unted ngdom and such corporaton s managed
and controed n the Unted ngdom. The conventon has genera appcaton
to foregn corporatons managed and controed n the Unted ngdom even
though such corporatons are not organzed under the aws of the Unted ng-
dom, but, n the case of corporatons organzed under the aws of the Unted
ngdom but managed and controed outsde the Unted ngdom, the pro-
vsons of rtces , , and I are appcabe.
Sec. 7.515. Defntons. s used n sectons 7.512 to 7.532 of these regua-
tons, uness the conte t otherwse requres, the terms defned n the conven-
ton sha have the meanngs so assgned to them. ny term used In sectons
7.512 to 7.532 of these reguatons whch Is not defned n the conventon, but
whch Is defned n the Interna Revenue Code, sha be gven the defnton
contaned theren uness the conte t otherwse requres.
s used n sectons 7.512 to 7.532 of these reguatons:
(a) The term permanent estabshment means a branch, management, fac-
tory, mne, o we, farm, tmberand, pantaton, workshop, warehouse, offce, or
other f ed pace of busness The fact that a foregn corporaton managed and
controed n the Unted ngdom has a domestc subsdary corporaton, or a
foregn subsdary corporaton havng a branch In the Unted States, does
not of tsef consttute ether subsdary corporaton a permanent estabshment
of the parent Unted ngdom enterprse. The fact that a Unted ngdom
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29.211-7.
enterprse has busness deangs n the Unted States through a bona fde com-
msson agent, broker, or custodan, actng n the usua course of hs busness
as such, or mantans n the Unted States an offce or other f ed pace of bus-
ness used e cusvey for the purchase of goods or merchandse, does not mean
that such Unted ngdom enterprse has a permanent estabshment n the
Unted States. If, however, a Unted ngdom enterprse carres on busness
n the Unted States through an agent who has, and habtuay e ercses, a
genera authorty to negotate and concude contracts on behaf of such enter-
prse, or f t has an agent who mantans wthn the Unted States a stock of
merchandse from whch he reguary fs orders on behaf of hs prncpa,
then such enterprse sha be deemed to have a permanent estabshment n
the Unted States. owever, an ngent havng power to contract on behaf of
hs prncpa but ony at f ed prces and under condtons determned by the
prncpa does not consttute a permanent estabshment of such prncpa. The
mere fact that an agent (assumng he has no genera authorty to contract on
behaf of hs. empoyer or prncpa) mantans sampes or occasonay fs
orders from ncdenta stocks of goods mantaned n the Unted States w
not consttute a permanent estabshment wthn the Unted States. The mete
fact that saesmen, empoyees of a Unted ngdom enterprse, promote the
sae of ther empoyer s products In the Unted States or that such enterprse
transacts busness n the Unted States by means of ma-order actvtes, does
not mean such enterprse has a permanent estabshment theren. The term
permanent estabshment as used In the conventon Impes the actve con-
duct theren of a busness enterprse. The mere ownershp, for e ampe, of
tmberands or a warehouse n the Unted States by a Unted ngdom enterprse
does not mean that such enterprse has a permanent estabshment theren.
s to the effect of the mantenance of a permanent estabshment wthn the
Unted States upon e empton from Unted States ta In the case of nterest and
royates and reducton n the rate of Unted States ta n the case of dvdends,
natura resource royates, and rentas arsng from rea property, see secton 7.519
of these reguatons.
(6) The term enterprse means any commerca or ndustra undertakng
whether conducted by an ndvdua, partnershp, corporaton, or other entty.
It ncudes such actvtes as manufacturng, merchandsng, mnng, processng,
and bankng. It does not Incude the rendton of persona servces. ence, a
nonresdent aen who s a resdent of the Unted ngdom and who renders
persona servces s not, merey by reason of such servces, engaged n an enter-
prse wthn the meanng of the conventon and hs abty to Unted States ta
s not affected by rtce III of the conventon.
(c) The term Unted ngdom enterprse means an enterprse carred on by
any person (ncudng an ndvdua and foregn corporaton, whether or not a
corporaton organzed under the aws of the Unted ngdom, whch s managed
and controed n the Unted ngdom but not ncudng n Unted States ctzen
or domestc corporaton) who s a resdent of the Unted ngdom, regardess of
whether such enterprse Is carred on wthn or wthout the Unted ngdom.
( f) The term resdent of the Unted ngdom means any nonresdent aen
(ncudng an ndvdua, fducary, and partnershp) resdent n the Unted
ngdom for the purposes of Unted ngdom Income ta , and any foregn
corporaton managed and controed from wthn the Unted ngdom but not
engaged n trade or busness wthn the Unted States.
(e) The term ndustra and commerca profts means profts arsng from
ndustra, commerca, mercante, manufacturng, and ke actvtes of a Unted
ngdom enterprse as defned n ths secton. Such term does not ncude rentas,
royates, Interest, dvdends, fees, compensaton for persona servces, nor gans
derved from the sae or e change of capta assets. Such enumerated tems of
Income are not governed by the provsons of rtce III of the conventon but
are sub|ect to the rues esewhere set forth n the conventon and n sectons
7.512 to 7.532 of these reguatons.
Sec. 7.516. Scope of Conventon wth Respect to Determnaton or Indus-
tra or Commerca Profts. (a) Genera. rtce III of the conventon
adopts the prncpe that an enterprse of one of the contractng partes sha
not be ta abe n the terrtory of the other contractng party upon ts ndustra
or commerca profts uness t has a permanent estabshment n the terrtory of
the atter party. ence, a Unted ngdom enterprse s sub|ect to Unted States
ta upon ts Industra and commerca profts to the e tent of such profts from
sources wthn the Unted States ony If It has a permanent estabshment wthn
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29.211-7.
112
the Unted States. Prom the standpont of Federa ncome ta aton, the artce
has appcaton ony to a Unted ngdom enterprse and to the ndustra and
commerca ncome thereof from sources wthn the Unted States. It has no
appcaton, for e ampe, to compensaton for abor or persona servces per-
formed n the Unted States nor to ncome derved from rea property ocated
n the Unted States, ncudng rentas and royates therefrom, nor to gans
from the sae or dsposton of such property, nor to nterest, dvdends, royates,
other f ed or determnabe annua or perodca ncome and gans derved from
the sae or e change of capta assets.
(6) No Unted States permanent estabshment. nonresdent aen ndvdua
who Is a resdent of the Unted ngdom or a foregn corporaton managed and
controed n the Unted ngdom, havng no permanent estabshment n the
Unted States, s not, for ta abe years begnnng on or after anuary 1, 19 5,
sub|ect to Unted States ncome ta upon ndustra and commerca profts from
sources wthn the Unted States. For e ampe, f such Unted ngdom enter-
prse ses, n 19 6, merchandse, such as eather goods, porcean, te tes, or
quors, through a bona fde commsson agent or broker n the Unted States
actng n the ordnary course of hs busness as such agent or broker, the resutng
profts are, under the terms of rtce III of the conventon, e empt from Unted
States ncome ta . Lkewse no permanent estabshment e sts f such enter-
prse, through ts saes agents n the Unted States, secures orders for ts products,
the saes beng made n the Unted ngdom.
(c) Unted States permanent estabshment. nonresdent aen (Incudng
a nonresdent aen ndvdua, fducary, and partnershp) who s a resdent
of the Unted ngdom or a foregn corporaton managed and controed n
the Unted ngdom, havng a permanent estabshment n the Unted States,
s sub|ect to ta upon ndustra and commerca profts from sources wthn
the Unted States to the same e tent as are nonresdent aens and foregn corpo-
ratons engaged n trade or busness theren. In the determnaton of the ncome
ta abe to such aen or foregn corporaton a ndustra and commerca profts
from sources wthn the Unted States sha be deemed to be aocabe to the per-
manent estabshment n the Unted States. ence, for e ampe, f a Unted ng-
dom enterprse havng a permanent estabshment In the Unted States ses n the
Unted States, through a commsson agent theren, goods produced n the
Unted ngdom, the resutng profts derved from Unted States sources
from such transactons are aocabe to such permanent estabshment even
though such transactons were carred on ndependenty of such estabsh-
ment. In determnng ndustra and commerca profts no account sha be
taken of the mere purchase of merchandse wthn the Unted States by the
Unted ngdom enterprse. The ndustra or commerca profts of the
permanent estabshment sha be determned as f the estabshment were an
ndependent enterprse engaged In the same or smar actvtes and deang
at arm s ength wth the enterprse of whch It s a permanent estabshment.
Sec. 7.517. Contro of a Domestc nterprse by a Unted ngdom nter-
prse. rtce I of the conventon provdes, n effect, that f a Unted ng-
dom enterprse by reason of ts contro of a domestc enterprse mposes on
such atter enterprse condtons dfferent from those whch woud resut from
norma busness reatons between ndependent enterprses, the accounts be-
tween the enterprses may be ad|usted so as to ascertan the true net ncome
of each enterprse. The purpose s to pace the controed domestc enter-
prse on a ta party wth an uncontroed domestc enterprse by determnng, ac-
cordng to the standard of an uncontroed enterprse, the true net ncome from the
property and busness of the controed enterprse. The basc ob|ectve of the
artce s that f the accountng records do not truy refect the net ncome from the
property and busness of such domestc enterprse the Commssoner of In-
terna Revenue may Intervene and, by makng such dstrbutons, apporton-
ments, or aocatons as he may deem necessary of gross Income or deductons
of any tem or eement affectng net ncome as between such domestc enter-
prse and the Unted ngdom enterprse by whch t s controed or drected,
determne the true net ncome of the domestc enterprse. The provsons of
secton 29. 5-1, Reguatons 111 26 CFR, 29. 5-1 , sha, n so far as ap-
pcabe, be foowed In the determnaton of the net Income of the domestc
busness.
Sec. 7.518. Income from Operaton of Shps and rcraft. The ncome
derved from the operaton of shps documented, or arcraft regstered, under
the aws of the Unted ngdom by a nonresdent aen who s a resdent of
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29.211-7.
the Unted ngdom or by a corporaton, assocaton, or other ke entty created
under the aws of the Unted ngdom, s, for ta abe years begnnng on or
after anuary 1, 10 5, e empt from Unted States Income ta under the pro-
vsons of rtce of the conventon. It s Immatera for the purpose of the
e empton whether such corporaton s managed and controed n the Unted
ngdom.
Sec. 7.519. empton feom, ob Reducton n Rate of, Unted States Ta
n the Case of Dvdends, Interest, Royates, Natura Resource Royates,
and Rea Property Rentas. (a) Dtndends, natura resource royates, and
rentas from rea property. (1) Genera. The ta mposed by the Interna
Revenue Code n the case of dvdends, natura resource royates, and rentas
arsng from rea property (ncudng easehod and other nterest n such
property), receved n any ta abe year begnnng on or after anuary 1, 19 5,
from sources wthn the Unted States by (1) a nonresdent aen (ncudng a
nonresdent aen ndvdua, fducary, and partnershp) who s a resdent of the
Unted ngdom, or (II) a foregn corporaton (whether or not created under
the aws of the Unted ngdom) whch s managed and controed In the Unted
ngdom, s mted to 15 per cent under the provsons of rtce I(1) (reat-
ng to dvdends) and rtce I (1) (reatng to natura resource royates and
rentas from rea property) of the conventon f such aen or corporaton
(1) s sub|ect to Unted ngdom ta on such dvdends, natura resource
royates, and rentas, and
() at no tme durng the ta abe year In whch such dvdends, natura
resource royates, and rentas were so derved was engaged n trade or
busness wthn the Unted States.
For the purposes of rtces I, II, III, I , and I of the conventon, the
nonresdent aen or foregn corporaton s not deemed to be engaged In trade
or busness wthn the Unted States uness such aen or foregn corporaton has
a permanent estabshment stuated theren at some tme In the ta abe year
n whch the ncome Is derved. See rtce 11(2) of the conventon. Thus, f
a nonresdent aen who s a resdent of the Unted ngdom perforns per-
sona servces wthn the Unted States durng the caendar year 19 C, has no
permanent estabshment wthn the Unted States at any tme durng such
year, and Is sub|ect to Unted ngdom ta upon dvdends derved by hm
from Unted States sources n that year, he s entted to the reduced rate of ta
wth respect to such dvdends, as provded n rtce I (1) of the conventon,
even though by reason of hs havng rendered persona servces wthn the
Unted States he s engaged In trade or busness theren In that year wthn
the meanng of secton 211 (b) of the Interna Revenue Code. If, for e ampe, ,
a nonresdent aen who Is a resdent of the Unted ngdom, derves n 19 6
5,000 compensaton for such persona servces and hs ony other ncome from
sources wthn the Unted States conssts of dvdends, the dvdends are sub|ect
to ta at the rate not to e ceed 15 per cent and hs earned ncome s sub|ect
to norma ta and surta wthout takng the dvdends nto account n de-
termnng the ta on such earned ncome.
In any case, however, n whch a nonresdent aen or a foregn corporaton
derves from sources wthn the Unted States n any ta abe year begnnng
on or after anuary 1, 19 5, royates from the operaton of mnes, quarres, or
other e tracton of natura resources or rentas from rea property stuated
wthn the Unted States and s entted to the reduced rate of 15 per cent pre-
scrbed n rtce I of the conventon, such aen or foregn corporaton may
for such ta abe year eect Instead to be sub|ect to Federa ncome ta as f
such aen or corporaton were engaged In trade or busness wthn the Unted
States by reason of havng a permanent estabshment theren. Such eecton
sha be made by so sgnfyng on the return for such year. The eecton so
sgnfed sha be rrevocabe for the ta abe year for whch such eecton Is
made. In such case a return may be fed by the nonresdent aen or foregn
corporaton even though the soe ncome of such aen or corporaton from
sources wthn the Unted States s f ed or determnabe annua or perodca
ncome upon whch the ta has been fuy satsfed at the source and there
e sts no necessty for the fng of the return e cept for the purposes of securng
the benefts of rtce I of the conventon. See secton 29.217-2, Reguatons
111 26 CFR, 29.217-2 .
(2) Dvdends pad by a Unted States subsdary corporaton. Under the
provso of rtce I (1) of the conventon, dvdends pad by a domestc corpora-
ton to ts foregn parent corporaton are sub|ect to ta at the rate of ony S
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29.211-7.
11
per cent If (1) such foregn corporaton contros, drecty or Indrecty, at the
tme the dvdend Is pad 95 per cent or more of the votng power In such domestc
corporaton, () not more than 25 per cent of the gross Income of the domestc
corporaton payng the dvdend conssts of dvdends and Interest (other than
dvdends and Interest pad to such domestc corporaton by Its own subsdary
corporatons, f any), and () the reatonshp between such domestc corpora-
ton and such foregn corporaton has not been arranged or mantaned prmary
wth the ntenton of securng such reduced rate of 5 per cent.
Thus, for e ampe, the Corporaton s a domestc corporaton, 97 per cent
of the entre votng stock of whch Is controed by the Y Company, Ltd., a foregn
corporaton managed and controed n the Unted ngdom, not havng a per-
manent estabshment In the Unted States at any tme durng the caendar year
19 6, and sub|ect to Unted ngdom ta wth respect to any dvdends receved
by It or credted to ts account In the Unted States. The Corporaton makes
ts ncome ta returns on the caendar year bass and throughout each of the
years 19 3, 19 , and 19 5 derved not more than 25 per cent of ts gross ncome
from nterest and dvdends from corporatons not controed by It The rea-
tonshp between the Corporaton and the Y Company, Ltd., Is a reatonshp
arranged and mantaned wthout reference to the reduced rate of ta on dv-
dends provded n the provso n rtce I (1) of the conventon. dvdend
was pad by the Corporaton to the Y Company, Ltd., on uy 1, 19 6. The
reduced rate of ta of 5 per cent s appcabe to such dvdend.
(6) Interest and royates. (1) Genera. Interest (other than nterest pad
by a subsdary corporaton to ts Unted ngdom parent corporaton, as e paned
n subparagraph (2) of ths paragraph), whether on bonds, securtes, notes,
debentures, or any other form of Indebtedness (ncudng Interest on obgatons
of the Unted States and on obgatons of nstrumentates of the Unted States)
and royates for the prvege of usng copyrghts, patents, desgns, secret proc-
esses and formuae, trade-marks, and other ke property (Incudng fm rentas)
receved In any ta abe year begnnng on or after anuary 1, 19 5, from sources
wthn the Unted States by (1) a nonresdent aen (Incudng a nonresdent
aen ndvdua, fducary, and partnershp) who Is a resdent of the Unted
ngdom, or () a foregn corporaton (whether or not organzed under the aws
of the Unted ngdom) whch Is managed and controed In the Unted ng-
dom, are e empt from Unted States ta under the provson of rtces and
III of the conventon If such aen, or corporaton
(I) s sub|ect to Unted ngdom ta on such Interest or royaty, and
(II) at no tme durng the ta abe year In whch such nterest or royaty
was so derved, had a permanent estabshment stuated wthn the Unted
States.
Such nterest and royates are, therefore, not sub|ect to the wthhodng pro-
vsons of the Interna Revenue Code.
(2) Interest pad by subsdary corporaton to ts Unted ngdom parent
corporaton. rtce II() of the conventon provdes n part that the e emp-
ton from Unted States ta of nterest pad to resdents of the Unted ngdom
sha not appy to nterest pad by a domestc corporaton to a foregn corporaton
managed and controed In the Unted ngdom f such foregn corporaton con-
tros more than 50 per cent of the votng power of a casses of stock of such do-
mestc corporaton.
(c) enefcares of an estate or trust. nonresdent aen who Is a resdent
of the Unted ngdom and who s a benefcary of a domestc estate or trust sha
be entted to the e empton, or reducton n the rate of ta , as the case may be,
provded n rtces I, II, III, I , and I of the conventon wth respect to
dvdends, Interest, royates, natura resource royates, rentas from rea prop-
erty, and capta gans to the e tent such Item or tems are Incuded n hs ds-
trbutve share of Income of such estate or trust f he s ta abe n the Unted
ngdom on such Income and s not engaged n trade or busness In the Unted
States through a permanent estabshment. In such case such benefcary must.
In order to be entted to the e empton or reducton n the rate of ta , e ecute
Form 1001-U or Form 1001 -U (modfed to show dvdends where appcabe)
and fe such form wth the fducary of such estate or trust In the Unted States.
In any case In whch dvdends, nterest, royates, rente, or the ke are derved
from Unted States sources by a Unted ngdom estate or trust any benefcary
of such estate or trust who Is not a resdent of the Unted ngdom Is not en-
tted to any e empton under the conventon wth respect to such ncome Incuded
In hs dstrbutve share of the Income of the estate or trust
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115
29.211-7.
Sec. 7.520. Government wages, saares, pensons, and smar remuneratons.
Under rtce of the conventon any saary, wage, smar remuneraton, or
penson, pad In ta abe years begnnng on or after anuary 1, 10 5, by the Gov-
ernment of the Unted ngdom for servces rendered such Government (whether
wthn or wthout the Unted States) n the dscharge of ts governmenta func-
tons by any ndvdua who s not a ctzen of the Unted States, s e empt from
Federa ncome ta . For the purposes of the e empton an ndvdua s treated
as not a ctzen of the Unted States f he or she has the dua status of beng a
ctzen of the Unted States as we as beng a sub|ect of the Unted ngdom.
Thus, f , a Unted States ctzen, marres a rtsh sub|ect and assumes the
status of a rtsh sub|ect by reason of such marrage wthout renqushng her
Unted States ctzenshp and performs persona servces n the Unted States
for the Government of the, Unted ngdom, the compensaton for such servces
s e cuded from gross ncome. s to the ta aton, generay, of compensaton of
aen empoyees of foregn governments see secton 116(h) of the Interna Reve-
nue Code and secton 29.11C-2, Reguatons 111 26 CFR, 29.116-2 . The e emp-
ton granted by rtce of the conventon does not appy to compensaton for
servces rendered ncdent to the carryng on of any trade or busness by the
Unted ngdom.
Sec. 7.521. Compensaton fob Labor or Persona Servcer rtce I pro-
vdes, upon a recproca bass, that a nonresdent aen who s a resdent of the
Unted ngdom s, for ta abe years begnnng on or after anuary 1, 19 5,
e empt from Federa ncome ta upon compensaton (regardess of amount of
such compensaton) for persona (ncudng professona) servces performed
durng the ta abe year wthn the Unted States f for such ta abe year
(a) such aen s temporary present n the Unted States for a perod
or perods not e ceedng 183 days durng such ta abe year, and
(6) such servces are performed for or on behaf of a person resdent
n the Unted ngdom.
s to the source of compensaton for abor or persona servces see secton
119(a) (3), Interna Revenue Code.
Sec. 7.522. Pensons and Lfe nnutes. Under the provsons of rtce II
of the conventon, pensons (other than pensons pad by the Unted States)
and fe annutes derved from sources wthn the Unted States by a non-
resdent aen ndvdua who s a resdent of the Unted ngdom are e empt
from Federa ncome ta for ta abe years begnnng on or after anuary 1,
19 5. The term fe annutes means a stated sum payabe perodcay at
stated tmes durng fe or durng a specfed or ascertanabe perod of tme
under an obgaton to make payments n consderaton of payments made for
such obgaton.
Sec 7.523. Capta Gans. Under rtce I of the conventon, when read
n assocaton wth rtce 11(2) of the conventon, gans from the sae or
e change of capta assets by a nonresdent aen ndvdua who s a resdent
of the Unted ngdom or by a foregn corporaton managed and controed n
the Unted ngdom are, for ta abe years begnnng on or after anuary 1,
19 5, e empt from Federa ncome ta uness such aen or corporaton has a
permanent estabshment n the Unted States. s to what consttutes capta
assets, see secton 117, Interna Revenue Code. s to what consttutes a perma-
nent estabshment see secton 7.515 of these reguatons. If , a nonresdent
aen Indvdua who s a resdent of the Unted ngdom, performs persona
servces wthn the Unted States durng the caendar year 19 6 for a domestc
empoyer, e s engaged n trade or busness wthn the Unted States n such
ta abe year. (Secton 211(b), Interna Revenue Code.) e carres on n that
year no other busness actvty wthn the Unted States other than certan secur-
tes transactons upon a domestc stock e change and mantaned no off:e or
other f ed pace of busness wthn the Unted States at any tme durng such
year. s not sub|ect to Federa Income ta upon hs capta gans, f any,
reazed from hs securtes transactons. Lkewse, a foregn corporaton man-
aged and controed n the Unted ngdom, seng Its products manufactured
n the Unted ngdom through a resdent commsson agent or broker n the
Unted States, and havng certan securtes transactons wthn the Unted
States as ts ony other busness actvty theren, s e empt from Unted States
ta upon those capta gans, f any, arsng from the securtes transactons
wthn the Unted States.
Sec. 7.52 . Dvdends and Interest Pad by a Unted ngdom Corporaton.
dvdend pad by a foregn corporaton consttutes n whoe or n part ncome
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29.211-7.
116
from sources wthn the Unted States and hence Is sub|ect to ta n the hands
of a nonresdent aen or foregn corporaton, If 50 per cent or more of the gross
ncome of the foregn corporaton payng such dvdend s derved from sources
wthn the Unted States durng the perod prescrbed by the statute. Secton
119(a)(2)( ), Interna Revenue Code, and secton 29.119-3(6), Reguatons
111 26 CFR, 29.119-3(b) . Interest pad by a resdent foregn corporaton con-
sttutes In ts entrety ncome from sources wthn the Unted States, and hence s
sub|ect to ta In the hands of a nonresdent aen ndvdua or foregn corpora-
ton, f 20 per cent or more of the gross ncome of the foregn corporaton payng
such nterest s derved from sources wthn the Unted States durng the perod
prescrbed by the statute. Secton 119(a)(1)( ), Interna Revenue Code, aud
secton 29.119-2(6), Reguatons 111 26 CFR, 29.119-2(b) .
Under the provsons of rtce of the conventon, dvdends and Interest
pad by a corporaton created under the aws of the Unted ngdom to any
nonresdent aen or to any foregn corporaton, whether or not such aen Is a
resdent of the Unted ngdom and whether or not such foregn corporaton s
organzed under the aws of the Unted ngdom, are, for ta abe years begnnng
on or after anuary 1, 19 5, not sub|ect to Federa ncome ta regardess of
whether the corporaton payng such dvdends or nterest s a resdent foregn
(as to the Unted States) corporaton and regardess of the percentage of ts
gross Income derved from sources wthn the Unted States.
Sec. 7.525. Unted ngdom Corporatons empton from Federa Ta aton
wth Respect to ccumuated Profts or Undstrbuted Income. Secton 102 of
the Interna Revenue Code mposes (n addton to other ta es mposed by Chapter
1 of such Code) a graduated Income ta or surta upon any domestc or foregn
corporaton formed or avaed of to avod the mposton of the ndvdua surta
upon ts sharehoders or the sharehoders of any other corporaton through the
medum of permttng earnngs or profts to accumuate Instead of dvdng or
dstrbutng them. Such ta , however, does not appy n the case of persona hod-
ng companes as defned n secton 501 of the Interna Revenue Code nor to
foregn persona hodng companes as denned In Suppement P (secton 331) of
such Code. Secton 500 of the Interna Revenue Code mposes (n addton to
the ta es mposed by Chapter .of such Code) a graduated ncome ta or surta
upon corporatons cassfed as persona hodng companes, regardess of whether
or not they are formed or avaed of to accumuate earnngs or profts for the
purpose of avodng surta upon sharehoders.
Under the provsons of rtce I of the conventon corporatons organzed
under the aws of the Unted ngdom are, for ta abe years begnnng on or after
anuary 1, 19 5, sub|ect to nether the ta Imposed by secton 102 of the Interna
R venue Code nor the ta mposed by secton 500 of such Code f more than 50 per
cent of the entre votng power n such corporaton s controed drecty or Ind-
recty throughout the ast haf of the ta abe year by nonresdent aen ndvd-
uas who are resdents of the Unted ngdom. To come wthn the scope of the
e empton, the prescrbed proporton of the stock of the Unted ngdom corpora-
ton concerned must be so owned at a tmes throughout the ast haf of the ta abe
year In whch the ta abe status of the corporaton s nvoved. In determnng
the ownershp of the votng stock of the Unted ngdom corporaton, the prov-
sons of secton 29.503(a)- to 29.503(a)-7, ncusve, and secton 29.503(b)-,
Reguatons 111 26 CFR, 29.503(a)- to 29.503(a)-7, and 29.503(b)- , sha, n
so far as not nconsstent wth the conventon, be appcabe n the admnstraton
of the provsons of the conventon.
Sec. 7.526. stno Professors or Teachkhb. Under rtce III of the
conventon, an aen ndvdua who s from the terrtory of the Unted ngdom,
but who s temporary present wthn the Unted States for the purposes of
teachng, ecturng, or nstructng, at any unversty, coege, schoo, or other
educatona nsttuton stuated wthn the Unted States, s, for a perod not
e ceedng two years from the date of hs arrva n the Unted States, e empt
for ta abe years begnnng on or after anuary 1, 19 5, from Federa ncome
ta on remuneraton receved for such servces. It sha be deemed that such aen
comng to the Unted States for the purposes ndcated has, for a perod of not
more than two years mmedatey succeedng the date of hs arrva wthn the
Unted States for such purposes, the ta status of a nonresdent aen n the
absence of proof of hs ntenton to reman Indefntey n the Unted States.
Sec. 7.527. Remttances. Under rtce I of the conventon nonresdent
aen ndvduas who are from the terrtory of the Unted ngdom but who
are temporary present n the Unted States for the purposes of study or for
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117
29.211-7.
acqurng busness e perence or tranng are e empt, for ta abe years begnnng
on or after anuary 1, 19 5, from Federa ncome ta upon amounts representng
remttances from sources wthn the Unted ngdom for the purposes of ther
mantenance, educaton, and tranng.
Sec. 7.528. Credt ganst Unted States Ta Labty fob Income Ta
Pad or Deemed to ave een Pad to the Unted ngdom. For the purpose
of avodance of doube ta aton, rtce III of the conventon provdes that
there sha be aowed on the part of the Unted States, n accordance wth sec-
ton 131 of the Interna Revenue Code as n effect on the 1st day of anuary, 19 5,
for ta abe years begnnng on or after anuary 1, 19 5, aganst the Unted
States ncome and e cess profts ta abty a credt for Unted ngdom ta es.
In determnng the credt under secton 131 of the Interna Revenue Code, n
any case n whch a ta payer receves a dvdend from a foregn corporaton
managed and controed In the Unted ngdom, t sha be deemed that such
ta payer has pad to the Unted. ngdom the Unted ngdom ncome ta at
the rate approprate to such dvdend, f such ta payer eects to ncude n hs
gross ncome an amount equvaent to such Unted ngdom ncome ta n add-
ton to the amount of the dvdend otherwse ncuded In gross Income.
Thus, f such foregn corporaton decares durng the ta abe year 19 5 a gross
dvdend of whch the ta payer s share s 1,000, and the standard rate of Unted
ngdom ncome ta n 19 5 s 50 per cent and such corporaton Is not entted
to any reef from the payment of the standard rate of ta because of any
Domnon Income ta pad by It, there s deducted at the source by such corpora-
ton Incdent to the payment of the dvdend of 1,000 the sum of 500, eavng a
net amount of 500 actuay receved by the ta payer. If the ta payer eects to
ncude the entre amount of 1,000 n hs gross ncome, the amount of 500,
representng the Unted ngdom ncome ta deemed to have been pad, s aow-
abe as a credt under secton 131 of the Interna Revenue Code, sub|ect to the
mtatons provded n that secton. If, however, the foregn corporaton s
entted to reef for Domnon ncome ta pad by t so that the amount of
ta deducted from the gross dvdend s the net Unted ngdom ncome ta
(representng the standard ta reduced by the reef for Domnon Income ta )
the amount of such net Unted ngdom ta s the amount aowabe as a credt
aganst the Unted States ncome ta under the provsons of secton 131 of the
Interna Revenue Code, sub|ect to the mtatons provded In that secton, pro-
vded the ta payer eects to ncude n hs gross ncome, n addton to the amount
of the dvdend receved by hm, the net Unted ngdom ta approprate to the
dvdend. See sectons 29.131-1 to 29.131-8, Reguatons 111 26 CF , 29.131-1
to 29.131-8 .
The net Unted ngdom ta s aso the bass of the credt In the case of a
dvdend pad by such corporaton subsequent to 19 5 even though the ta requred
to be deducted from such dvdend must be determned wthout takng nto ac-
count any reducton by reason of reef from doube ta aton to whch the
corporaton payng such dvdend may be entted. Thus, for e ampe, a foregn
corporaton managed and controed n the Unted ngdom derves a of ts
Income from sources wthn a rtsh Domnon whch Imposes an ncome ta
at an effectve rate of 20 per cent. On uy 1, 19 6, t pays a dvdend, the gross
amount of whch n the case of , a Unted States ctzen sharehoder resdent
In the Unted States, s 1,000. The amount of ta requred to be wthhed by
the corporaton s 50 or a rate of 5 per cent apped to the gross amount of
the dvdend, and receves a net dvdend of 550. owever, the corporaton
n the payment of ts Unted ngdom ncome ta receved a credt aganst the
rate of 5 per cent for the 20 per cent ta pad to the Domnon. ence the net
Unted ngdom rate Is 25 per cent whch, apped to the gross dvdend of 1,000,
equas 250, whch consttutes the Unted ngdom ncome ta approprate to the
dvdend. In such case, f eects to take a credt for the Unted ngdom ta
approprate to the dvdend, he must ncude n gross ncome the amount of 550
pus 250, or 800, the sum of 250 beng the bass of the resutng credt under
the provsons of secton 131, Interna Revenue Code.
ssume that a domestc corporaton owns stock n a foregn corporaton man-
aged and controed n the Unted ngdom (herenafter referred to as the
frst Unted ngdom corporaton), that the frst Unted ngdom corporaton
has as ts soe ncome dvdends receved from a second Unted ngdom corpo-
raton, and that such second Unted ngdom corporaton derves a Its Income
from sources wthn the rtsh Coony whch mposes upon such second
Unted ngdom corporaton ta at the rate of 20 per cent of ts ncome. oth
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29.211-7.
118
the frst and second Unted ngdom corporatons are sub|ect to ta mposed
by the Unted ngdom. owever, n the mposton of such ta upon the second
Unted ngdom corporaton, there s aowed under Unted ngdom aw aganst
the Unted ngdom standard ta of 5 per cent a credt of 20 per cent mposed by
the Coony and hence such corporaton pays Unted ngdom ta at the rate
of 25 per cent. The second Unted ngdom corporaton s deemed under Unted
ngdom aw to have pad the 25 per cent Unted ngdom ta wth respect to
the dvdends pad by t and, In turn, the frst Unted ngdom corporaton Is
deemed to have pad Unted ngdom ta of 25 per cent wth respect to such
dvdends. When, therefore, dvdends are receved by the domestc corporaton
from the frst Unted ngdom corporaton, such domestc corporaton w for the
purposes of the credt under secton 131 be deemed to have pad Unted ngdom
ta of 25 per cent. Such domestc corporaton may eect to ncude n ts
gross ncome the amount of Unted ngdom ta thus deemed to have been pad
and to cam credt for such ta under the provsons of secton 131 of the
Interna Revenue Code.
Sec. 7.529. d|ustment of Ta Labty of Nonresdent ens Who be
Resdents of the Unted ngdom and of Unted ngdom Corporatons. rt-
ce II (1) of the conventon confers upon the Commssoner of Interna Reve-
nue authorty to ad|ust the ta abty for ta abe years begnnng pror to
anuary 1, 1936, of any nonresdent aen ndvdua who s a resdent of the
Unted ngdom and of any corporaton organzed under the aws of the Unted
ngdom (whether or not such corporaton s managed and controed n the
Unted ngdom) n any case n whch such ta abty remaned unpad on
pr 16, 19 5 (the date of sgnature of the conventon). Such provsons,
however, w not appy uness
(a) the ta payer fes wth the Commssoner of Interna Revenue on or
before December 31, 19 7, a request that such ta abty be so ad|usted
and a sworn statement showng for each year nvoved and for such other
years as the Commssoner of Interna Revenue may requre, (1) by Items
and casses of ncome the amounts of dvdends, nterest, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emouments, or
other f ed or determnabe annua or perodca ncome, gans, profts, and
ncome derved from sources wthn the Unted States; (2) the busness
transactons, f any, carred on n the Unted States by or n behaf of the
ta payer durng each of such years; and (3) such further nformaton as
the Commssoner of Interna Revenue may requre n the partcuar case; and
(6) the Commssoner of Interna Revenue s satsfed that the addtona
Income ta nvoved dd not arse by reason of fraud wth ntent to evade
the ta on the part of the ta payer concerned.
In any case n whch the Commssoner of Interna Revenue deems t appro-
prate to e ercse the authorty thus conferred, the resutng ta abty for
any such year or years may not e ceed the amount of the abty whch woud
be determned had the foowng been gven effect for such year or years:
() The Revenue ct of 1936 (but ths does not appy n the case of a
Unted ngdom corporaton n whch more than 50 per cent of the entre
votng power was controed, drecty or ndrecty, through the atter haf
of the ta abe year for whch the abty s beng determned by ctzens or
resdents of the Unted States) ;
(II) rtce of the conventon, e emptng from Unted States ta
dvdends and nterest pad by a Unted ngdom corporaton to nonresdent
aens or foregn corporatons; and
() rtce I of the conventon, e emptng Unted ngdom corpora-
tons from the ta Imposed by the Unted States wth respect to accumuated
or undstrbuted earnngs, profts, ncome, or surpus.
In any case n whch the Commssoner of Interna Revenue has e ercsed hs
authorty to appy the provsons of rtce II (1) of the conventon, f the
ta payer was not engaged In trade or busness wthn the Unted States and
had no offce or pace of busness theren durng the ta abe year Invoved, the
aggregate amount of nterest and penates may not e ceed 50 per cent of the
amount of the ta wth respect to whch such Interest and penates have been
computed.
rtce II(2) of the conventon provdes that the Federa Income ta
abty for ta abe years begnnng after December 31,1935, and pror to anuary
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119
29.211-7.
1, 19 5, whch remans unpad on pr 16, 19 5, the date of sgnature of the
conventon, In the case of any nonresdent aen ndvdua, a resdent of the
Unted ngdom, or of any Unted ngdom corporaton, sha be determned
under the Unted States nterna revenue aw propery appcabe thereto, e cept
that rtces (reatng to e cepton from Unted States ta of dvdends and
nterests pad by a Unted ngdom corporaton) and I (reatng to e empton
of a Unted ngdom corporaton from Unted States ta wth respect to accumu-
ated earnngs or profts) of the conventon sha be treated as beng n effect for
such years. (See sectons 7.52 and 7.525 of these reguatons.)
Sec. 7.530. Rkopboca dmnstratve ssstance. y rtce of the
conventon, the Unted States and the Unted ngdom adopt the prncpe of
e change of such nformaton as s necessary to the admnstraton of the pro-
vsons of the conventon or for the preventon of fraud or for the detecton of
practces whch are amed at reducton of the revenues of ether contractng
party but not ncudng nformaton whch woud dscose any trade secret or
trade process. Pursuant to such prncpe, every Unted States wthhodng
agent sha make and fe wth the coector, n dupcate, an nformaton return
on Form 10 2D, n addton to the wthhodng return, Form 10 2, for the caen-
dar year 19 6 and each subsequent caendar year, wth respect to: (a) dvdends
from whch a ta of 15 per cent was wthhed from persons whose addresses are
n the Unted ngdom (5 per cent n the case of dvdends fang wthn the
scope of the provso of rtce I(1) of the conventon) ; (6) rea property
rentas and natura resource royates from whch a ta of 15 per cent was
wthhed from persons whose addresses are n the Unted ngdom; (c) royates
and ke amounts and nterest from whch no ta was wthhed from persons
whose addresses are n the Unted ngdom; and (d) a other f ed or deter-
mnabe annua or perodca ncome pad to persons whose addresses are n
the Unted ngdom.
The nformaton and correspondence reatve to e change of nformaton may
be transmtted drecty by the Commssoner of Interna Revenue to the Com-
mssoners of Inand Revenue.
Sec. 7.531. Informaton to be Furnshed n Due Course. In accordance wth
the provsons of rtce of the conventon the Commssoner of Interna
Revenue w forward to the Commssoners of Inand Revenue as soon as
practcabe after the cose of the caendar year 19 6, and of each caendar year
thereafter durng whch the conventon s n effect, the names and addresses of
a persons whose addresses are wthn the Unted ngdom and who derved
from sources wthn the Unted States dvdends, nterest, rents, royates,
saares, wages, pensons, annutes, or other f ed or determnabe annua or
perodca profts and Income, showng the amounts of such tems of Income n
the case of each addressee. For these purposes the transmsson to the Com-
mssoners of Inand Revenue of Informaton return Form 10 2D as provded n
secton 7.530 of these reguatons for the caendar year 19 6, and subsequent
caendar years, sha consttute compance wth the provsons of rtce of
the conventon and of sectons 7.512 to 7.532 of these reguatons.
Sec. 7.532. Informaton n Specfc Casks. Under the provsons of rtce
of the conventon and upon request of the Commssoners of Inand Revenue,
the Commssoner of Interna Revenue sha furnsh to the Commssoners of
Inand Revenue any nformaton (other than nformaton that woud dscose
any trade secret or trade process) avaabe to or obtanabe by the Commssoner
of Interna Revenue reatve to the ta abty of any person under the revenue
aws of the Unted ngdom n any case n whch such nformaton Is necessary
to the admnstraton of the provsons of the conventon or for the preventon
of fraud or the admnstraton of statutory provsons aganst ega avodance.
oseph D. Nunan. r.,
Commssoner of Interna Revenue.
pproved uy 3, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 10, 19 7, 8. 7 a. m.)
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29.211-7.
120
Secton 29.211-7: Ta aton of nonresdent
aen ndvduas.
19 7-23-12682
I. T. 3876
INT RN L R NU COD .
resdent of the Unted ngdom (other than a ctzen of the
Unted States) who s empoyed by a foregn corporaton managed
and controed n the Unted ngdom Is e empt, under rtce
I (1) of the Unted States-Unted ngdom ncome ta conventon,
from Unted States ncome ta wth respect to compensaton re-
ceved from the foregn corporaton for persona servces rendered
n the Unted States, f he s present n the Unted States for a perod
or perods aggregatng not In e cess of 183 days durng the ta abe
year, even though such corporaton has a permanent estabshment
In the Unted States.
dvce s requested whether certan offcers and empoyees of a for-
egn corporaton, whch s managed and controed n the Unted ng-
dom and has a permanent estabshment n the Unted States, such off-
cers and empoyees beng nonresdent aens as to the Unted States,
are entted to e empton from Unted States ncome ta under rtce
I (1) of the Unted States-Unted ngdom ncome ta conventon
(T. D. 5569, page 100, at page 10 , ths uetn) n respect of ther
compensaton for persona servces rendered n the Unted States.
rtce I (1) of the Unted States-Unted ngdom ncome ta
conventon provdes as foows:
(1) n ndvdua who s a resdent of the Unted ngdom sha fag- eaypf
from Unted States ta upon compensaton for persona (ncudng professona)
servces performed durng the ta abe year wthn the Unted States f (a) he Is
present wthn the Unted States for a perod or perods not e ceedng n the
aggregate 183 days durng such ta abe year, and (6) such servces are performed
for or on behaf of a person resdent n the Unted ngdom.
rtce 11(1) (g) of the Unted States-Unted ngdom ncome ta
conventon provdes as foows:
(g) The term resdent of the Unted ngdom means any person (other
than a ctzen of the Unted States or a Unted States corporaton) who s res-
dent n the Unted ngdom for the purposes of Unted ngdom ta and not
resdent In the Unted States for the purposes of Unted States ta . corpora-
ton s to be regarded as resdent n the Unted ngdom f ts busness s man-
aged and controed n the Unted ngdom.
Secton 7.515 (d) of Treasury Decson 5569 (page 100, at page 111, ths
uetn) provdes as foows:
(d) The term resdent of the Unted ngdom means any nonresdent aen
(ncudng an ndvdua, fducary, and partnershp) resdent n the Unted ng-
dom for the purposes of Unted ngdom ncome ta , and any foregn corporaton
managed and controed from wthn the Unted ngdom but not engaged n trade
or busness wthn the Unted States. Itacs supped.
The precse queston presented s whether the cause but not en-
gaged n trade or busness wthn the Unted States, contaned n
secton 7.515 (d) of Treasury Decson 5569, supra, w precude the
offcers and empoyees of the nstant corporaton who render persona
servces n the Unted States from the benefts of the e empton pro-
vded by rtce I (1) of the Unted States-Unted ngdom ncome
ta conventon.
It w be observed that rtce 11(1) (g) of the ta conventon,
supra, n defnng the term resdent of the Unted ngdom, e cudes
from the defnton any ta abe entty resdent n the Unted States
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121
29.211-7
for the purposes of Unted States ta . For Unted States ncome ta
purposes, a foregn (as to the Unted States) corporaton engaged n
trade or busness n the Unted States s regarded as resdent n the
Unted States. (See secton 231(b) of the Interna Revenue Code.)
ence, there appears n secton 7.515(d) of Treasury Decson 5569,
supra, the above-mentoned cause. Thus, a foregn corporaton man-
aged and controed n the Unted ngdom, as s the nstant corpora-
ton, and havng a permanent estabshment n the Unted States, s
not, for e ampe, entted to the benefts of the provsons of rtces
I, II, or III of the conventon. It does not foow, however, that
e empton from Unted States ta s dened wth respect to compensa-
ton of ts offcers and empoyees where such ndvduas conform to
the condtons set forth n rtce I(1) of the conventon.
It w be observed that rtce 11(1) (h) of the conventon, n
defnng the recproca term resdent of the Unted States, does not
e cude any domestc (as to the Unted States) corporaton whch has
a permanent estabshment n the Unted ngdom. ence, an nd-
vdua empoyee of such a corporaton, who s hmsef a resdent of the
Unted States, woud be e empt from Unted ngdom ta under
rtce I(2) of the conventon f, durng the ta abe year, he per-
forms persona servces n the Unted ngdom for such corporaton
for a perod or perods aggregatng not n e cess of 183 days.
Obvousy, rtce I s ntended to operate recprocay. Therefore,
an empoyee of a foregn corporaton managed and controed n the
Unted ngdom, even though such corporaton has a permanent
estabshment n the Unted States, s e empt from Unted States
ncome ta wth respect to compensaton receved from that corporaton
for persona servces, f he s present n the Unted States for a perod
or perods aggregatng not n e cess of 183 days durng the ta abe
year. Such e empton from Unted States ta n the case of such an
ndvdua s n harmony wth the e emptons from Unted States
ta recognzed n the case of resdents of Sweden under rtce I(b)
of the Unted States-Sweden ta conventon (T. D. 975, C. . 19 0-2,
3, at 5) and under rtce II(1) (a) of the Unted States-Canada
ncome ta conventon (T. D. 5206, C. . 19 3, 526, at 528).
ccordngy, t s hed that a resdent of the Unted ngdom (other
than a ctzen of the Unted States) who s empoyed by a foregn
corporaton managed and controed n the Unted ngdom s e empt,
under rtce I L) of the Unted States-Unted ngdom ncome ta
conventon, from Unted States ncome ta wth respect to compensa-
ton receved from the foregn corporaton for persona servces ren-
dered n the Unted States, f he s present n the Unted States for a
perod or perods aggregatng not n e cess of 183 days durng the
ta abe year, even though such corporaton has a permanent estab-
shment n the Unted States.
Secton 29.211-7: Ta aton of nonresdent aen
ndvduas.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5580, page 88.)
77338 8 9
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Regs. 112. 35.732-1. 122
SUPPL M NT I. FOR IGN CORPOR TIONS.
S CTION 231. T ON FOR IGN CORPOR TIONS.
Secton 29.231-1: Ta aton of foregn corporatons.
INT RN L R NU COD
Reguatons affectng the ta aton of foregn corporatons managed
and controed n the Unted ngdom under the ncome ta conven-
ton and protoco between the Unted States and the Unted ngdom,
procamed by the Presdent of the Unted States on uy 30, 19 6.
(See T. D. 5569, page 100.)
Secton 29.231-1: Ta aton of foregn corporatons.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 5580, page 88.)
C PT R 2. DDITION L T S.
SU C PT R . C SS PROFITS T .
P RT L
S CTION 722. G N R L R LI F CONSTRUCTI
R G S P RIOD N T INCOM .
Reguatons 112, Secton 35.722-5: ppcaton for
reef under secton 722.
INT RN L R NU COD
ursdcton of The Ta Court of the Unted States. (See Ct. D.
1693. beow.)
S CTION 732. R I W OF NORM LITI S Y O RD
OF T PP LS NOW T T COURT
OF T UNIT D ST T S .
Reguatons 112, Secton 35.732-1: Revew of 19 7-22-12679
abnormates by The Ta Court of the Unted Ct. D. 1693
States.
( so Secton 722, Secton 35.722-5.)
b cess profts ta nterna revenue code decson op court.
appcaton for reef |ursdcton of ta court appcaton
for Reef ssentay C am for Refund ob Credt.
The fng of an e cess profts ta return, payment of a part of the
ta due, te fng of a cam for refund or credt and dena n
whoe or In part of such cnm by the Commssoner, are prerequstes
to the ursdcton of The Tu Court to determne pettoner s rght
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123
Regs. 112. 35 732-1
to reef from e cessve or dscrmnatory e cess profts ta es resut-
ng from abnormay ow e cess profts credt under secton 722, In-
terna Revenue Code. Unt some ta as been pad there s no
bass for reef. The essenta characterstc of an appcaton for
reef s that It Is a cam for refund or credt.
Unted States Crcut Coubt of ppeas for the Thrd Crcut.
ohatcong osery Ms, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
162 Fed. (2d). 1 6.
On petton for revew of the decson of The Ta Court of the Unted States.
efore Goodrch. McLaughn, and aodner, Crcut udges.
Decded May 23, 19 7.
OPINION OF T COURT S M ND D ULY 2 , 19 7.
y aodner, Crcut udge:
In ths petton for revew of the decson of The Ta Court we are met wth
a probem n the admnstratve procedure for obtanng e cess profts ta ree
under secton 722 of the Interna Revenue Code.
The ssue Is whether (1) payment of any part of the pettoner s e cess profts
ta and (2) dena n whoe or n part by the Commssoner of a cam for
refund or credt under secton 722, are prerequstes to the |ursdcton of The
Ta Court to determne pettoner s rght to reef under secton 722.
The facts, whch are not n dspute, are as foows:
Pettoner fed ts e cess profts ta return for the caendar year 19 2, com-
putng ts ta wthout the appcaton of secton 722. In the return t reported
ts e cess profts net ncome as 206,33 .07, ts e cess profts credt based on
nvested capta as 73, 28.16, and ts unused e cess profts credt ad|ustment
as 1 2,79 .08. Snce the credts e ceeded the e cess profts net Income, the
return showed no e cess profts ta due, and none was pad.
On September , 19 3, the pettoner fed, on Form 991, an appcaton for
reef under secton 722, coverng the years 19 0, 19 1, and 19 2. Subsequenty,
the Commssoner notfed the pettoner that he proposed to determne a def-
cency of 88,6 2.23 n e cess profts ta for 19 2, based upon an Increase n
pettoner s e cess profts ta net Income and decreases In pettoner s credts.
On uy 20, 19 , pettoner fed, on Form 991, an amended appcaton for reef,
n the same amount as the proposed defcency, under secton 722 coverng the
ta year 19 2. fter numerous conferences between pettoner s and Comms-
soner s representatves, the Commssoner, on ugust 29, 19 5, maed a notce
of defcency n e cess profts ta es for 19 2 In the amount of 88,6 2.23. In
t s defcency notce, the Commssoner sad:
You have fed Forms 991, ppcaton for Reef under Secton 722 o the
Interna Revenue Code, one on September , 19 3, coverng the years 19 0, 19 1,
and 19 2, and one, amended on uy 20,. 19 , coverng the year 19 2. Snce
these appcatons do not consttute cams for refund, no e cess profts ta
havng been pad for any of the aforementoned years, ths etter s not a notce
of dsaowance under secton 732 of the Interna Revenue Code. owever, con
sderaton has been gven to your contentons reatve to reconstructon under
secton 722 of your base perod ncome for e cess profts credt purposes, and
t has been determned that you have not estabshed that the ta computed
under Subchapter of Chapter 2 of the Interna Revenue Code, wthout the
beneft of secton 722 of the Code, resuts n an e cessve and dscrmnatory
ta wthn the provsons of secton 722 (a) and (b) of the Code, and that you
have not estabshed what woud be a far and ust amount representng norma
earnngs to be used as a constructve average base perod net ncome for the
purposes of an e cess profts ta based upon a comparson of norma earnngs
and earnngs durng the e cess profts ta ta abe years ended December 31.
19 0, December 31. 19 1, and December 31, 1912. Itacs supped.
From ths defcency determnaton, a petton was made to The, Ta Court
on November 21, 19 5. In two genera assgnments, the petton aeged error
In determnng the defcency; nne other assgnments were drected toward the
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Regs 112. 35.732-1.
12
Commssoner s faure to grant reef under secton 722. Thereafter, The
Ta Court granted a moton by the Commssoner to dsmss the proceedng for
ack of |ursdcton In so far as t reated to pettoner s appcaton for reef
under secton 722 on the ground that no e cess profts ta had been pad by
pettoner n 19 2, and Its appcaton for reef had not been dened; t dd so
e pressy upon the authorty of ts decsons n mercan Coast Lne, Inc., v.
Commssoner (6 T. C, 67, snce affrmed, 2 Cr., 19 7, 159 Fed. (2d), 665 Ct. D.
1690, page 129, ths uetn ) ; n-Term Stevedorng Co., Inc. (3 T. C, 917) ; and
Poneer Parachute Co., Inc. ( T. C, 27).
Foowng the answer of the Commssoner, the pettoner amended ts petton
before The Ta Court to ceary refect that no sue other than reef under
secton 722 was ntended to be rased. Thereupon, pontng out that the pead-
ngs as they then stood rased no ssue as to any ad|ustments made by the
Commssoner n determnng the e cess profts ta defcency and that the ony
errors assgned reated to the faure of the Commssoner to grant reef under
secton 722, The Ta Court entered ts order sustanng the defcency deter-
mned by the Commssoner.
s Is mmedatey apparent, we are not here concerned wth the merts of
pettoner s cam for reef under secton 722; we are concerned wth the pro
cedure for the reazaton of such reef.
Pettoner takes the poston that The Ta Court s requred to pass upon
ts rght to secton 722 reef before t determnes whether any proposed def-
cency e sts, for under secton 729(a) of the Interna Revenue Code, sectons
271 and 272 are appcabe. refy, these sectons grant a ta payer the rght
to petton The Ta Court for a redetermnaton of any defcency determned
by the Commssoner before payment thereof, and defne a defcency as the
amount by whch the ta mposed e ceeds the amount shown as the ta on the
ta payer s return.
Moreover, t s contended that the ta shown on ts return was pad snce
ts return showed no e cess profts ta due, and that the Commssoner has (s
aowed pettoner s cam for reef. ccordngy, pettoner asserts that The
Ta Court had ursdcton to redetermne the defcency n Its e cess profts ta
for the year 19 2, and shoud have consdered pettoner s rght to reef under
secton 722.
The Commssoner s poston s that the e cess profts ta structure contem
pates the determnaton and payment of pettoner s norma e cess profts ta ,
wth the provso that pettoner may obtan the benefts of secton 722, an abnor-
maty provson desgned to aevate the ta burden n hardshp cases, ony
by way of a cam for refund or credt. The Commssoner further contends that
The Ta Court may consder a ta payer s rght to reef under secton 722 ony
after the ta payer has pad the e cess profts ta due and fed a cam for refund,
and that cam has.bcen dsaowed n whoe or n part by the Commssoner.
efore contnung, a word may be sad as to the scope of our revew. We, of
course, credt The Ta Court s decson great weght and persuasveness, partcu-
ary snce we are deang wth a matter affectng procedure before The Ta
Court tsef, athough It has not favored us wth a fu-ength pcture of ts vews;
for those, we are reegated to Its pror decsons. Nevertheess, we thnk we have
here a pure queston of aw and the enforcement of a rue of genera appcab
ty. (Crane v. Commssoner, 67 S. Ct., 10 7 Ct. D. 108 , C. . 19 7-1, 97 .)
It s not otherwse contended by the Commssoner.
The answer to the dspute heren rests wthn the Interna Revenue Code.
Turnng to the Code, we fnd the e cess profts ta Imposed In the sectons com-
mencng wth secton 710. Secton 721 Is an abnormates provson ntended
to afford reef from e cess profts ta es by e cudng from ncome n the current
Ths secton reRds:
S C. 729. L WS PPLIC L .
(a) Genera Rue. provsons of aw (Incudng penates) appcabe In respect
ot the ta es Imposed by Chapter 1, sha. In so far as not Inconsstent wth ths subchapter,
be appcabe In respect of the ta mposed by ths subchapter.
The Commssoner does not make the same asserton here as In Ceco S ee Product)
Corporaton v. CommUtoner (8 Cr.. 19 5, 150 Fed. (2d), 698 Ct. D. 165 , C. . 19 5.
281 ), whch may be dstngushed on ts facts.
The cess Profts Ta (Subchapter of Chapter 2) was added to the Interna Revenue
Code by secton 201 of the Second Revenue ct of October 8, 19 0 (5 Stat., 975), entted
cess Profts Ta ct of 19 0. s w aprenr, In so far ns t Is here matera, that
ct was amended by the cess Profts Ta mendments of 19 1 (55 Stat., 17). the Revenue
ct of 19 2 (06 Stat.. 798). and the cess Profts Ta mendments of 19 3 (57 Stat.
601)
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125
Regs. 112, 35.732-1.
ta abe year tems of net abnorma ncome attrbutabe to other ta abe years.
ta payer may take advantage of secton 721 by proper ad|ustment n the e cess
profts ta return fed, or by makng no ad|ustment n the return, but thereafter
tng a cam for refund, the dena of whch may be revewed by The Ta Court.1
Secton 722, on the other hand, affords reef from e cessve or dscrmnatory
e cess profts ta es resutng from abnormay ow e cess profts credt. The
method of obtanng that reef Is specfcay stated In the margn.
It s mmedatey apparent that secton 722 reef, e cept as not pertnent
here s not avaabe to the ta payer n the frst nstance, for he may not take
advantage of that secton In hs e cess profts ta return.
Carefu e amnaton of the statute e poses the error n the crtca assump-
ton of pettoner s argument that the tota e cess profts ta due can not be
found wthout decdng to what e tent t s affected by secton 722. The answer
must be, as the Commssoner asserts, that e cept n Instances aready mentoned,
the e tent of e cess profts ta abty Is determned separatey and ndepend-
enty of the consderatons contaned n secton 722. avng sadded the ta -
payer wth a ta that undoubtedy coud choke off ts wnd, Congress, remnscent
of soveregn gracous cemency, granted reef under specfed condtons-. Ths
approach s consstent wth mercan Coast Lne, Inc., v. Commssoner (2 Cr.,
159 Fed. (2d), 665, at page 668), wheren the court sad Ths argument mght
perhaps be persuasve, f the dena of benefts under secton 722 were regarded
as a consttuent factor of the ta tsef, as for e ampe are the condtons detaed
n secton 721. We do not so regard secton 722; on the contrary It was a favor;
It presupposed that, even after takng Into account the ameatory condtons of
secton 721, the ta was due uness em grata the bow was softened; t was a
temperng of the wnd to the shorn amb. though the court there was pr-
mary concerned wth secton 722 as It was amended by the Revenue ct of
10 2 (56 Stat., 798, 91 ), we thnk t appes equay as we now.
ewng the egsaton n ths ght, It s not dffcut to foow the reasonng
of the Commssoner, that the essenta characterstc of an appcaton for reef
Is that t s a cam for refund or credt. The statutory requrements that the
e cess profts ta due be determned wthout reference to secton 722, the ta
thus shown on the return be pad, and the reef be made avaabe ony upon
appcaton, are whoy consstent wth that concuson.
The evouton of secton 722 (d)# affords addtona bass for the determnaton
of The Ta Court, as It Is e paned n Un-Term Stevedorng Co., supra, Poneer
Parachute Co., supra, and mercan Coast Lne, Inc., supra.
Orgnay, secton 722 brefy provded, For the purposes of ths subchapter,
the Commssoner sha aso have authorty to make such ad|ustments as may be
necessary to ad|ust abnormates affectng ncome or capta, and hs decson
sha be sub|ect to revew by the Unted Stntes oard of Ta ppeas. ut ts
was merey a stop-gap provson, and not ntended as the ast word on the sub-
|ect. ven under ts statute the Commssoner had promugated reguatons
See reference to secton 732, footnote 8.
Secton 722(d). ppcaton for reef under ths secton. The ta payer sha com-
pute ts ta , fe ts return, and pay the ta shown on Its return under ths subchapter
wthout the appcaton of ths secton, e cept as provded n secton 710(a)(5). The
benefts of ths secton sha not be aowed uness the ta payer wthn the perod of tme
prescrbed by secton 322 and sub|ect to the mtaton as t amount of credt or refund
prescrbed In such secton makes appcaton therefor n accordance wth reguatons pre-
scrbed by the Commssoner wth the approva of the Secretary. (Secton
722(d) as amended by secton 1(a), cess Profts Ta mendments of 19 3 (57 Stat.,
001).)
Pursuant to secton 732(a), the notce of dsaowance by the Commssoner of a cam
for refund reatng to certan parts of secton 711, or to sectons 721 or 722, may operate
as a notce of defcency ; hence The Ta Court may revew the dsaowance; under secton
732(c) The Ta Court s revew Is na, but under secton 732(d), the determnaton by any
dvson of The Ta Court of any queston arsng under secton 721(a)(2)(C) or secton
722. Is revewabe by a speca dvson of The Ta Court, and ts decson Is fna.
Thus, pursuant to secton 710(a)(5), under certan condtons ta payer may fe hs
appcaton for reef at the tme the e cess profts ta return s fed and wthhod 33
per cent of the camed reducton. (See Reguatons 112, sectons 35.710-5 and
35.722-5(a).)
so, pursuant to the ast sentence In secton 722(d), reef may be had by usng n the
e cess profts ta return the credt based upon the constructve average base perod net
Income as fnay determned. (See Reguatons 112. secton 35.722-5(f) as amended-by
T D 5393 C 19 5 )
Second Revenue ct of October 8, 19 0 (5 Stat., 97 , 986).
. Rept. No. 3002, Seventy-s th Congress, thrd sesson, pace 52 (C. . 19 0-2. 5 8,
557) ; uetn on Secton 722, Unted States Treasury Department, ureau of Interna
Revenue (November, 18 ), page 1 ( 63 CC Standard cess Profts Ta Reporter,
secton 51 5.02).
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Regs. 112, 5 35.732-1.
126
requrng the ta payer to compute and pay Its e cess profts ta wthout regard
to the secton, and to fe an appcaton therefor.
The procedure for obtanng reef was frst fuy provded, when secton 722
was enarged, and subsecton (e) was added by the cess Profts Ta mend-
ments of 19 1.10 Ths amendment requred a ta payer to compute Its ta and fe
ts return wthout the appcaton of secton 722.
ccordngy, the ta payer was requred to appy to the Commssoner for the
benefts of the secton wthn s months from the statutory date for the fng
of returns. owever, f the Commssoner ssued a premnary notce of def-
cency n e cess profts ta , the ta payer had 90 days to appy to the Comms-
soner for the reef; or, If the Commssoner maed a fna notce of defcency
wthout havng maed a premnary notce or wthn 00 days after the prem-
nary notce, the ta payer coud cam the benefts of secton 722 n hs petton
(or n an amended petton) before the then oard of Ta ppeas.
In the same amendng ct, secton 732 was added provdng, f there were a
dsaowance n whoe or n part of a cam for refund of ta under that
subchapter, the Commssoner must send a notce to the ta payer of such dsa-
owance; wthn 00 days thereafter the ta payer coud fe a petton wth the
then oard of Ta ppeas for a redetermnaton of the ta ; f that petton was
fed, the notce of dsaowance was deemed to be a notce of defcency. The
oard was aso granted broad authorty to determne a defcency under ths
procedure and ts revew of secton 722 ssues was made fna.
Moreover, the Commssoner adopted reguatons whch consdered the ap-
pcaton for reef requred by the amended statute as a cam for refund or
credt wth respect to the e cess profts ta for the ta abe year pad at or pror
to the tme such appcaton s fed.
y secton 222(a) of the Revenue ct of 19 2 ( 56 Stat, 01 ), subsecton (e)
of secton 722 was redesgnated subsecton (d). Whe the genera procedure for
obtanng reef was retaned, the new provson, asde from e tendng the tme
mtatons, requred the ta payer not merey to compute ts ta and fe ts
return, but aso to pay ts ta under the subchapter wthout the appcaton of
secton 722, e cept, of course, as provded n secton 710(a) (5). Secton 222(c)
See Reguatons 109, secton 30.722-1, as orgnay Issued.
March 7, 19 1, secton 6 (56 Stat 17, 23).
u The reason (or ths provson s sgnfcant: IMs deemed advsabe n the nterests of
good admnstraton, In vew of the nature of the probem presented by secton 722, that
the ta payer shoud not be permtted to appy the secton n the computaton of the e cess
profts ta abty shown upon Its return and that the ta payer shoud be requred to con-
form to reasonabe restrctons wth respect to the tme wthn whch It may make app-
caton for the benefts of the secton. ( . Rept. No. 1 6, Seventy-seventh Congress, frst
sesson, page 13, C. . 19 1-1, 50, 559.)
a ut If the appcaton was not fed wthn the s months perod, the reef granted
coud not e ceed the amount of the defcency.
Secton 9, cess Profts Ta mendments of 19 1 (55 Stat.. 26).
Under secton 722 as orgnay enacted, It was not apparent that an appea to the oard
of Ta ppeas coud be had uness the Commssoner ssued a defcency etter, upon whch
the ursdcton nf the oard mght be premsed. See ouse Report No. 1 6 (C. . 10 1-1.
at page 560) : Under e stng aw, uness a defcency has been determned by the Com-
mssoner, a ta payer has no rght of appea to the oard (secton 272(a)(1), I. R. C).
Thus, for e ampe, f a refund cam were fed by a ta payer and the Commssoner ds-
aowed the cam In whoe or n part but dd not determne defcency, no rght of revew
of the Commssoner s acton by the oard woud be present. Inasmuch as the ta payer s
rght to reef under certan of the reef provsons provded In ths b may ony be
rased by a cam for refund, t Is necessary that a procedure be provded whereby the oard
may obtan |ursdcton to revew a decson by the Commssoner dsaowng such cams.
In I n-Term Stevedorng Co., (3 T. C. 917, at page 91S. n. 1), The Ta Court sad, It
has been suggested that the ony purpose of secton 732(a) was to permt revew by ths
court In cases where no defcency had been determned In e cess profts ta . No support
Is found for ths cther In the egsatve hstory or In the provsons of the statute. The
atter Indcate a reazaton by Congress that a notce mght be maed under 732(a) even
though the Commssoner had aso determned a defcency and maed a notce under
729(a).
Reguatons 109, secton 30.722-5(o), as added by T. D. 50 5 (C. . 19 1-1. 69, 101)
(Later amended by T. D. 5153, C. . 19 2-1. 1 5.)
To conform to the statute and to ont resouton of March 31, 19 3 (57 Stat., 56), the
reguatons quoted above and cted In footnote 15. were amended by T. D. 626 (C. . 19 3.
761), and superseded by Reguatons 112. secton 35.722-5. The frst sentence Is as gven
In the te t; the reguatons contnued : The amount of credt or refund camed sha be
the e cess of the amount of the e cess profts ta for the ta abe year pad over the amount
of e cess profts ta camed to be payabe computed pursuant to the provsons of secton
722. In case the ta payer eects to pay n Instaments the ta shown upon ts return
and at the tme the appcaton s fed such ta had not been pad In fu, the ta payer
shoud fe a cam for refund on Form 8 3 ns prompty as possbe after such ta has been
pad u fu. The Informaton aready submtted n the appcaton need not agan be sub-
mtted on Form 8 3 f reference s made theren to such appcaton. For mtatons upon
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127
Regs. 112, 35.732-1.
of the 19 2 ct aso amended secton 732, wth the addton of subdvson (d)
thereto, to provde that determnatons and redetermnatons by any dvson of
the oard Invovng any queston arsng under secton 722, or another secton
not pertnent here, sha be revewed by a speca dvson, whose determnaton
s not sub|ect to revew by the oard.
It was pursuant to ths amendatory statute that the Court In mercan Coast
Lne, Inc., v. Commssoner, supra, hed that payment of the e cess profts ta was
a necessary condton to revew by The Ta Court of matters pertanng to
secton 722. Thus, reef under secton 722 was accorded what fuy amounts
to the status of a cam for refund.
The ne t egsatve step In the deveopment of secton 722(d), was taken In
secton 1(a) of the cess Profts Ta mendments ct of December 17, 19 3
(57 Stat, 601), wheren secton 722(d) was modfed to read as aready noted.
Ths amendment was made appcabe retroactve to ta abe years begnnng
after December 31, 1939.
The most sgnfcant feature of ths amendment was the repea of those pro-
vsons permttng the ta payer to by-pass the Commssoner and to make hs
appcaton for secton 722 reef by way of petton drecty to The Ta Court.
Thus, Congress whoy assmated the stuaton to a cam for refund.
( mercan Coast Lne, Inc., v. Commssoner, supra, 159 Fed. (2d), at page 608.)
ven under the pror statutory arrangement, the specfc permsson to petton
The Ta Court for reef n the frst nstance woud not have been necessary
uness Congress had aready consdered secton 722 reef avaabe ony by a
cam for refund; for, the Commssoner s defcency determnaton otherwse
woud have been suffcent to carry the whoe matter to The Ta Court as wth
other sectons of the subchapter reatng to the e cess profts ta .
It may be noted that on the assumpton that Congress dd not ntend to by-
pass the Commssoner, and wth a vew toward affordng the fuest consdera-
ton to the compe cams based on secton 722, the Commssoner has set up
an ntradepartmenta method of processng such cams by estabshng a fed
dvson and an cess Profts Ta Counc. ( uetn on Secton 722 (Novem-
ber, 19 ), 63 CC , secton 51 5.) Support for ths assumpton may be found
n subsecton (g) of secton 722 (added by secton 206 of the Revenue ct of
19 3 ( 58 Stat., 21, 55)) provdng for pubcaton of reef aowed by the Com-
mssoner or The Ta Court, and In the case of reef aowed by The Ta
Court of the Unted States, the Commssoner sha aso set forth the data pre-
vousy reported under ths subsecton wth respect to reef prevousy aowed
In such case by the Commssoner. We may assume that ths was another step
to assure a consstent and unform appcaton of the prncpes n sec-
ton 722.M
The dffcuty wth pettoner s e egess of the reevant statutes es n the
assumpton that the reef accorded under secton 722 may be treated n the
manner of a deducton or credt whch coud or shoud have been taken on the
e cess profts ta return. ut we thnk t apparent, from our revew, that n
cases ke the present, the rebate was ntended to be made avaabe by a cam
for refund, over whch The Ta Court woud have had no |ursdcton e cept
by vrtue of secton-732.
The pocy of treatng secton 722 reef as a cam for refund further presup-
poses a payment. The Commssoner has so deat wth the matter n hs regu-
atons. Sgnfcanty, these reguatons have remaned constant, n treatng
the appcaton under secton 722 as a cam for refund, throughout the egsa-
tve changes referred to heren. (See Commssoner v. unter, 67 S. Ct., 1175,
footnote 6 Ct. D. 1685, C. . 19 7-1, 8, 51 .)
refunds and credts generay, see secton 322. s to procedure upon dsaowance of a
cam for refund of an e cess profts ta whch s camed to be e cessve and dscrmna-
tofy under secton 722, see secton 732. (Reguatons 112, secton 35.722-5(c).) (Sub-
sequenty ths was amended by T. D. 5393. C. . 19 , 15. 22.)
t ecause of the compcated nature and the economc character of the ssues
nvovng reef under secton 722 Ony by ths method can a consstent and
unform appcaton of the prncpes estabshed be assured n a cases. (S. Rept. No.
1631 Seventy-seventh Congress, second sesson, C. . 19 2-2. 50 , 655; compare . Rept
No. 333, Seventy-seventh Congress, frst sesson, C. . 19 2-2, 372. 82.)
See footnote 5. Reguatons 109, secton 30.722-5(a). nnd Reguatons 112, secton
35.722-5fo), were amended to conform by T. D. 5393 (C. . 19 . 15).
1 It mT he noted that pettoner here rases no queston reatng to retroactve statutes.
On ths ssue, see Poneer Parachute Co., Inc., . Commssoner ( T. C, 27).
See note 17.
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Regs 112, 35 732-1.1
128
Pettoner, however, urges upon the Court the thought that the statute merey
requres payment of the ta shown on ts return n contradstncton to the
pror requrement to pay ts ta , and suggests that snce the return fed ds-
cosed no ta due, t has pad the ta shown. ccordngy, t Is argued, the
Commssoner erred n refusng to consder ts appcaton as a cam for refund
and the notce of defcency, as quoted above, amounts to a dsaowance of the
cam; hence, the |ursdctona prerequstes were met.
The obstace n the path of that concuson Is the fact that pettoner puts tsef
n the anomaous poston of requestng a refund or credt for money whch t
never pad. Secton 722 reef s afforded by way of recapture, so to speak, and
presupposes somethng pad. Ths s partcuary true n the nstant case, snce,
as has aready been ponted out, secton 722 may not be consdered by a ta -
payer on ts e cess profts ta return, e cept as noted. ccordngy, there s
nothng to refund to pettoner, nor anythng for whch t may be credted. There-
fore, we fuy agree wth The Ta Court that unt some (e cess profts) ta s
pad, there s no bass for reef, and on the bass of what has aready been sad,
t s apparent that the reef s not affected through reducton of a defcency
n the e cess profts ta . (Un-Term Stevedorng Co., Inc., v. Commssoner,
supra, 3 T. C, at page 919.)
Fnay, pettoner voces the fear that on such constructon as we have gven
the aw, the Commssoner woud be n a poston to assert the fnaty of the pro-
ceedng wth respect to the defcency determnaton aganst a subsequent con-
test wth respect to the cam for refund. Of course ths woud be true f pet-
toner s vew, that the cam for refund may be asserted upon a defcency deter-
mnaton, were controng. ut as ths case stands, the cam for reef may
not be asserted at that tme; for ths reason aone the pettoner woud not be
precuded from assertng ts cam f and when the Commssoner re|ects It The
Ta Court so rued n the Un-Term case, and the Commssoner dsavows any
contrary thought. Moreover, secton 729(a) makes other provsons of the aw
appcabe ony n so far as they are not nconsstent wth the e cess profts ta
subchapter. Thus, the Commssoner can not take the poston that, the notce of
dsaowance beng the equvaent of a notce of defcency, one notce of defcency
n e cess profts ta under secton 272(a) has aready been maed and secton
272(f) prohbts another notce of defcency where the ta payer fed a petton
wth The Ta Court based on the e stng notce. Secton 732(a) e pressy re-
qures the Commssoner to send a notce of dsaowance of the cam for refund
to the ta payer, and the ta payer may appea to The Ta Court on the bass of
that notce. ccordngy, secton 272(f) woud be nconsstent wth the e cess
profts ta subchapter f the notce of dsaowance may be sad to be a notce of
defcency for by hypothess that secton must be read n the ght of the-specfc
reef provsons provded for reazaton of the benefts of secton 722.
Pettoner aso asserts that, havng pad the defcency pursuant to secton 11 5,
t coud not recover such overpayment n vew of secton 322(c), but whatever
pausbty e sts n that argument, t fas to take nto account secton 322(c) (1).
On ths score, a nce pont s made n The Ta Court s decson n the Un-Term
case, 3 T. C, at page 921, note 7, where attenton s caed to the fact that |urs-
dcton to revew the Commssoner s dsaowance of a cam under secton 722 s
e cusvey n The Ta Court, but, for other e cess profts ta purposes, the ta -
payer has the aternatve of sung for refund n a dstrct court or the Court of
Cams. Thus, abty for the e cess profts ta n the frst nstance beng wth-
out consderaton of secton 722, f the argument of fnaty were effectve to pre-
vent the appcaton of the procedure under sectons 722 and 732, then a ta payer
coud not take advantage of a sut for refund n such other courts est t abandon
ts cam under secton 722. The procedura vews of The Ta Court preserve
those aternatve rghts wth respect to other provsons of the e cess profts ta .
For the reasons stated the order of The Ta Court s affrmed.
(c) ffect of Petton to oard. If the Commssoner ha maed to the ta payer
a notce of defcency under secton 272(a) and f the ta payer tes a petton wth the
oard of Ta ppeas wthn the tme prescrbed In such subsecton, no credt or refund
In respect of the ta for the ta abe year n respect of whch the Commssoner ha deter-
mned the defcency shn be aowed or made and no sut by the ta payer for the recovery
of any part of such ta sn be nsttuted n nny court e cept -
(1) s to overpayments determned by a decson of the oard whch has become
nn:
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129
Regs 109. 5 30.732-1.
Reguatons 109, Secton 30.732-1: Revew of 19 7-17-1262
abnormates by The Ta Court of the Unted Ct. D. 1690
States.
( so Secton 1, Secton 19. 1- .)
e cess profts ta nterna revenue code decson of court.
1. Returns Change from Caendar to Fsca Year ass Non-
compance wth Condtons Imposed by Commssoned to
ffect Change
Ta payer corporaton, organzed n 1933, had been nactve snce
1935 unt uy, 1939, when t was revved In order to take tte to a
shp whch t was proposed to buy and operate. The shp was oper-
ated at a oss n 1939 and 19 0, and sod n 19 0 at a proft. On
May 7, 19 0, the corporaton asked permsson of the Commssoner
to fe Its return on a fsca year bass from uy, 1939, to une,
19 0, whch woud have e empted t from e cess profts ta . The
Commssoner granted eave, but on certan condtons wth whch
the corporaton never comped, and on March 15, 19 1, t fed
Income and e cess profts ta returns on a caendar year bass for
1939 and 19 0. ed: The Commssoner propery determned the
corporaton s Subchapter e cess profts ta on the bass of a ca-
endar year 19 0. The corporaton s argument that It was n effect
a new corporaton when t revved In uy, 1939, and that as such t
had the prvege wthout the Commssoner s eave of f ng a fsca
year nstead of a caendar year bass, s untenabe as evdenced by
the acts of the sharehoders, who canceed the od shares, ncreased
the oapta of the corporaton, took new shares for themseves, put
the tte to the shp n the corporaton, asked eave to change ts
bass, and fed a return for the whoe year 1939.
2. ppcaton fob Reef Under Secton 722 ursdcton of Ta
Court.
The Commssoner maed to the ta payer corporaton a prem-
nary defcency notce on December 18, 19 1, ta payer protested on
anuary 2, 19 2, and fed an appcaton for reef under secton
722, Interna Revenue Code, on March 1 , 19 2. On September 29,
19 2. the Commssoner maed a notce of defcency denyng reef,
and ta payer fed a petton for redetermnaton wth the then
oard of Ta ppeas on December 26, 19 2, wthout pror payment
of the defcency and dena of a cam for refund therefor as pro-
vded by secton 732 of the Code, whch apped retroactvey to a
cases for years begnnng after December 31, 1939. ed: Snce
secton 722 bestowed a favor, and Congress by ater amendments n-
tended to deny reef In a cases where the amount of the ta as
assessed was not pad and to whoy assmate the stuaton to a
cam for refund, the petton to the oard was defectve, ard The
Ta Court s wthout ursdcton to revew the Commssoner s
dena of reef.
3. Decson ffrmed.
Decson of The Ta Court of the Unted States (6 T. C, 67)
affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
mercan Coast Lne, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
efore L. and, Chase, and Frank, Crcut udges.
On petton to revew an order of The Ta Court, assessng a defcency In e cess profts ta
aganst the pettoner for the year 19 0.
February 3, 19 7.
opnon.
L. and, Crcut udge: Ths s an appea from an order of The Ta Court
whch assessed a defcency n e cess profts ta aganst the pettoner for the
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Regs. 109, 30.732-1.1
130
year 19 0, and dsmssed Its petton for ack of ursdcton, so far as t sought
reef under secton 722.1 Two questons arse: (1) whether any e cess profts
ta was due for the year 19 0; and (2), If so, whether The Ta Court had
ursdcton to entertan an appcaton for reef under secton 722(d) of the
Interna Revenue ct. The facts are as foows. The pettoner Is a corpora-
ton organzed n 1933, a of whose 100 shares were hed n 1939 by the Pruden-
ta Steamshp Co. The wfe of Stephen D. Stephands owned two thrds
of the shares of the Prudenta Steamshp Co., and Nchoas D. en owned
the other thrd; the shares had been transferred to the Prudenta company
as securty for a oan, but ths had been pad at or before the tme here In
queston. The corporaton had at one tme been In busness, but had been
whoy nactve snce 1935; t had kept ave as a corporaton by payng ts
franchse ta es but t had fed no Income ta returns. In uy, 1939, Stephands,
en and two others, decded to revve t n order to take tte to a shp whch
they proposed to buy and operate. The Prudenta Steamshp Co. . e., Ste-
phands and en surrendered ther certfcates for 100 shares; the capta
was Increased to 600 shares; and 150 shares were Issued to Stephands, to
en and to each of the other two. (Stephands shares were ssued In the
name of hs wfe as the orgna 100 had been.) The corporaton spent about
(5,000 n repars and operated the shp at-a oss durng the ast part of 1939
and the eary part of 19 0. On March 15, 19 0, It sod her to the rtsh Gov-
ernment for 00,000, tte beng transferred on une 7 at a proft of 287,000.
The corporaton durng the years when t was actve had fed Its ncome ta
returns on the bass of the caendar year. Ths It wshed to change; and on
May 7, 19 0, t asked eave of the Commssoner to fe on the bass of a fsca
year from uy 1, 1939, to une, 19 0, whch woud have e empted It from the
e cess profts ta . The Commssoner granted eave, but on certan condtons
wth whch the corporaton never comped; and on March 15, 19 1, t fed Its
ncome ta and e cess profts ta returns upon a caendar year for the years
1939 and 15) 0, as It had aways done In the past. The Commssoner maed
to t a premnary defcency notce on December 18, 19 1, assessng the whoe
proft from the sae as sub|ect to the e cess profts ta ; the corporaton pro-
tested on anuary 2, 19 2. and fed an appcaton for reef under secton
722 1 on March 1 , 19 2. The Commssoner had severa conferences wth It.
but maed a notce of defcency on September 29, 19 2; and the corporaton
fed ts petton wth the oard on December 26, 19 2.
The pettoner s frst pont Is that the corporaton, havng for a practca
purposes been ong morbund, became a new corporaton when t was revved
n uy, 1939, and, as such had the prvege, wthout the Commssoner s eave,
of f ng a fsca year nstead of a caendar year, unke a corporaton whch had
aready used a caendar year. Ths argument s unsound on Its face; every act
of the sharehoders contradcted t. They canceed the od shares, Increased
the capta of the corporaton, took new shares for themseves, put the tte of
the shp n the corporaton, asked eave to change ts fsca year, and fed a
return for the whoe year, 1939. Nothng coud more ceary prove that they
meant to avod the e pense of formng a new corporaton, and proposed to make
use of the od one. The e cuse, whch they attempted to make at the tra, that
they thought they were makng a new corporaton, and merey sgned such papers
as ther awyer tod them, s pany untenabe; as udge Murdock sad n the
court beow : they have not a eg to stand on.
The second queston s whether The Ta Court was wthout ursdcton to
revew the Commssoner s dena of the benefts of secton 722, a queston qute
dfferent from the merts of the Commssoner s acton. The secton as a whoe
was ntended to reeve corporatons from the harsh resuts of appyng the e cess
profts ta to stuatons In whch the e cess profts ta credt even wth the
assstance of secton 721 was not adequate protecton. In 19 0 when the ta was
frst passed, secton 722 merey provded n genera terms that the Commssoner
mght reeve corporatons from abnorma resuts, and that the oard of Ta
ppeas as t then wan shoud have ursdcton to revew hs decson. In
19 1 the secton was greaty enarged so as to make more specfc those stuatons
to whch t apped, and subdvson (e) was added, provdng for the ppcaton
for Reef Under Ths Secton. Ths subdvson requred the corporaton to
return Its e cess profts ta wthout regard to secton 722; but gave the prvege
1 SectoD 722, Tte 2(1. Unu-rt Staes Code
SectoD 722(d). Tte 2G. Unted States Code.
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131
Regs. 109. 30.732-1.
wthn s months after the return was fed of makng appcaton to the
Commssoner for the benefts of the secton under approprate reguatons;
t dd not n terms requre the corporaton to pay the ta as a condton of makng
the appcaton. If the Commssoner dened the reef, It coud not appea to
the oard, but was forced to pay the ta as returned, to cam a refund and
appea to the oard under secton 732. owever, the Commssoner mght assess
a defcency aganst the corporaton, because t had returned too sma a ta , or
none at a; and ths he mght do ether by a premnary notce foowed by
an assessment, or wthout any notce. In ether case subdvson (e) aowed the
corporaton to nvoke the benefts of secton 722 upon an appea to the oard
from the defcency. If the Commssoner proceeded by premnary notce
the corporaton mght fe an appcaton to hm wthn 00 days; If It dd not,
apparenty It ost Its prvege. In the case at bar the Commssoner dd serve a
premnary notce and the corporaton fed a tmey appcaton. Snce
the Commssoner never passed upon the appcaton e cept by assessng the
defcency on September 29, 19 2, the oard had a |ursdcton to revew hs
dsaowance under secton 722(e)(1) n the same proceedng n whch t re-
vewed the defcency. Ths s a necessary consequence of the anguage of the
e cepton as a whoe, because, uness the |ursdcton of the oard e tended to
cases wthn subdvson (e) (1), that subdvson hung n the ar and the sentence
dd not even parse. If the Commssoner cut short the 90 days after hs
premnary notce, or gave none at a, an appea to the oard aso ay, but
wth these we are not here concerned.
So the aw stood unt October 21, 19 2, when subdvson (e) was renumbered
(d), and was amended to provde that as a condton upon makng any appca-
ton to the Commssoner the corporaton must not ony compute ts ta and
fe ts return, but pay ts ta wthout the appcaton of ths secton : 1. e.,
secton 722. Ths amendment was e pressy made appcabe retroactvey to
a ta es mposed after December 31, 1939, and therefore covered the ta at bar.
Two questons arse. Frst, whether the corporaton s appea of December 20,
19 2, was defectve, assumng that the amendment of October 21, 19 2, for the
frst tme made ayment of the ta assessed a condton as we upon appeas to
the oard as upon appcatons to the Commssoner. Second, whether pay-
ment of the ta was n fact a condton as we upon appeas to the oard, as
upon. appcatons to the Commssoner. The rght answer to the frst of
these questons s yes. It mght perhaps be argued that, If before October 21,
19 2, the corporaton had appeaed from the defcency assessed on September 29,
19 2, the amendment woud not have deprved the oard of a ursdcton aready
vested n t. That we do not answer; for there enn be no doubt that, f t be
once conceded that secton 722(d) dd make payment of the defcency a cond-
ton upon the appea granted by subdvson (d) (1) or (d) (2), a appeas taken
after October 21, 19 2, were sub|ect to that condton, regardess of whether the
defcency to be revewed had been assessed before payment had been made a
condton ether upon appcatons to the Commssoner or appeas to the
oard.
The answer to the other queston Is not so pan: Shoud the condton of pay-
ment whch the amendment mposed upon a appcatons to the Comms-
soner be understood as aso appcabe to appeas to the oard ppeas to the
oard ay ony after the Commssoner had fnay assessed a defcency, because,
we have aready mped, secton 722(d) (1) presupposed that any premnary
notce has been foowed by a defntve assessment. Snce secton 272(a)
stayed process on an assessment, pendng appea to the oard, t s true that the
assessment must be regarded as not fna n the same sense that a |udgment
stayed on the appea Is not fna. Moreover, there s no doubt a dfference be-
tween a ta , conceded to be due n the corporaton s own return, and a ta
assessed aganst t n nvtum. Ths argument mght perhaps be persuasve, f
the dena of benefts under secton 722 were regarded as a consttuent factor
of the ta tsef, as for e ampe are the condtons detaed n secton 21. We
do not so regard secton 722; on the contrary t was a favor ; t presupposed that,
even after takng nto account the ameatory condtons of secton 721, the ta
was due uness e grata the bow was softened; t was a temperng of the wnd
to the shorn amb. When Congress mposed as a condton upon such a favor,
and e pressy prescrbed that the recpent must not be n defaut as to what
t acknowedged to be due, we can hardy beeve that t meant to reeve those
of the snme condton who had wrongy, even though honesty, faed to acknow-
edge what n fact was due, merey because ther abty had not been fnay
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132
determned on an appea. Moreover, we thnk It not unmportant as dscosng
a pree stng purpose that by the amendment of 19 3 Congress dened the bene-
fts of secton 722 In a cases where the amount of the ta as assessed was not
pad; and whoy assmated the stuaton to a cam for refund. It Is not un-
far to regard the earer statutory steps, though Inartcuate, as successve
efforts to reaze an ob|ect aready In mnd.
Fnay, so far as concerns our revew of The Ta Court, as dstnct from Its
own decson as to ts ursdcton, the case seems to us especay proper for the
appcaton of the doctrne that, even as to matters of aw unm ed wth fact,
we are to yed uness our convcton to the contrary Is strong. In rookyn
Natona Corporaton v. Commssoner The Ta Court had refused to foow
our earer decsons on the pont nvoved, sayng wth engagng candor that
they thought us mstaken. Reyng upon our earer decson In rschenbaum v.
Commssoner In whch we had foowed Commssoner v. state of edford
Ct. D. 16 1, C. . 19 5, 857 , we deferred to that rung. It Is of course not our
provnce to f the dstrbuton of udca power; east of a are we n a poston
to measure the hgher authorty whch The Ta Court s constant occupaton In
ts speca fed shoud gve to ts rungs, as dstnct from ours In our sprawng
ursdcton. We can thnk of no ega queston as to whch we ought more
ready yed than that at bar; In that thcket of verbage, through whch we have
been forced to cut a way, t must surey be an advantage to have been famar
wth other tanges of the same genera sort; and, whe t s the peasure of
Congress to e press Itsef so apocayptcay, we may we be gratefu that we
are permtted to put our hand Into those of accredted pathfnders.
Order affrmed.
C SS PROFITS T COUNCIL.
19 7-19-126 6
. P. C. 19
Changes In capacty for producton or operaton.
1. Ths memorandum has reference to changes n character repre-
sented by dfferences n capacty for producton or operaton. The
treatment of ths sub|ect n the uetn on Secton 722 (Part ,
pages 53-59, G. P. O. prntng) cas for further e panaton and
some modfcaton. nythng n the buetn nconsstent wth the
foowng postons s superseded.
2. asc to consderaton of the entre sub|ect s the prncpe that
under subsecton (b) ( ) a change n character by reason of a change
n capacty, n order to be accepted as a factor quafyng the ta payer
for reef, must cause the ta payer s average base perod net ncome
n whch t s not fuy refected to be an nadequate standard of
norma earnngs. coroary of ths prncpe s that to quafy for
reef under subsecton (b) ( ) the change n capacty must resut n
a hgher eve of norma earnngs. To prevent msunderstandng, the
treatment of capacty n the buetn must at a ponts be read wth
ths basc requrement n mnd. For e ampe, the ffth paragraph
under Part , Subpart 1(C) (3) the ast fu paragraph on page 53,
G. P. O. prntng mght otherwse be nterpreted to suggest that
the ta payer descrbed woud be entted to reef soey by vrtue of
the change n capacty, regardess of whether or not that change made
the actua base perod net ncome nadequate as a standard of norma
earnngs. Ths nterpretaton s not ntended. In genera, f the
1157 Fed. (2d). 50.
.r r. Fed (2d), 23.
325 U. S.. 283.

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133
Msc.
ony quafyng change s a change n capacty, reef s controed by
the e tent to whch ack of the added capacty (deveoped through
two years of norma operaton) was a mtaton upon profts durng
the base perod.1
3. In deang wth capacty probems the buetn dscusson s
mosty n terms of busnesses n whch capacty s represented by fac-
tores, heavy machnery, budngs, or operatng unts such as stores
or saes organzatons servng we-defned terrtores. substanta
change n capacty of such a busness s an nfrequent and ready
recognzed event. It s characterzed by a reatvey arge addton
to f ed nvestment and an mportant change n physca pant, per-
sonne, and equpment, that requre advance pannng. Such s the
change n capacty used for ustraton n the Commttee reports
the addton by a mnng company of a new mne and new pant to
be used n connecton wth that mne. If earer consummaton of
such an ncrease n capacty woud have yeded a hgher eve of
earnngs under base perod condtons, t s proper to aow a con-
structve ncome at the hgher eve foowng methods suggested n
Part , Subpart II, of the buetn, or other methods that come wthn
the statute.
. It s aso recognzed n the buetn that capacty s not aways
represented by physca factes. Capacty for operaton s us-
trated (Part , Subpart 1(C) (3), twefth paragraph frst compete
paragraph on page 55, G. P. O. prntng) by an automobe deaer
operatng under a franchse coverng a specfed terrtory. Such a
franchse s a sgnfcant measure of the ta payer s scope of operatons
and a rea mtaton upon ts earnng power; revson of such a
franchse enargng the deaer s terrtory s propery recognzed as
a change n capacty. It s concevabe aso that some unusua tvpes
of servce organzatons may operate through such hghy specazed
personne that the tranng and addton to the organzaton of a
new group of specasts woud be a sgnfcant change n capacty
for operaton. Such changes n capacty shoud be accorded the same
treatment under secton 722 as the physca changes dscussed n the
precedng paragraph.
5. In certan types of busness not specfcay deat wth n the
buetn there s no reastc and sgnfcant measure of capacty.
What, for e ampe, s the capacty of the operator of a feet of ta cabs
n a arge cty where the number of cabs s not mted by franchse
and n a perod when an addtona cab can be bought, sod, rented,
or reeased as the occason demands What s the capacty of a vendor
of ready-m ed concrete when the number of concrete-m ng trucks
at hs dsposa can be ncreased or decreased amost overnght gan,
what s the capacty of a persona servce organzaton n a fed not
requrng hghy specazed personne n a. perod when offce space
s freey avaabe and empoyees may be added to the staff or dropped
busness n whch there s no sgnfcant measure of capacty dstn-
gushabe from the abty to se goods and servces at a proft. In
other words, capacty for producton or operaton, n the physca
sense n whch these terms are generay understood and apparenty
as the voume of busness
Obvousy there are types of
See Natona Grndng Whee Co. v. Commssoner (8 T. C, No. 152, une 26, 19 7).
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13
ntended n subsecton (b) ( ), has tte or no effect on the earnng
power of certan types of busness. In these types of busness, there-
fore, no change n physca capacty can make base perod earnngs
nadequate wthn the meanng of secton 722(b) ( ). y the same
reasonng, no mtaton n terms of physca capacty n these types of
busness can be paced upon reconstructon of norma earnngs.
6. To ustrate the atter pont, a ta payer n the busness of rentng
trucks commenced busness n 1935 and e panded ts busness and
earnngs rapdy throughout the base perod wth prospects of further
e panson. s soon as t coud obtan another renta contract t
acqured the addtona trucks needed. These renta contracts were
of a ong-term character, so that each one represented a reatvey
permanent enargement n voume of busness. The ta payer oper-
ated n a arge cty, and ts busness was so sma reatve to ts oppor-
tuntes that for practca purposes ts e panson woud not be mted
for a perod of years e cept by ts abty to se and organze ts
truckng factes. Undoubtedy, f the busness had been commenced
two years earer the ta payer s eve of earnngs at the end of the
base perod woud have e ceeded ts actua eve at that tme. In ths
case the capacty mtaton n the buetn referred to above may not
be nvoked to mt reconstructon to the number of trucks owned and
commtted for at the cose of 1939. The reason s that the number
of trucks owned s not a sgnfcant measure of capacty for such a
busness.
7. Thus far, two types of busness have been dscussed frst, those
n whch a sgnfcant measure of capacty for producton or operaton
s ceary avaabe, and, second, those n whch no sgnfcant measure
of capacty e sts. Doubtess there are types of busness that fa
between these e tremes. In some mercante estabshments, for e -
ampe, foor space may to some e tent be a measure of capacty but
sub|ect to severe mtatons because of the ease wth whch foor space
may be changed n response to the buyng power of the communty
and the abty of a saes organzaton. In consderng capacty prob-
ems n these ntermedate types of busness, |udgment must be e er-
csed n each case to accord to capacty ony such sgnfcance as the
crcumstances |ustfy. It s mposebe to ay down hard and fast
rues for deang wth these cases.
8. The sgnfcance of capacty for producton or operaton covered
by commtments shoud be |udged by the prncpes suggested above.
crcumstances surroundng the change shoud be scrutnzed n
order to determne the sgnfcance of the new capacty wth as much
certanty as possbe, nasmuch as new capacty covered by commt-
ment was not tested by actua e perence e cept under war condtons
n the post-1939 perod. reasonabe showng that the change woud
have resuted n an addton to the ta payers earnngs under base
perod condtons s especay mportant, because base perod cond-
tons were usuay very dfferent from the condtons under whch
commtted capacty was actuay utzed.
Chares D. ame,
Charman.
September 9,19 7.
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Mse.
19 7-20-12658
. P. C. 20
vodance of dupcaton n credts of affated corporatons.
No provson n the buetn appes specfcay to the avodance of
dupcaton of credt among corporatons that are affated through
stock ownershp, and therefore ths memorandum s an addton to
the buetn.
1. ppcatons for reef under secton 722 have been fed by sub-
sdary corporatons and by corporatons otherwse owned and con-
troed by the same nterests under a varety of crcumstances. In
many cases f an appcaton were treated as f the corporaton were
an ndependent entty, gnorng ts subsdary or controed status,
the resut woud be a dupcaton n the e cess profts credts aowabe
and a correspondng dupcaton of beneft to the group of affated
corporatons. It s beeved that a far and |ust amount represent-
ng norma earnngs to be used as a constructve average base perod
net ncome for the purpose of an e cess profts ta perod was not
ntended to mean an amount whch woud resut n affated corpo-
ratons recevng dupcate credts and benefts for the base perod
earnngs of the busness conducted by them. ccordngy, appca-
tons for reef whch resut n such dupcaton to corporatons that
are affated through ownershp of 95 per cent or more of the votng
stock by the same nterests n substantay the same proporton w
be dened e cept under condtons specfed n paragraph 2.
2. In cases where a group of such affated corporatons estabshes
an equtabe aocaton to ts member corporatons of the norma earn-
ngs under the prncpes of secton 722 attrbutabe to the busness
of the entre group, such aocaton w be accepted for the purpose
of determnng constructve average base perod net ncome for the
member or members of the group whch w beneft thereby, sub|ect
to the e ecuton of approprate agreements by other members of the
group consentng to such reductons n ther e cess profts credts as
w refect the accepted aocaton of norma earnngs and emnate
dupcatons n the aggregate e cess profts credts of the group.
S. ampes of the types of cases n whch ths probem may arse
are as foows:
(a) Corporaton conducted a busness through a man offce and
two branch offces throughout the base perod unt uy 1,1939, when
t ncorporated the two branch offces as Corporatons and C. Cor-
poratons and C apped for reef under secton 722(b) ( ) on the
ground of commencement of busness and sought a constructve aver-
age base perod net ncome based on the actua earnngs of the bus-
nesses conducted by ther respectve offces durng the base perod,
ncudng the tme that these busnesses were conducted drecty by
. Corporaton fed an e cess profts ta return usng as a part
of ts base perod net ncome the earnngs of the two branch offces
from anuary 1,1936, to uy 1, 1939. owance of the appcatons
of and C wthout ad|ustng the credt of woud obvousy resut
n dupcaton of the benefts of the e cess profts credt and conse-
quenty shoud not be granted. owever, f and C furnsh an
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136
agreement sgned by provdng for a reducton n ts credt corre-
spondng to the credt aowed and C, ncreases shoud be aowed
to that e tent.
(6) stuaton smar to the one descrbed above has arsen e cept
that the busnesses conducted by the branch offces were ncorporated
n 19 0 wth ony nomna equty capta, the parent Corporaton
furnshng the buk of the capta necessary on oan. Corporatons
and C fed appcatons under secton 722(c) on the grounds of ab-
normay ow nvested capta. If these were aowed wthout any
ad|ustment of the credt of Corporaton , t foows that a dupca-
ton of credt and beneft woud be created. Therefore, appcatons
of and C shoud be treated as n (a) above.
( ) Corporaton operated a we-estabshed and successfu chan
of moton-pcture theaters, under the actve management of some of
the controng stockhoders. In 1939, t was decded to bud some
new theaters n dfferent and untred ocatons. In order to protect
Corporaton from abty for possbe osses from the new and
more specuatve enterprse, ts stockhoders organzed Corporaton
on uy 1, 1939, wth ownershp n the same proportons as n ,
and took over the we-estabshed theaters and operated them, pay-
ng a nomna sum for eases, franchses, and good w. Corpora-
ton fed an appcaton under secton 722(b) ( ) on the ground of
commencement of busness, camng the actua base perod earnngs
of the successfu chan operated by Corporaton as a bass for ts
e cess profts credt. If ths appcaton were aowed and there were
no arrangement to the contrary, Corporaton woud retan the bene-
ft of these same earnngs from anuary 1, 1936, to uy 1, 1939, n
computng ts e cess profts credt, thus resutng n dupcaton.
The appcaton of Corporaton shoud be dened snce a reconstruc-
ton of ts base perod net ncome woud not be a far and |ust amount
representng norma earnngs. owever, f Corporaton suppes
an approprate agreement from Corporaton whereby consents
to a reducton n ts credt, may be granted reef to the e tent that
s credt s reduced.
. In those nstances n whch appcatons may be fed by corpora-
tons controed through common ownershp n ess degree than 95
per cent, ssues nvovng possbe dupcaton of credt and beneft
w be gven consderaton as they arse.
Chares D. ame,
Charman, cess Profts Ta Counc.
September 22,19 7.
19 7-21-12668
. P. C.21
Capacty In reaton to the appcaton of the push-back rue.
Secton 722(b)( ) of the Interna Revenue Code estabshes the
so-caed push-back rue by the foowng provson:
If the busness of the ta payer dd not reach, by the end of the base perod, the
earnng eve whch t woud have reached f the ta payer had commenced
busness or made the change In the character of the busness two years before
t dd so, t sha be deemed to have commenced the busness or made the change
at such earer tme.
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137
Msc.
In the appcaton of the push-back rue, the buetn n severa
statements (see pages 51,55,69, and 80) mts capacty n estabshng
ta payer s constructve earnngs eve as of the end of the base perod
to the capacty actuay e stng or commtted for at that tme. It s
the vew of the Counc that ths mtaton s too restrctve n ts
effect. The Counc hods that any ncrease n capacty whch s an
essenta part of, or an ntegra factor n, the deveopments whch
ceary may be e pected to resut from the commencement or change,
by the end of the base perod, n the ordnary course of busness, under
base perod condtons, had the commencement or change been made
two years earer, may be recognzed n estabshng the constructve
earnngs eve at the end of the base perod.1 The ta payer must
ceary demonstrate that such ncreased capacty woud have resuted
n the usua course of busness under base perod condtons, had the
quafyng event occurred two years earer. There are no grounds
for ookng beyond December 31,1939, n a noncommtment stuaton,
and the queston of whether the constructve capacty was or was not
actuay attaned after December 31, 1939, s rreevant.
constructve average base perod net ncome based, n whoe or
n part, on any constructve ncrease n capacty must refect con-
structvey the effect of acqurng such capacty on the capta structure
of the ta payer. If the fnances of the ta payer woud not have per-
mtted such acquston wthout addtona capta, ether borrowed
or pad n, and f t s determned that the capacty woud have been
fnanced by borrowed capta, the constructve average base perod
net ncome w be reduced by an approprate ad|ustment for nterest
on such constructve borrowed capta. If t s determned that the
capacty woud have been fnanced by capta addtons (as defned by
secton 713(g) (3)), the constructve average base perod net ncome
w be reduced by 8 per cent of such constructve capta as s deter-
mned woud have been necessary to acqure the capacty. Dupcate
credt may not be secured drecty or ndrecty through the app-
caton of sectons 722 and 713(g). Thus, the prncpes of secton
35.722-3(d) (5), dscussed n the buetn at page 118, reatng to
ad|ustments for capta addtons after commtment, w be apped
n stuatons of ths type.
Chares D. ame,
Charman, cess Profts Ta Counc.
October 2, 19 7.
19 7-21-12669
. P. C. 22
Under the facts gven, the ta payer s entted to the use of the
2-year push-back, and norma earnngs are not mted to capacty
e stng on December 31, 1930.
n estabshed ta payer, wthout dmnuton of ts reguar busness,
commenced manufacture of a product durng the year 1937 whch
t had never made before. It was a patented ow-prced product for
1 ttenton Lb Invted to . P. C. 19 page 132, ths uetn , n whch It was rued, at the
end of paragraph 6, that the capacty mtaton stated In the buetn may not be Invoked
to mt reconstructon to equpment owned and commtted for at the cose of 1939 when
such equpment s not a sgnfcant measure of capacty n the ta payers busness.
77338 S 10
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Msc .
138
ktchen use, and n a premnary tests proved to be hghy acceptabe.
The market, however, was aready we supped wth other products
performng the same functons but dfferenty desgned. Surveys by
the ta payer ndcated that there e sted a potenta unfed market
whch, wth reasonabe deveopment, woud permt a mass producton
operaton usng a pant wth a capacty of 20a unts. premnary
pannng was backgrounded on capturng a market whch woud per-
mt of the mass producton of the unt n a pant of at east 20a; unts
capacty.
t December 31, 1939, a pant of 10a; unts capacty was n suc-
cessfu operaton, a producton from ths pant had been sod and
there were unfed orders of .5a: unts. No commtment for the
acquston of addtona capacty e sted at December 31, 1939.
amnaton of the records of the ta payer shows that orders had
been receved as foows:
Unts.
1938 6
Frst quarter of 1939 2
Second quarter of 1939 3|
Thrd quarter of 1939
Fourth quarter of 1939 , 5
Seasona fuctuatons n demand are not sgnfcant, and the growth
s recognzed as permanent.
The facts ceary ndcate that the ta payer s busness, n so far as
t reates to the new product, had not reached by December 31, 1939,
the earnng eve t woud have reached had t commenced the manu-
facture of the new product two years earer than t dd. It s to be
observed, however, that durng the year 1939 the e stng pant attaned
fu capacty and at December 31, 1939, had a backog of unfed
orders of .5a: unts. If the pant capacty actuay e stng at Decem-
ber 31,1939, s a mtaton, no hgher eve of producton or operaton
can be estabshed under the assumpton that the change occurred two
years earer than t dd.
Secton 722(b) ( ) provdes n part:
If the busness of the ta payer dd not reach, by the end of the base perod, the
earnng eve whch It woud have reached f the ta payer had commenced
busness or made the change n the character of the busness two years before
t dd so, It sha be deemed to have commenced the busness or made the change
at such earer tme.
The report of the Senate commttee on the revenue b of 19 2
S. ept. 1631, C. . 19 2-2, 50 , at 651 , n dscussng ths part of
secton 722(b) ( ), states as foows:
Opportunty Is thus afforded growng ta payers to estabsh wthn a perod of
norma earnngs a arger earnngs capacty as a resut of the assumpton that
such ta payer commenced busness or changed the character of the busness two
years earer than such events actuay occurred. In determnng whether such
ta payer was growng, consderaton sha be gven to the busness e perence
of the ta payer and to ts prospects at the end of the base perod. vents
occurrng or e stng after December 31, 1939, sha not be consdered In. ascer-
tanng the growth of the ta payer.
In the appcaton of the push-back rue, consderaton sha
be gven to the busness e perence of the ta payer and to ts prospects
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139
Msc.
at the end of the base perod. From the busness e perence of ths
ta payer, n so far as the new product s concerned, the facts show
that t was growng, and ts prospects at the end of the base perod,
wth orders runnng far n e cess of ts e stng capacty, ndcate
physca e panson. It s apparent, therefore, that had the ta payer
commenced manufacturng the new product two years earer an
ncrease n capacty pror to December 31, 1939, woud have been a
deveopment ceary to have been e pected.
Under the crcumstances n ths case t s hed, therefore, that n
determnng the eve of earnngs to be derved from the new product
the capacty e stng s not a factor mtng the eve of earnngs
whch may be estabshed had the ta payer made the change two years
earer than t dd so. (See . P. C. 21 page 136, ths uetn .)
Chares D. ame, Charman.
October 2, 19 7.
19 7-23-12685
. P. C. 23
The use of the four caendar years 1036 through 1939 as the base
perod n secton 722(c) cases.
1. Paragraph 2 of . P. C. 13 C. . 19 7-1, 83 ndcates that the
base perod prescrbed n secton 713(b) s a practca and approprate
devce n estabshng constructve average base perod net ncome. In
the case of corporatons organzed after December 31, 1939, some
eaboraton of that statement s consdered advsabe.
2. perence has ndcated that reconstructon usuay s smp-
fed where the four caendar years 1936 through 1939 are empoyed
as the base perod. Comparatve data and ndustry statstcs, for
e ampe, are most often comped on a caendar year bass. further
advantage s the emnaton of the probems arsng from the prohb-
ton n secton 722(a) aganst the use of post-1939 events and cond-
tons. Fnay, n the great ma|orty of cases, the end resut of the
use of the caendar year base perod s dentca wth the resut obtaned
by usng a fsca year base perod propery ad|usted to emnate post-
1939 events or condtons.
3. Therefore, t s the opnon of the Counc that, n the case of
a fsca year corporaton quafyng for reef under secton 722(c),
the four caendar years 1936 through 1939 may be empoyed as the base
perod where condtons durng that perod are approprate for the
determnaton of norma earnngs for the ta payer nvoved.
. Ths memorandum s permssve ony. It s not ntended to
nvadate any reconstructon made on the bass of a fsca year base
perod where proper ad|ustment has been made to emnate the effects
of post-1939 events or condtons. Nether does t have any appca-
ton to cases nvovng varant profts cyce, sporadc profts e perence,
or other eements whch woud ca for the use of some other base perod
had the ta payer quafed for reef under secton 722(b).
Chares D. ame, Charman.
October 27,19 7.
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Regs. 116, 05.501. 1 0
C PT R 9. MPLOYM NT T S.
SU C PT R D. COLL CTION OF INCOM T T SOURC ON
W G S.
S CTION 1625. R C IPTS.
Reguatons 116, Secton 05.501: Recepts 19 7-23-12683
for ta wthhed at source on wages. Crcuar 199
Form W-2, Wthhodng Statement for 19 8. Rues for repro-
ducton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, October IS, 19 7.
Coectors of Interna Revenue and Others Concerned:
1. Form W-2 for 19 8 has been approved. It may be reproduced,
but ts reproducton must have offca approva. Requests for such
approva must be addressed to the Commssoner of Interna Revenue,
ttenton: C: Co: O, Washngton 25, D. C, and must ncude the
proposed form of the reproducton and a sampe of the paper to be
used. The foowng specfcatons must be met:
(a) Coor and quaty of paper: The forms must be prnted on buff
paper of substantay the same weght and te ture and of quaty
as good as that used by the Government. The use of wa -coated paper
w not be permtted.
(b) Typography: The reproducton must be prnted n back nk,
usng type not smaer than the correspondng type on the offca
form, and, as neary as possbe, of the same font. mted rear-
rangement of the face of the form w be permtted, but the space
for the name of the empoyee must be above that used for the name
of the empoyer. The space provded for the coector s use may be
sghty reduced, but ony f proved necessary. It must be n the same
reatve poston as on the offca form. No rearrangement of the
matera on the backs of the orgna and dupcate w be permtted.
(c) Data to be shown on Form W-2: Reproduced Forma W-2 must
be desgned so as to provde for entry by empoyers of the same data
as to wages pad and ta wthhed as requred by the offca form.
separate showng of the Federa od age and survvors nsurance ta
(abbrevaton 0. . S. I. ) w be permtted f ceary ndcated as
such. owever, ony one amount of wages may be shown, the gross
wages before any payro deductons of any nature have been made.
Permsson w not be granted for reproductons whch woud permt
empoyers to show, on the orgna and trpcate copes, any payro
deductons other than those ndcated heren. There s no ob|ecton
to the attachment of a stub or e tenson, to the dupcate porton of
the form ony, to provde addtona nformaton not authorzed for
reproducton on the form tsef.
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1 1
3. rt 3-2.
(d) ddtona copes smar to Form W-2b may be reproduced
for the use of empoyers. It w be permssbe to prepare forms, as
carbon mpressons of Form W-2, for use n connecton wth ta es
other than Federa ncome ta , provded such forms bear no menton
of the Interna Revenue Servce or the Unted States Treasury Depart-
ment. These forms or addtona copes must not be paced ahead of
Form W-2a n the assemby. Forms for devery to State or oca
ta ng authortes shoud be ceary abeed to ndcate the purpose
for whch they are ntended and shoud not bear any part of the
desgnaton Form W-2.
(e) Dmensons: The offca sze of the form s 7 nches wde by
3 nches n depth, but the depth may vary from 3y2 to 3 nches.
(/) Carbonzed forms or spot carbons are not permssbe. In-
tereaved carbon, f used, must be of good quaty to precude
smudgng.
(g) The Government Prntng Offce symbo must be omtted from
reproduced forms.
(h) uthorzed reproducton: n approved form must bear the
notaton pp. . I. R. and the date of ts approva n sma type n
the bottom margn, eft-hand sde of the face of both the orgna and
the coector s copy, Form W-2a.
2. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
Geo. . Schoeneman,
Commssoner.
. R NU CT OF 1938.
SU TITL . G N R L PRO ISIONS.
P RT I CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N.
rtce 3-2: When charges deductbe. 19 7-16-12011
I. T. 3863
R NU CTS OF 1932, 193 , 1986, ND 1938.
In accordance wth the recommendaton contaned n G. C. M. 25298
(page 39, ths uetn), L T. 3 91 (C. . 19 1-2, 177) s hereby
revoked.
rtce 3-2: When charges deductbe.
R NU CT OF 1938.
ccrua of amounts asserted as addtona ta abtes whch are
the sub|ect of a bona fde contest. (See G. C. M. 25298, page 39.)
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117. rt. 117- ) 1 2
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T ON
CORPOR TIONS.
R NU CT OF 1938.
Stock ownershp of corporatons organzed for e cusve purpose of
hodng tte to property. I. T. 326 (C. . 1939-1 (Part 1), 121)
modfed. (See I. T. 3860, page 70.)
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117- : Determnaton of perod for
whch capta assets are hed.
R NU CT OF 1938.
Capta asset receved n ta -free e change for a noncapta asset.
(See G. C. M. 25301, page 83.)
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1 3 15 n, rt 117-3.
INCOM T RULINGS. P RT IL
R NU CTS OF 1937 ND 1936.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-3: Determnaton of perod for
whch capta assets are hed.
R NU CT OF 1938.
Capta asset receved n ta -free e change for a noncapta asset.
(See G. C. M. 25301, page 83.)
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5 117, rt. 117-3. 1
INCOM T RULINGS. P RT n.
R NU CTS OF 1935 ND 193 OR PRIOR CTS.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . COMPUT TION OP N T INCOM .
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-3: Determnaton of perod for
whch capta assets are hed.
R NU CTS OF 192 , 1926, 1928, 1932, ND 193 .
Capta asset receved n ta -free e change for a noncapta asset.
G. C. M. 621 (C. . -2, 5 (1926)) and G. C. M. 11557 (C. . II-1,
128 (1933)) modfed. (See G. C. M. 25301, page 83.)
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MPLOYM NT T RULINGS.
INT RN L R NU COD .
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT.
Secton 1 00: Rate of ta .
Reguatons 106, Secton 02.302: Rates and computa-
ton of empoyees ta .
Increase n ta rate postponed. (See T. D. 5566, page 1 8.)
Secton 1 00: Rate of ta .
Reguatons 106, Secton 02.302: Rates and
computaton of empoyees ta .
Change n rates of ta for the caendar year 19 8 and subsequent
years. (See T. D. 5592, page 165.)
Secton 1 01: Deducton of ta from wages.
Reguatons 106, Secton 02.705: Speca refunds
of empoyees ta on wages over 3,000.
Changes effected by 19 6 mendments. (See T. D. 5566, page 1 8.)
Secton 1 01: Deducton of ta from wages. 19 7-23-12686
Reguatons 106, Secton 02.705: Specare- Mm. 6198
funds of empoyees ta on wages over 3,000.
Speca refunds of empoyees ta on wages over 3,000.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
Coectors of Interna Revenue and Others Concerned:
1. Secton 13 of the Soca Securty ct mendments of 19 6,
approved ugust 10, 19 6 C. . 19 6-2, 287 , amended secton
1 01(d) of the Interna Revenue Code to read as foows:
(1) Waoe8 receved befobe 19 7. If by reason of an empoyee renderng
servce for more than one empoyer durng any caendar year after the
caendar year 1939, the wages of the empoyee wth respect to empoyment
darng such year e ceed 3,000, the empoyee sha be entted to a refund
of any amount of ta , wth respect to such wages, mposed by secton 1 00,
deducted from such wages and pad to the coector, whch e ceeds the ta
wth respect to the frst 3,000 of such wages receved. Refund under ths
secton may be made n accordance wth the provsons of aw appcabe n
the case of erroneous or ega coecton of the ta ; e cept that no such
(1 5)
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Regs 106. 02.705.
1 6
refund sha be made uness ( ) the empoyee makes a cam, estabshng
hs rght thereto, after the caendar year In whch the empoyment was
performed wth respect to whch refund of ta Is camed, and ( ) such
cam s made wthn two years after the caendar year n whch the wages
are receved wth respect to whch refund of ta s camed. No nterest sha
be aowed or pad wth respect to any such refund. No refund sha be made
under ths paragraph wth respect to wages receved after December 31,19 6.
(2) Wages receved afteb e. If by reason of an empoyee recevng
wages from more than one empoyer durng any caendar year after the
caendar year 10 6, the wages receved by hm durng such year e ceed 3,000,
the empoyee sha be entted to a refund of any amount of ta , wth respect
to such wages, mposed by secton 1 00 and deducted from the empoyees
wages (whether or not pad to the coector), whch e ceeds the ta wth
respect to the frst 3,000 of such wages receved. Refund under ths secton
may be made n accordance wth the provsons of aw appcabe n the case
of erroneous or ega coecton of the ta ; e cept that no such refund sha
be made uness ( ) the empoyee makes a cam, estabshng hs rght
thereto, after the caendar year n whch the wages were receved wth
respect to whch refund of ta s camed, and ( ) such cam s made wthn
two years after the caendar year n whch such wages were receved. No
nterest sha be aowed or pad wth respect to any such refund.
2. comparson of the two numbered provsons shown above ds-
coses an mportant change n the aw wth respect to speca refund
cams to be fed after December 31, 19 7, wth respect to wages re-
ceved after 19 6. In determnng amounts refundabe wth respect
to wages receved after 19 6, t w not be necessary to determne (1)
the caendar year n whch the servces were performed, nor (2)
whether the empoyees ta was pad to a coector of nterna revenue.
It s ony necessary that the empoyees ta be deducted from hs
wages (whether or not pad to the coector).
3. The reguatons affectng such speca refunds are contaned n
Treasury Decson 5566, approved une 23, 19 7 page 1 8, ths u-
etn . Paragraph 11 of such Treasury decson has added subpara-
graph (c) to secton 02.705 of Reguatons 106 reatng to wages
receved after 19 6. Subparagraph (o) provdes as foows:
Wages receved after 19 6. Ths paragraph reates ony to refunds, under
secton 1 01(d) (2) of the ct, of empoyees ta wth respect to wages receved
after December 31, 10 0. If, durng any caendar year begnnng after Decem-
ber 31. 19 6, an empoyee receves wages n e cess of 3,000 from two or
more empoyers, the empoyee may fe a cam for refund of the amount, f
any, by whch the empoyees ta mposed wth respect to such wages and
deducted therefrom e ceeds the empoyees ta wth respect to the frst 3,000
of such wages. (See sectons 02.227 and 02.228 ( 20 CFR, 02.227 and 02.228).
reatng to wages.) ach such cam sha be made wth respect to wages
receved wthn one caendar year (regardess of the year or years after 1936
durng whch the servces are performed for whch such wages are receved).
The empoyee sha submt wth the cam, as a part thereof, a statement settng
forth the foowng Informaton, wth respect to each empoyer from whom he
receved wages durng the caendar year: (1) the name and address of such
empoyer, (2) the account number of the empoyee and the empoyee s name as
reported by the empoyer on hs returns, (3) the amount of wages receved durng
the caendar year to whch the cam reates, ( ) the amount of empoyees ta ,
f any, deducted from such wages, and (5) the amount of such ta , f any, whch
has been refunded or otherwse returned to the empoyee. Other Informaton
may be requred, but shoud be submtted ony upon the recept of a specfc
request therefor. The empoyee s cam sha be made on Form 8 3, n accord-
ance wth these reguatons and the Instructons reatng to such form, and sha
be fed wth the coector for the dstrct In whch the empoyee resdes. No
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1 7
tfgs 106, 02. 02.
Interest w be aowed or pad by the Government on the amount of any refund
to whch ths paragraph reates. No refund to whch ths paragraph reates
w be made uness (1) the empoyee fes a cam, estabshng hs rght thereto,
after the caendar year In whch the wages are receved wth respect to whch
refund of ta s camed, and (2) such cam s fed wthn two years after the
caendar year In whch such wages are receved.
. It w be noted wth respect to wages receved after 19 6 that
the empoyee camant w furnsh the evdence n support of hs cam
n eu of the evdence furnshed by empoyers as provded n the regu-
atons affectng cams fed wth respect to wages receved before
19 7. new form, therefore, s beng prnted to be used by such
empoyees wth respect to wages receved after 19 6 and w be ds-
trbuted to coectors at an eary date. The form w be desgnated
Form SS-9a and w be used to support the empoyee s cam on
Form 8 3.
5. Form SS-9, mpoyer s Statement to Support mpoyee s
Cam for Speca Refund of mpoyees Ta , w contnue to be
used wth respect to those cams fed n connecton wth wages re-
ceved before 19 7. Pror procedure contnues n effect wth respect to
cams fed n connecton wth wages receved before 19 7. Pror gen-
era nstructons w aso appy to cams fed wth respect to wages
receved after 19 6.
6. ffectve anuary 1, 19 8, empoyees makng requests for the
proper forms shoud be furnshed two copes of Form SS-9a on the
assumpton that the empoyee ntends to fe a cam wth respect to
wages receved durng 19 7 ony. One copy of Form SS-9a shoud
be attached to Form 8 3 and the other retaned by the camant. If,
however, the empoyee states n hs request that he ntends to fe
cams wth respect to wages receved n 19 6 and 19 7, t w be neces-
sary to furnsh hm wth both forms, Form SS-9 and Form SS-9a.
pproprate nstructons shoud be gven to prospectve camants
where both forms are to be used.
7. Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and the symbos mT: .
Geo. . Schoeneman,
Commssoner.
Secton 1 10: Rate of ta .
Reguatons 106, Secton 02. 02: Rates and computa-
ton of empoyers ta .
Increase n ta rate postponed. (See T. D. 5566, page 1 8.)
Secton 1 10: Rate of ta .
Reguatons 106, Secton 02. 02: Rates and
computaton of empoyers ta .
Change n rates of ta for the caendar year 19 8 and subsequent
years. (See T. D. 5592, page 165.)
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Regs. 106, 02.201.
1 8
Secton 1 26: Defntons. 19 7-1 -12585
Reguatons 106, Secton 02.201: Genera T. D. 5566
defntons and use of terms.
( so Sectons 1 00, 1 10, and 1 01; Reguatons
106, Sectons 02.227, 02.228, 02.302, 02. 02,
02.705; aso Subchapter C (Federa Unempoy-
ment Ta ct), Secton 1607; Reguatons 107,
Sectons 03.201, 03.202, 03.203, 03.206, 03.211,
03.226(6), 03.227, 03.228.)
TITL 26 INT RN L R NU . C PT R 1. SU C PT R D. P RTS 02
ND 03.
Reguatons 106 and 107 amended to conform to certan prov-
sons of the Soca Securty ct mendments of 19 6 C. . 19 G-2,
287 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Coectors of Interna Revenue and Others Concerned:
On March 21, 19 7, notce of proposed rue makng, regardng the
empoyment ta provsons of the Soca Securty ct mendments
of 19 6 (Pubc Law 719, Seventy-nnth Congress; 60 Stat., 978),
approved ugust 10, 19 6 C. . 19 6-2, 287 , was pubshed n the
Federa Regster (12 F. R., 1892). fter consderaton of a such
reevant matter as was presented by nterested persons regardng the
proposa, the foowng amendments are hereby adopted. Such amend-
ments are necessary n order to conform Reguatons 106 26 CFR,
Part 02 , reatng to the empoyees ta and the empoyers ta under
the Federa Insurance Contrbutons ct (Subchapter , Chapter 9,
Interna Revenue Code), to sectons 101, 102, 12(a), and 13 of such
Soca Securty ct mendments of 19 6, and Reguatons 107 26
CFR, Part 03 , reatng to the e cse ta on empoyers under the
Federa Unempoyment Ta ct (Subchapter C, Chapter 9, Interna
Revenue Code), to sectons 302 to 305, ncusve, 12(b), and 16(b)
of such Soca Securty ct mendments of 19 6, and are as foows:
R GUL TIONS 106 26 CFR, P RT 02 .
Paragraph 1. Immedatey precedng the capton Secton 3797
(a) and (b) of the Interna Revenue Code as set forth precedng
secton 02.201 26 CFR, 02.201 , the foowng s nserted:
S CTION 12(a) OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton 1 26(a)(1) of the Federa Insurance Contrbutons ct (In-
terna Revenue Code, sec. 1 26(a)(1)) Is amended to read as foows:
(1) That part of the remuneraton whch, after remuneraton
equa to 3,000 has been pad to an ndvdua by an empoyer wth
respect to empoyment durng any caendar year, s pad, pror to
anuary 1, 19 7, to such ndvdua by such empoyer wth respect
to empoyment durng such caendar year; or that part of the re-
muneraton whch, after remuneraton equa to 3,000 wth respect
to empoyment after 1936 has been pad to an ndvdua by an em-
poyer durng any caendar year after 19 6, s pad to such ndvdua
by such empoyer durng such caendar year ; .
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1 9
Regs. 106, 02.201
Par. 2. Secton 02.201 26 CFR, 02.201 s amended by nsertng
after paragraph (o) 26 CFR, 02.201 (o) the foowng new para-
graph:
(p) Soca Securty ct mendments of 19 6 means the ct approved ugust
10,19 6 (Pubc Law 719, Seventy-nnth Congress; 60 Stat., 978).
Par. 3. Immedatey precedng secton 02.227 26 CFR, 02.227 ,
the foowng s nserted:
S CTION 12(a) OF T SOCI L S CURITY CT M NDM NTS
OF 10 0
Secton 1 20(a)(1) of the Federa Insurance Contrbutons ct (In-
terna Revenue Code. sec. 1 26(a)(1)) s amended to read as foows:
(1) That part of the remuneraton whch, after remuneraton
equa to 3,000 has been pad to an ndvdua by an empoyer wth
respect to empoyment durng any caendar year, s pad, pror to
anuary 1, 19 7, to such ndvdua by such empoyer wth respect
to empoyment durng such caendar year; or that part of the re-
muneraton whch, after remuneraton equa to 3,000 wth respect
to empoyment after 1936 has been pad to an ndvdua by an
empoyer durng any caendar year after 19 6. s pad to such In-
dvdua by such empoyer durng such caendar year; .
Par. . Secton 02.227(a) 26 CFR, 02.227(a) s amended by
strkng out the perod at the end of the frst sentence thereof and n-
sertng n eu thereof a comma and the foowng: and as further
amended by secton 12(a) of the Soca Securty ct mendments
of 19 6.
Par. 5. Secton 02.228(a) 26 CFR, 02.228(a) s amended as
foows:
( ) y strkng out the frst three sentences of such secton and n-
sertng n eu thereof the foowng:
(1) In genera. Secton 1 26(a) (1) of the ct provdes an annua 3,000 m-
taton on the amount of remuneraton that may consttute wages, by e ceptng
from the term wages remuneraton pad after 3,000 has been pad. Under
such secton as amended by secton 12(a) of the Soca Securty ct mend-
ments of 19 6, the amount frst to be ncuded n wages, after whch the e cepton
operates, s measured In two ways, dependng on whether the remuneraton s
pad before 19 7 or s pad after 19 6. In the case of remuneraton pad before
19 7, the amount frst to be ncuded n wages s remuneraton pad up to and
ncudng 3,000 for empoyment performed by an empoyee for hs empoyer
durng each caendar year regardess of when pad (before 19 7) ; and addtona
amounts for empoyment performed n tuch caendar year by such empoyee for
such empoyer are e cuded regardess of when pad (before 19 7). In the case
of remuneraton pad after 19 6, the amount frst to be ncuded n wages n each
caendar year s remuneraton up to and ncudng 3,000 p:d n the caendar
year by an empoyer to an empoyee for empoyment performed at any tme after
December 31. 1936; and addtona amounts pad n such caendar year by such
empoyer to such empoyee are e cuded regardess of when earned. In genera,
the change Is from an earned wthn the caendar year bass to a pad wthn
the caendar year bass. For a more compete e panaton of the mtaton,
see subparagraphs (2) and (3) of ths paragraph.
(2) Remuneraton pad before 19 7. Ths subparagraph (2) (endng wth
e ampe 3) appes ony wth respect to remuneraton pad before anuary 1,
19 7.
The term wages does not ncude that part of the remuneraton pad before
anuary 1. 19 7. by an empoyer to an empoyee for empoyment performed for
hm durng any caendar year whch e ceeds the frst 3,000 pad by such em-
poyer to such empoyee for empoyment performed durng such caendar year.
In the case of remuneraton pad before 19 7, the 3,000 mtaton appes
ony f the remuneraton receved by an empoyee from the same empoyer for
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Regs 108. 02 201
150
empoyment durng any one caendar year e ceeds 3,000. The mtaton In
such case reates to remuneraton for empoyment durng any one caendar year
and not to the amount of remuneraton (Irrespectve of the year of empoyment)
whch Is pad or receved n any one caendar year.
( ) y nsertng n the parenthetca matter n the thrd sentence
of e ampe 1, mmedatey after the word receved the foowng:
before anuary 1, 19 7, .
(C) y strkng out the cause, mmedatey foowng e ampe 1,
u If the empoyee has more than one empoyer durng a caendar year,
and nsertng n eu thereof the foowng: In the case of remunera-
ton pad before 19 7, f the empoyee has more than one empo3 er
durng a caendar year, .
(D) y nsertng at the begnnng of the frst and ffth sentences
of e ampe 2 the foowng: Durng 19 0.
( ) y nsertng mmedatey foowng the word and where
t ast appears n the frst sentence of e ampe 3, the foowng: dur-
ng such year.
(F) y nsertng mmedatey foowng e ampe 3 the foowng
new subparagraph:
(3) Remuneraton pad after 19 6. Ths subparagraph (3) appes ony wth
respect to remuneraton pad after December 81, 19 6.
The term wages does not ncude that part of the remuneraton pad
wthn any caendar year begnnng after December 31, 19 0, by an empoyer
to an empoyee whch e ceeds the frst 3,000 pad wthn such caendar year by
such empoyer to such empoyee for empoyment performed for hm at any tme
after December 31, 1936.
In the case of remuneraton pad after 19 6, the 3,000 mtaton appes
ony f the remuneraton receved durng any one caendar year by an empoyee
from the same empoyer for empoyment performed after 1936 e ceeds 3,000.
The mtaton n such case reates to the amount of remuneraton receved dur
ng any one caendar year for empoyment after 1936 and not to the amount
of remuneraton for empoyment performed In any one caendar year.
ampe 1. mpoyee G, In 19 7, receves 2,500 from empoyer on account
of 3,000 due hm for empoyment performed In 19 7. In 19 8 G receves from
empoyer the baance of 500 due hm for empoyment performed n the pror
year (19 7), and thereafter n 19 8 nso receves 3,000 for empoyment per-
formed n 19 8 for empoyer . The 2,500 receved n 19 7 s sub|ect to ta n
19 7. The baance of 500 receved n 19 8 for empoyment durng 19 7 Is sub-
|ect to ta n 19 8, as s aso the frst 2,500 pad of the 3,000 for empoyment
durng 19 8 (ths 500 tor 19 7 empoyment added to the frst 2,500 pad for
19 8 empoyment consttutes the ma mum wages whch coud be receved by
G n 19 8 from any one empoyer). The fna 500 receved by G from In 19
Is not ncuded as wages and s not sub|ect to the ta .
ampe 2. mpoyee I, In 19 6, receves 3,000 from empoyer on account
of 6,000 due hm for empoyment performed In 19 6. In 10 7, before recevng
any remuneraton for empoyment performed n 19 7, empoyee I receves the
baance of 3,000 due hra from on account of empoyment performed n 19 6.
The 3,000 receved n 19 6 consttutes wages In 1 U and s sub|ect to the ta ,
n accordance wth the provsons set forth n subparagraph (2) of ths para-
graph. The baance of 3,000 receved In 19 7 on account of empoyment n 19 (1
consttutes wages and s sub|ect to the ta In 19 7, In accordance wth the pro-
vsons set forth n ths subparagraph (3). The 3,000 receved In 19 7 for 19 (1
empoyment consttutes the ma mum wages whch coud be receved by I from
n 10 7 ny further remuneraton receved n 19 7 by empoyee I for servces
performed for s not Incuded as wages and Is not sub|ect to the ta , whether
for servces performed before, durng, or after 19 7. ( ssumng the same
amounts of remuneraton and tmes of payment, the same resut woud be
reached If empoyee 1 had eft the empoy of and performed no further servces
for after 10 6.)
If durng a caendar year (after 19 6) the empoyee receved remuneraton
from more than one empoyer, the mtaton of wages to the frst 3,000 of
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151
Regs. 106. 02.201
remuneraton receved appes, not to the aggregate remuneraton receved from
a empoyers wth respect to empoyment performed after 1936, but Instead
to the remuneraton receved durng such caendar year from each empoyer
wth respect to empoyment performed after 1936. In such case the frst 3,000
receved durng the caendar year from each empoyer consttutes wages and
Is sub|ect to the ta , even though, under secton 1 01(d) of the ct, the empoyee
may be entted to a refund of any amount of empoyees ta deducted from
hs wages whch e ceeds the empoyees ta wth respect to the frst 3,000 of
wages receved durng the caendar year from a empoyers. (In ths connec-
ton and n connecton wth the two e ampes mmedatey foowng, see secton
02.705 26 CFR, 02.705 , reatng to speca refunds of empoyees ta on
wages over 3,000.)
ampe 8. Durng 19 7 empoyee receves from empoyer L a saary of
600 a month for empoyment performed for L durng the frst seven months
of 19 7, or tota remuneraton of ,200. t the end of the ffth month has
receved 3,000 from empoyer L, and ony that part of hs tota remuneraton
from L consttutes wages sub|ect to the ta . The 600 receved by empoyee
from empoyer L n the s th month, and the ke amount receved n the seventh
month, are not ncuded as wages and are not sub|ect to the ta . t the end
of the seventh month eaves the empoy of L and enters the empoy of M.
h. receves remuneraton of 600 a month from empoyer M In each of the
remanng fve months of 19 7, or tota remuneraton of 3,000 from empoyer M.
The entre 3,000 receved by from empoyer M consttutes wages and s
sub|ect to the ta . Thus, the frst 3,000 receved from empoyer L and the
ntre 3,000 receved from empoyer M consttute wages.
ampe . Durng the caendar year 19 7 N Is smutaneousy an offcer
tan empoyee) of the O Corporaton, the P Corporaton, and the Corporaton
and durng such year receves a saary of 3,000 from each corporaton. ach
3,000 receved by N from each of the corporatons, O, P, and (whether or not
such corporatons are reated) consttutes wages and Is sub|ect to the ta .
Par. 6. Immedatey precedng secton 02.301 26 CFR, 02.301 ,
the foowng s nserted:
S CTION 101 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Causes (1) and (2) of secton 1 00 of the Federa Insurance Con-
trbutons ct (Interna Revenue Code, sec. 1 00), as amended, are
amended to read as foows:
(1) Wth respect to wages receved durng the caendar years
1939 to 19 7, both Incusve, the rate sha be 1 per centum.
(2) Wth respect to wages receved durng the caendar year
19 8. the rate sha be 2 per centum.
Pab. 7. Secton 02.302, as amended by Treasury Decson 5 87,
approved December 27, 19 5 C. . 19 6-1, 2 8 26 CFR, 02.802 ,
s further amended to read as foows:
Sec. 02.302. Rates and Computaton of mpoyees Ta . The rates of em
poyees ta appcabe for the respectve caendar years are as foows:
The empoyees ta Is computed by appyng to the wages receved by the
empoyee the rate n effect at the tme such wages are receved.
ampe. Durng 19 7 Is an empoyee of and Is engaged In the per-
formance of servces whch consttute empoyment (see secton 02.203). In
the foowng year, 19 8, receves from 1,000 as remuneraton for servces
performed by In the precedng year. The ta s payabe at the 2 per cent
rate In effect for the caendar year 19 8 (the year n whch the wages are receved)
and not at the 1 per cent rate whch s In effect fur the caendar year 19 7 (the
year n whch the servces were performed).
Per cent
For the caendar years 19 0 to 19 7, both ncusve
For the caendar year 19 8
For the caendar year 19 9 and subsequent caendar years.
1
2
8
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Regs. 106, 02.201.
152
Pah. 8. Immedatey precedng secton 02. 01 26 CFR, 02. 01 ,
the foowng s nserted:
S CTION 102 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Causes (1) and (2) of secton 1 10 of such ct ( terna Revenue
Code, sec. 1 10), as amended, are amended to read as foows:
(1) Wth respect to wages pad durng the caendar years 1939
to 19 7, both Incusve, the rate sha be 1 per centum.
(2) Wth respect to wages pad durng the caendar year 19 8
the rate sha be 2 per centum.
Par. 9. Secton 02. 02, as amended by Treasury Decson 5 87
26 CFR, 02. 02 , s further amended to read as foows:
Seo. 02. 02. ates and Computaton of mpoyees Ta . The rates of em-
poyers ta appcabe for the respectve caendar years are as foows:
Per cent.
For the caendar years 19 0 to 19 7, both Incusve 1
For the caendar year 19 8 2
For the caendar year 19 9 and subsequent caendar years 3
The empoyers ta Is computed by appyng to the wages pad by the em
poyer the rate n effect at the tme such wages are pad.
Par. 10. Immedatey precedng secton 02.705 26 CFR, 02.705 ,
the foowng s nserted:
S CTION 13 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton 1 01(d) of the Federa Insurance Contrbutons ct (Interna
Revenue Code, sec. 1 01 (d)) s amended to read as foows:
(d) Speca Refunds.
(1) Wages receved before 19 7. If by reason of an empoyee
renderng servce for more than one empoyer durng any caendar
year after the caendar year 1939, the wages of the empoyee wth
respect to empoyment durng such year e ceed 3,000, the empoyee
sha be entted to a refund of any amount of ta , wth respect to
such wages, mposed by secton 1 00, deducted from such wages and
pad to the coector, whch e ceeds the ta wth respect to the frst
3,000 of such wages receved. Refund under ths secton may be
made n accordance wth the provsons of aw appcabe n the case
of erroneous or ega coecton of the ta ; e cept that no such
refund sha be made uness ( ) the empoyee makes a cam, estab-
shng hs rght thereto, after the caendar year In whch tha em-
poyment was performed wth respect to whch refund of ta s
camed, and ( ) such cam Is made wthn two years after the ca-
endar year n whch the wages are receved wth respect to whch
refund of ta s camed. No nterest sha be aowed or pad wth
respect to any such refund. No refund sha be made under ths
paragraph wth respect to wages receved after December 31, 19 6.
(2) Wages receved after 19 0. If by reason of an empoyee re-
cevng wages from more than one empoyer durng any caendar
year after the caendar year 19 6, the wages receved by hm dur-
ng such year e ceed 3,000, the empoyee sha be entted to a refund
of any amount of ta , wth respect to such wages, Imposed by sec-
ton 1 00 and deducted from the empoyee s wages (whether or not
pad to the coector), whch e ceeds the ta wth respect to the frst
3,000 of such wages receved. efund under ths secton may be
made n accordance wth the provsons of aw appcabe n the
case of erroneous or ega coecton of the ta ; e cept that no such
refund sha be made uness ( ) the empoyee makes a cam, es-
tabshng hs rght thereto, after the caendar year In whch the
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153
Regs. 106, 02.201.
wages were receved wth respect to wbch refund of ta Is camed,
and ( ) such cam Is made wthn two years after the caendar
year n whch such wages were receved. No nterest sha be a-
owed or pad wth respect to any such refund. .
Par. 11. Secton 02.705, as amended by Treasury Decson 5 87
26 CFR, 02.705 , s further amended as foows:
( ) y strkng out the frst sentence of the frst paragraph and
nsertng n eu thereof the foowng:
(a) In genera. If an empoyee receves wages from more than one empoyer,
hs aggregate wages from a empoyers may e ceed the annua 3,000 mtaton
on wages from a snge empoyer provded by secton 1 26(a)(1) of the ct.
(See secton 02.228(a) 26 CFR, 02.228(a) , reatng to the 3,000 mtaton.)
Secton 1 01(d) of the ct provdes n certan cases for refund to an empoyee
of a porton of the empoyees ta n event of such an e cess. y reason of the
amendment of such secton by secton 13 of the Soca Securty ct mendments
of 19 6, the condtons and mtatons upon the refunds dffer n certan respects,
dependng upon whether the ta , refund of whch s camed, s mposed wth
respect to wages receved before 10 7 or wth respect to wages receved after 1916.
(b) Wages receved before 19. 7. Ths paragraph reates ony to refunds,
under secton 1 01(d) (1) of the ct, of empoyees ta wth respect to wages
receved before anuary 1, 10 7. If, pror to 19 7, an empoyee receves wages
n e cess of 3,000 from two or more empoyers for servces performed durng the
caendar year 10 0 or any subsequent caendar year, the empoyee may fe a
cam for refund of the amount, f any, by whch the empoyees ta deducted and
pad to a coector wth respect to such wages e ceeds the empoyees ta wth
respect to the frst 3,000 of such wages.
( ) y strkng out the words ach cam at the begnnng of
the thrd sentence of the frst paragraph and nsertng n eu thereof
ach such cam.
(C) y nsertng n the cause numbered ( ) n the fourth sentence
of the frst paragraph, mmedatey after the word year where t
frst appears, the words pror to 19 7.
(D) y strkng the word secton wherever appearng theren
from the ast two sentences of the frst paragraph, and nsertng n
eu thereof paragraph.
( ) y strkng out the ast paragraph and nsertng n eu thereof
the foowng:
ampe 1. mpoyee n the caendar year 19 0 receves ta abe wages
n the amount of 2,0CO from each of hs empoyers, , C, and D, for servces
performed durng such year, or a tota of 0,000. mpoyees ta s deducted
from s wages and pad to the coector, n the amount of 20 by and 20
by C, or a tota of 0. mpoyer D pays empoyees ta n the amount of 20
to the coector wthout deductng such ta from s wages. The empoyees ta
wth respect to the frst 3,000 of such wages s 30. may fe a cam for
refund of 10.
ampe 2. mpoyee n the caendar year 19 6 performs empoyment for
empoyers F and G, for whch s entted to remuneraton of 3,000 from each
empoyer, or a tota of 6,000. On account of such empoyment n 19 6 receves
wages n the amount of 3,000 from F, and 2,000 from G; and on anuary 1,
19 7, receves the remanng 1,000 of wages from G. mpoyees ta was de-
ducted and pad to the coector as foows: In 19 6, by empoyer F, 30, and
by empoyer G, 20; and n 19 7. by empoyer G, 10. Thus , pror to anuary
1, 19 7, receved 5,000 n wages for servces performed durng the caendar year
19 6, wth respect to whch wages 50 of empoyees ta was deducted and pad
to the coector. The amount of empoyees ta wth respect to the frst 3,CO0
of such wages s 30. may fe a cam for refund of 20. (The 1,000 of wages
receved on anuary 1, 19 7, and 10 of empoyees ta wth respect thereto,
have no bearng on ths cam because the wages were receved after December
31, 19 6; but f n 19 7 receves wages from one or more empoyers n addton
to empoyer G, and the tota wages receved n such year from a empoyers
77338 8 11
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Regs. 106, 02.201.
15
e ceeds 3,000, may be entted to another speca refund of empoyees ta .
The determnaton In such case woud Incude consderaton of the 1,000 wages
receved on anuary 1, 19 7, and the 10 of empoyees ta wth respect thereto,
and such determnaton woud be made under secton 1 01(d)(2) of the ct,
whch s deat wth n paragraph (c), beow, of ths secton.)
(c) Wages receved after 19/tG. Ths paragraph reates ony to refunds,
under secton 1 01(d) (2) of the ct, of empoyees ta wth respect to wages re-
ceved after December 31, 19 0. If, durng any caendar year begnnng after
December 31, 19 0, an empoyee receves wages n e cess of 3,000 from two or
more empoyers, the empoyee may fe a cam for refund of the amount, f any,
by whch the empoyees ta mposed wth respect to such wages and deducted
therefrom e ceeds the empoyees ta wth respect to the frst 3,000 of such
wages. (See sectons 02.227 and 02.228 26 CFR, 02.227 and 02.228 , reatng
to wages.) ach such cam sha be made wth respect to wages receved wthn
one caendar year (regardess of the year or years after 1936 durng whch the
servces are performed for whch such wages are receved). The empoyee sha
submt wth the cam, as a part thereof, a statement settng forth the foowng
nformaton, wth respect to each empoyer from whom he receved wages durng
the caendar year: (1) the name and address of such empoyer, (2) the account
number of the empoyee and the empoyee s name as reported by the empoyer
on hs returns, (3 the amount of wages receved durng the caendar year to
whch the cam reates, ( ) the amount of empoyees ta , f any, deducted from
such wnges, and (5) the amount of such ta , f any, whch has been refunded
or otherwse returned to the empoyee. Other nformaton may be requred, but
shoud be submtted ony upon the recept of a specfc request therefor. The
empoyee s cam sha bo mude on Form 8 3, In accordance wth these reguatons
and the nstructons reatng to such form, and sha be fed wth the coector
for the dstrct n whch the empoyee resdes. No Interest w be aowed or
pad by the Government on the amount of any refund to whch ths paragraph
reates. No refund to whch ths paragraph reates w be made uness (1) the
empoyee fes a cam, estabshng hs rght thereto, after the caendar year n
whch the wages are receved wth respect to whch refund of ta s camed,
and (2) such cam s fed wthn two years after the caendar year n whch
such wages are receved.
ampe 1- mpoyee n the caendar year 19 7 receves ta abe wages n
the amount of 2,000 from each of hs empoyers I, , and , for servces per-
formed durng such yenr (or at any tme after December 31, 19 6), or a tota of
6,0(.0. mpoyees ta s deducted from s wages, n the amount of 20 by I
and 20 by , or a tota of 0. mpoyer pays empoyees ta n the amount
of 20 to the coector wthout deductng such ta from s wages. The em-
poyees ta wth respect to the frst 3,000 of such wages s 30. may fe a
cam for refund of 10.
ampe 2. mpoyee L n the caendar year 19 7 performs empoyment for
empoyers M and N, for whch L s entted to remuneraton of 3,000 from each
empoyer, or a tota of 0,000. On account of such empoyment L n 19 0 receved
an advance payment of ,0 0 n wares from M; and n 19 7 receves wages n
the amount of 2,000 from M, and 3,000 from N. Pmpoyees ta was deducted
as foows: n 10 6, 10 by empoyer M; and In 19 7, 20 by empoyer M, and 30
by empoyer N. Thus L n the caendar year 19 7 receved 5,000 n wages, from
whch .10 of empoyees ta was deducted. The amount of empoyees ta wth
respect to the frst 3,000 of such wnges receved n 19 7 s 30. L may fe a
cam for refund of 20. (The 1,000 advance of wages receved n 19 6 from M,
and 10 of empoyees ta wth respect thereto, have no bearng on ths cam,
because the wages were not receved n 19 7; and such amounts coud not form
the bass for a refund uness L pror to 19 7 receved from M and at east one
more empoyer advance wages totang more than 3,000 for empoyment to be
performed durng 19 7, In whch case L s rght to refund woud be determned
under secton 1 01(d)(1) of the ct, whch s deat wth n paragraph (6),
above, of ths secton.)
R GUL TIONS 107 26 CFR, P RT 03 .
Par. 12. Immedatey precedng the capton Secton 3797 (a)
and (b) of the Interna Revenue Code as set forth precedng sec-
ton 03.201 26 CFR, 03.201 , the foowng s nserted:
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155
Regs. 106, 02.201.
S CTION 12(b) OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton 1607(b) (1) of the Federa Unempoyment Ta ct (Interna
Revenue Code, sec. 1007(b) (1)) s amended to read as foows:
(1) That part of the remuneraton whch, after remuneraton
equa to 3,000 has been pad to an Indvdua by an empoyer wth
respect to empoyment durng any caendar year, s pad after
December 31, 1039, and pror to anuary 1, 19 7, to such ndvdua
by such empoyer wth respect to empoyment durng such caendar
year; or that part of the remuneraton whch, after remuneraton
equa to 3,000 wth respect to empoyment after 1938 has been pad
to an ndvdua by an empoyer durng any caendar year after 19 6,
s pad to such ndvdua by such empoyer durng such caendar
year;
S CTION 302 OF T . SOCI L S CURITY CT M NDM NTS
OF 10 6.
That part of secton 1607(c) of the Interna Revenue Code, as amended,
whch reads as foows:
(c) mpoyment. The term empoyment means any servce per-
formed pror to anuary 1, 19 0, whch was empoyment as defned
n ths secton pror to such date, and any servce, of whatever na-
ture, performed after December 31, 1939, wthn the Unted States by
an empoyee for the person empoyng hm, rrespectve of the ctzen-
shp or resdence of ether, e cept
s arpended, effectve uy 1,19 6, to read as foows:-
(c) mpoyment. The term empoyment means any servce per-
formed pror to uy 1, 19 6, whch was empoyment as defned n ths
secton as n effect at the tme the servce was performed; and any serv-
ce, of whatever nature, performed after une 30, 19 6, by an empoyee
for the person empoyng hm, rrespectve of the ctzenshp or resdence
of ether, ( ) wthn the Unted States, or ( ) on or n connecton wth
an mercan vesse under a contract of servce whch s entered nto
wthn the Unted States or durng the performance of whch the vesse
touches at a port n the Unted States, f the empoyee s empoyed on
and n connecton wth such vesse when outsde the Unted States, e -
cept .
S CTION 303 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton 1607(c)( ) of the Interna Revenue Code, as amended, s
amended, effectve uy 1,19 6, to read as foows
( ) Servce performed on or n connecton wth a vesseS not aft
mercan vesse by an empoyee, f the empoyee Is empoyed on and
n connecton wth such vesse when outsde the Unted States; .
S CTION 30 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
(a) Secton 1607(c) (15) of such Code Is amended by strkng out
or at the end thereof.
(b) Secton 1607(c) (16) of such Code s amended by strkng out
the perod and nsertng In eu thereof the foowng: ; or.
(c) Secton 1607(c) of such Code Is further amended by addng after
paragraph (16) a new paragraph to read as foows:
(17) Servce performed by an Indvdua n (or as an offcer or
member of the crew of a vesse whe It s engaged n) the catchng,
takng, harvestng, cutvatng, or farmng of any knd of fsh, she-
fsh, crustacea, sponges, seaweeds, or other aquatc forms of anma
and vegetabe fe (ncudng servce performed by any such nd-
vdua as an ordnary ncdent to any such actvty), e cept ( )
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Regs. 106, C2.201. 156
servce performed In connecton wth the catchng or takng of sa-
mon or habut, for commerca purposes, and ( ) servce performed
on or n connecton wth a vesse of more than ten net tons (deter-
mned n the manner provded for determnng the regster tonnage
of merchant vesses under the aws of the Unted States).
(d) The amendments made by ths secton sha take effect uy 1,
19 0.
S CTION 305 OF T SOCI L S CURITY CT M NDM NTS
OP 10 0.
Secton 1607 of such Code, as amended, s further amended, effectve
uy 1, 19 6, by addng after subsecton (m) a new subsecton to read as
foows:
(n) mercan esse. The term mercan vesse means any
vesse documented or numbered under the aws of the Unted States;
and ncudes any vesse whch s nether documented or numbered under
the aws of the Unted States nor documented under the aws of any for-
egn country, f Its crew s empoyed soey by one or more ctzens or
resdents of the Unted States or corporatons organzed under the aws
of the Unted States or of any State.
S CTION 16(b) OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
The ast sentence of subsecton (f) of secton 1607 of the Federa Un-
empoyment Ta ct, as amended, s amended by strkng out the perod
at the end thereof and Insertng n eu thereof the foowng: : Pro-
vded, That an amount equa to the amount of empoyee payments Into
the unempoyment fund of a State may be used In the payment of cash
benefts to ndvduas wth respect to ther dsabty, e cusve of e -
penses of admnstraton.
Par. 13. Secton 03.201 26 CFR, 03.201 s amended by nsertng
after paragraph (m) 26 CFR, 03.201 (m) the foowng new para-
graph :
(n) Soca Securty ct mendments of 19 6 means the ct approved ugust
10, 19 6 (Pubc Law 719, Seventy-nnth Congress; 60 Stat., 978).
Par. 1 . Immedatey precedng the capton Secton 1607(c) of
the Federa Unempoyment Ta ct, as nacted February 10,
1939, as set forth precedng secton 03.202 26 CFR, 03.202 , the
foowng s nserted: -
S CTION 302 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
That part of secton 1607(c) of the Interna Revenue Codes as
amended, whch reads as foows:
(c) mpoyment. The term empoyment means any servce per-
formed pror to anuary 1, 19 0, whch was empoyment as defned In
ths secton pror to such date
Is amended, effectve uy 1,19 6, to read as foows :
(c) mpoyment. The term empoyment means any servce per-
formed pror to uy 1, 19 6, whch was empoyment as defned n ths
secton as n effect at the tme the servce was performed
Par. 15. Secton 03.202, as amended by Treasury Decson 5519,
approved une 1 , 19 6 C. . 19 6-2, 139 26 CFR, 03.202 , s
amended by strkng out the frst three sentences thereof and nsertng
n eu thereof the foowng:
Under the provsons of secton 1607(c) of the Federa Unempoyment Ta ct,
as amended, effectve uy 1, 19 6, by secton 302 of the Soca Securty ct
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157
Rega. 106, 02.201.
mendments of 19 6, servces performed pror to uy 1, 19 0, consttute empoy-
ment f they were empoyment as defned n secton 1007 (c) as n effect at the
tme the servce was performed. The provson In effect pror to anuary 1,
19 0, and therefore appcabe to servces performed pror to such date, s secton
1607(c) of the Federa Unempoyment Ta ct as orgnay enacted February
10, 1939, as modfed by secton 13(a) of the Raroad Unempoyment Insurance
ct. Thus, servces performed pror to anuary 1, 19 0, wthn the Unted States
by an empoyee for the person empoyng hm, consttute empoyment wthn the
meanng of the Federa Unempoyment Ta ct n force on and after anuary 1,
10 0, uness the servces are e cepted by secton 1607(c) as orgnay enacted, as
modfed by such secton 13(a).
Par. 16. Immedatey precedng secton 03.203 2G CFR, 03.203
the foowng s nserted:
S CTION 302 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
That part of secton 1007(c) of the Interna Revenue Code, as
amended, whch reads as foows:
(c) mpoyment. The term empoyment means any
servce, of whatever nature, performed after December 31, 1939, wthn
the Unted States by an empoyee for the person empoyng hm, rrespec-
tve of the ctzenshp or resdence of ether, e cept
Is amended, effectve uy 1, 19 6, to read as foows:
(c) mpoyment. The term empoyment means any servce per-
formed pror to uy 1, 19 0, whch was empoyment as defned In ths
secton as n effect at the tme the servce was performed; and any
sen-ce, of whatever nature, performed after une 30, 19 0, by an em-
poyee for the person empoyng hm, rrespectve of the ctzenshp or
resdence of ether, ( ) wthn the Unted States, or ( ) on or n con-
necton wth an mercan vesse under a contract of servce whch s
entered nto wthn the Unted States or durng the performance of
whch the vesse touches at a port n the Unted States, f the empoyee
s empoyed on nnd n connecton wth such vesse when outsde the
Unted States, e cept .
S CTION 305 OF T SOCI L S CURITY CT M NDM NTS
OF 19 0.
Secton 1607 of such Code, as amended, s further amended, effectve
uy 1, 19 6, by addng after subsecton (m) a new subsecton to read
as foows:
(n) mercan esse. The term mercan vesse means any
vesse documented or numbered under the aws of the Unted States;
and ncudes any vesse whch Is nether documented or numbered under
the aws of the Unted States nor documented under the aws of any
foregn country, f ts crew s empoyed soey by one or more ctzens or
resdents of the Unted States or corporatons organzed under the aws
of the Unted States or of any State.
Par. 17. Secton 03.203, as amended by Treasury Decson 551 )
20 CFR, 03.203 , s amended to read as foows:
Sec. 03.203. mpoyment fter December 31. 1939. (a) In genera.
Whether servces performed on or after anuary 1,1910, consttute empoyment Is
determned under secton 1607(c) of the ct. that s, secton 1607(c), as amended,
effectve anuary 1, 19 0, by secton 01 of the Soca Securty ct mendments
of 1939, and as amended, effectve anuary 1, 19 0, by secton (d) of the Inter-
natona Organzatons Immuntes ct, and as further amended, effectve uy
1. 19 0, by sectons 302, 303, and 30 of the Soca Securty ct mendments of
19 0. T)s secton of these reguatons, nnd a sectons of ths subpart whch
foow (e cept sectons (13.227 and 03.228 20 CFU, 03.227 and 03.228 , re-
atng to wages), appy wth respect ony to servces performed after December
31. 1039. Such sectons appy wth respect to servces performed at any tme
after such date, e cept those provsons thereof In whch a dfferent perod of app-
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Regs. 106, 03.201.
158
caton s e pressy stated. (For provsons reatng to the crcumstances under
whch servces whch do not consttute empoyment are nevertheess deemed
to be empoyment, and reatng to the crcumstances under whch servces whch,
consttute empoyment are nevertheess deemed not to be empoyment, see sec-
ton 03.207 26 CFR, 03.207 . For provsons reatng to the crcumstances under
whch certan servces wth respect to whch the coecton of ta s prohbted
are deemed not to be ncuded wthn the term empoyment as used n these
reguatons, see secton 03.206 26 CFR, 03.206 . For provsons reatng to
servces performed pror to anuary 1, 10 0, see secton 03.202 26 CFR,
03.202 .)
(6) Servces performed wthn the Unted States. Servces performed on or
after anuary 1, 19 0, wthn the Unted States, that s, wthn any of the severa
States, the Dstrct of Coumba, or the Terrtory of aska or awa, by an
empoyee for the person empoyng hm, uness specfcay e cepted by secton
1007(c) of the ct, consttute empoyment wthn the meanng of the ct.
Servces performed outsde the Unted States, that s, outsde the severa States,
the Dstrct of Coumba, and the Terrtores of aska and awa (e cept cer-
tan servces performed after une 30, 19 6, on or n connecton wth an mercan
vesse see paragraph (c)), do not consttute empoyment.
Wth respect to servces performed wthn the Unted States, the pace where
the contract of servce Is entered nto and the ctzenshp or resdence of the
empoyee or of the person empoyng hm are mmatera. Thus, the empoyee
and the person empoyng hm may be ctzens and resdents of a foregn country
and the contract of servce may be entered nto n a foregn country, and yet. If
the empoyee under such contract actuay performs servces wthn the Unted
States, there may be to that e tent empoyment wthn the meanng of the ct,
(c) Servces performed outsde the Unted States. Servces performed on or
after uy 1, 19 6, by an empoyee for the person empoyng hm on or n
connecton wth an mercan vesse outsde the Unted States consttute
empoyment provded:
(1) The empoyee s aso empoyed on and n connecton wth such
vesse when outsde the Unted States; and
(2) The servces are performed under a contract of servce, between the
empoyee and the person empoyng hm, whch s entered nto wthn the
Unted States, or durng the performance of whch the vesse touches at
a port wthn the Unted States; and
(3) The servces are not e cepted under secton 1607(c) of the ct. (See
partcuary secton 03.22Gb of these reguatons 26 CFR, 03.22Gb , reatng
to fshng.)
n empoyee performs servces on and n connecton wth the vesse f he
performs servces on the vesse whch are aso n connecton wth the vesse.
Servces performed on the vesse as offcers or members of the crew, or as
empoyees of concessonares, of the vesse, for e ampe, are performed under
such crcumstances, snce such servces are aso connected wth the vesse. Serv-
ces may be performed on the vesse, however, whch have no connecton wth
t, as n the case of servces performed by an empoyee whe on the vesse
merey as a passenger n the genera sense. For e ampe, the servces of a
buyer n the empoy of a department store whe he s a passenger on a vesse
are not n connecton wth the vesse.
If servces are performed by an empoyee on and n connecton wth an
mercan vesse when outsde the Unted States and condtons (2) and (3)
above are met, then the servces of that empoyee performed on or n connecton
wth the vesse consttute empoyment. The e presson on or n connecton
wth refers not ony to servces performed on the vesse but aso to servces
connected wth the vesse whch are not actuay performed on t (for e ampe,
shore servces performed as offcers or members of the crew, or as empoyees
of concessonares, of the vesse).
Servces performed by a member of the crew or other empoyee whose con-
tract of servce s not entered nto wthn the Unted States, and durng the
performance of whch the vesse does not touch at a port wthn the Unted
States, do not consttute empoyment, notwthstandng smar servces performed
by others on or n connecton wth the vesse may consttute empoyment.
The word vesse Incudes every descrpton of watercraft, or other con-
trvance, used as a means of transportaton on water. It does not ncude any
type of arcraft.
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159
Regs. 106, 02.201.
The term mercan vesse menus any vesse whch Is documented (that Is,
regstered, enroed, or censed) or numbered n conformty wth the aws of
the Unted States. It aso Incudes any vesse whch s nether documented nor
numbered under the aws of the Unted States, nor documented under the aws
of any foregn country, If the crew of such vesse s empoyed soey by one or
more ctzens or resdents of the Unted States or corporatons organzed under
the aws of the Unted States or of any State (ncudng the Dstrct of Coumba
or the Terrtory of aska or awa).
Wth respect to servces performed outsde the Unted States, the ctzenshp
or resdence of the empoyee s mmatera, and the ctzenshp or resdence of the
person empoyng hm Is matera ony In case t has a bearng n determnng
whether a vesse s an mercan vesse.
(d) Servces performed for onneve Power dmnstrator. Notwthstand-
ng any other provson of these reguatons, such servces as consttute empoy-
ment under secton 1607(m) of the ct sha consttute empoyment wthn the
meanng of the ct and of these reguatons (ncudng secton 03.205 20 CFR,
03.205 , reatng to who are empoyers). Secton 1607(m) of the ct reates to
servces performed after December 31, 10 5, by a aborer, mechanc, or workman,
In connecton wth constructon work or the operaton and mantenance of
eectrca factes, as an empoyee of the Unted States empoyed through the
onneve Power dmnstrator.
Par. 18. Immedatey precedng the capton Secton 5(b) of the
Internatona Organzatons Immuntes ct, as nserted by
Treasury Decson 5519 precedng secton 03.206 26 CFR, 03.206 ,
the foowng s nserted:
S CTION 302 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
That part of secton 1607(c) of the Interna Revenue Code, rs
amended, whch reads as foows:
(c) mpoyment. The term empoyment means any
servce, of whatever nature, performed after December 31, 1939, wthn
the Unted States by an empoyee for the person empoyng hm .
e cept
Is amended, effectve uy 1,19 6, to read as foows:
(c) mpoyment. The term empoyment means any servce per-
formed pror to uy 1, 19 6, whch was empoyment as defned In ths
secton as n effect at the tme the servce was performed; and any
servce, of whatever nature, performed after une 30, 19 6, by an
empoyee for the person empoyng hm e cept .
Par. 19. Secton 03.206, as amended by Treasury Decson 5519
26 CFR, 03.206 , s further amended as foows:
( ) y strkng out the perod at the end of the frst sentence and
nsertng n eu thereof a comma and the foowng: and as further
amended, effectve uy 1, 19 6, by sectons 302, 303, and 30 of the
Soca Securty ct mendments of 19 6.
( ) y strkng out the foowng sentences where they appear:
Ths secton, secton 03.207 (reatng to ncuded and e cuded servces), and
sectons 03.208 to 03.228, ncusve (reatng to certan casses of e cepted serv-
ces), appy wth respect ony to servces performed on or after anuary 1, 19 0.
Secton 03.226a, reatng to an addtona cass of e cepted servces, appes wth
respect ony to servces performed on or after anuary 1, 19 6.
and by nsertng n eu thereof the foowng:
Ths secton, nnd the sectons whch foow It reatng to Incuded and e cuded
servces and the severa casses of e cepted servces, appy wt respect to servces
performed at any tme after December 31, 1939, e cept where a dfferent perod
of appcaton s e pressy stated.
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Regs. 106, 02.201.
160
Par. 20. In those provsons of aw whch read as foows:
The term empoyment means any servce, of whatever nature,
performed after December 31, 1939, wthn the Unted States by an empoyee for
the person empoyng hm e cept
where they appear precedng each secton from 03.208 to 03.226a
26 CFR, 03.208 to 03.226a , both ncusve, the phrase after De-
cember 31,1939, wthn the Unted States s strcken, and
s nserted n eu thereof, so that such prevsons of aw read as foows:
The term empoyment means any servce, of whatever nature,
performed by an empoyee for the person empoyng hm
e cept
Par. 21. Immedatey precedng secton 03.211 26 CFR, 03.211
the foowng s nserted:
S CTION 303 OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton 1607(c)( ) of the Interna Revenue Code, as amended, Is
amended, effectve uy 1,19 6, to read as foows:
( ) Servce performed on or In connecton wth a vesse not an
mercan vesse by an empoyee, If the empoyee s empoyed on and
In connecton wth such vesse when outsde the Unted States; .
Par. 22. Secton 03.211 26 CFR, 03.211 s amended to read as
foows:
Sec. 03.211. Martme Servces. (o) In genera. Secton 1607(c) ( ) of the
ct, as amended, effectve anuary 1, 19 0, by secton 61 of the Soca Securty
ct mendments of 1939, e cepts servce performed wthn the Unted States as
an offcer or member of the crew of a vesse on the navgabe waters of the Unted
States. Such e cepton, whch Is deat wth n paragraph (6), beow, appes
ony wth respect to servces performed before uy 1, 19 6. Secton 1607(c) ( )
of the ct, as amended, effectve uy 1,19 6, by secton 303 of the Soca Securty
ct mendments of 19 6, e cepts servce performed wthn the Unted States on or
n connecton wth a vesse not an mercan vesse by an empoyee, If the empoyee
s empoyed on and n connecton wth such vesse when outsde the Unted States.
Such e cepton, whch s deat wth n paragraph (c), beow, appes ony wth
respect to servces performed on or after uy 1,19 6. (For defntons of vesse
and mercan vesse, see secton 03.203(c) 26 CFR, 03.203(c) .)
(ft) Servces performed pror to uy 1, 19 6. The e presson navgabe
waters of the Unted States means such waters as are navgabe n fact and
whch by themseves or ther connecton wth other waters form a contnuous
channe for commerce wth foregn countres or among the States.
The e presson offcer or member of the crew ncudes the master or offcer
In charge of the vesse, however desgnated, and every Indvdua, sub|ect to hs
authorty, servng on board and contrbutng In any way to the operaton and we-
fare of the vesse. The e cepton e tends, for e ampe, to servces rendered by
the master, mates, pots, pursers, surgeons, stewards, engneers, fremen, cooks,
cerks, carpenters, deck hands, porters, and chambermads, and by sea hunters
and fshermen on seang and fshng vesses.
(o) Servces performed after une SO, 19 |G. In order for servces performed
after une 30,19 6, wthn the Unted States on or In connecton wth a vesse
not an mercan vesse to be e cepted, the servces must be performed by an
empoyee who s aso empoyed on and In connecton wth the vesse when
outsde the Unted States.
n empoyee performs servces on and In connecton wth the vesse f he
performs servces on the vesse when outsde the Unted States whch are aso
In connecton wth the vesse. Servces performed on the vesse outsde the
Unted States as offcers or members of the crew, or as empoyees of concesson-
ares, of the vesse, for e ampe, are performed under such crcumstances, snce
such servces are aso connected wth the vesse. Servces may be performed
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161
Regs. 106, 02.201.
on the vesse, however, whch have no connecton wth It, as n the case of
servces performed by an empoyee whe on the vesse merey as a passenger
n the genera sense. For e ampe, the servces of a buyer n the empoy of a
department store whe he Is a passenger on a vesse are not n connecton wth
the vesse.
The e presson on or n connecton wth refers not ony to servces per-
formed on the vesse but aso to servces connected wth the vesse whch are
not actuay performed on t (for e ampe, shore servces performed as offcers
or members of the crew, or as empoyees of concessonares, of the vesse).
The ctzenshp or resdence of the empoyee and the pace where the contract
of servce s entered nto are mmatera for purposes of ths e cepton, and the
ctzenshp or resdence of the person empoyng hm s matera ony n case
t has a bearng n determnng whether the vesse s an mercan vesse.
Snce the ony servces performed outsde the Unted States whch consttute
empoyment are those descrbed n secton 03.203(c) 26 CFR, 03.203(c)
(reatng to servces performed outsde the Unted States on or n connecton
wth an mercan vesse), servces performed outsde the Unted States on or
In connecton wth a vesse not an mercan vesse n any event do not con-
sttute empoyment.
Par. 23. The frst sentence of secton 03.213, as amended by Treas-
ury Decson 5502, approved March 18, 19 6 C. . 19 6-1, 250 26
CFR, 03.213 , s amended by strkng out 03.203(6) and nsert-
ng n eu thereof 03.203(d) 26 CFR, 03.203(d) .
Par. 2 . Immedatey after secton 03.226a, as added by Treasury
Decson 5519 26 CFR, 03.226a , the foowng s nserted:
S CTION 1607(c) (17) OF T CT.
The term empoyment means ay servce, of whatever
nature, performed by an empoyee for the person empoyng hm
e cept
(17) Servce performed by an ndvdua n (or as an offcer or
member of the crew of a vesse whe It s engaged n) the catchng,
takng, harvestng, cutvatng, or farmng of any knd of fsh,
shefsh, Crustacea, sponges, seaweeds, or other aquatc forms of
anma and vegetabe fe (ncudng servce performed by any such
ndvdua as an ordnary ncdent to any such actvty), e cept
( ) servce performed In connecton wth the catchng or takng
of samon or habut, for commerca purposes, and ( ) servce
performed on or In connecton wth a vesse of more than ten net
tons (determned n the manner provded for determnng te regs-
ter tonnage of merchant vesses under the aws of the Unted
States). (Sec. 1607(c) (17), I. R. C, as added, effectve uy 1,
19 6, by sec. 30 (c), Soca Securty ct mendments of 19 6.)
Sec. 03.226b. Fshng. (a) In genera. Sub|ect to the mtatons prescrbed
n paragraphs ( ) and (c), the servces performed on or after uy 1, 19-16, as
descrbed n ths paragraph are e cepted. Servces performed by an ndvdua
n the catchng, takng, harvestng, cutvatng, or farmng of any knd of fsh,
shefsh (for e ampe, oysters, cams, and musses), Crustacea (for e ampe,
obsters, crabs, and shrmps), sponges, seaweeds, or other aquatc forms of
anma and vegetabe fe are e cepted. The e cepton e tends to servces per-
formed as an offcer or member of the crew of a vesse whe the vesse Is engaged
n any such actvty whether or not the offcer or member of the crew s hmsef
so engaged. In the case of an ndvdua who s engaged n any such actvty
n the empoy of any person, the servces performed, by such ndvdua n the
empoy of such person, as an ordnary Incdent to any such actvty are aso
e cepted. Smary, for e ampe, the shore servces of an offcer or member of
the crew of a vesse engaged n any such actvty are e cepted f such servces
are an ordnary Incdent to any such actvty. Servces performed as an ordnary
ncdent to any such actvty may ncude, for e ampe, servces performed n
such ceanng, cng, and packng of fsh as are necessary for the Immedate
preservaton of the catch.
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Regs. 106, 02.201.
162
(6) Samon and habut fshng. Servces performed n connecton wth the
catchng or takng of samon or habut, for commerca purposes, are not wthn
the e cepton. Thus, nether the servces of an offcer or member of the crew of
a vesse (rrespectve of ts tonnage) whch s engaged n the catchng or takng
of samon or habut, for commerca purposes, nor the servces of any other
ndvdua n connecton wth such actvty, are wthn the e cepton.
(c) esses of more than 10 tons. Servces descrbed n paragraph (a) per-
formed on or n connecton wth a vesse of more than 10 net tons are not wthn
the e cepton. For purposes of the e cepton, the tonnage of the vesse sha be
determned n the manner provded for determnng the regster tonnage of
merchant vesses under the aws of the Unted States.
Par. 25. Immedatey precedng secton 03.227 26 CFR, 03.227 ,
the foowng s nserted:
S CTION 12(b) OF T SOCI L S CURITY CT M NDM NTS
OF 19 6.
Secton G07(b) (1) of the Federa Unempoyment Ta ct (Interna
Revenue Code, sec. 1007(b)(1)) Is amended to read as foows:
(1) That part of the remuneraton whch, after remuneraton
equa to 3,000 has been pad to an ndvdua by an empoyer wth
respect to empoyment durng any caendar year, s pad after
December 31, 1039, and pror to anuary 1, 19 7, to such ndvdua
by such empoyer wth respect to empoyment durng such caendar
year; or that part of the remuneraton whch, after remuneraton
equa to 3,000 wth respect to empoyment after 1938 has been pad
to an ndvdua by an empoyer durng any caendar year after 19 6,
s pad to such Indvdua by such empoyer durng such caendar
year; .
Pab. 26. Secton 03.227(a) 26 CFR, 03.227(a) s amended by
strkng out the perod at the end of the frst sentence thereof and
nsertng n eu thereof a comma and the foowng: and as further
amended by secton 12(b) of the Soca Securty ct mendments
of 19 6.
Par. 27. Secton 03.228(a) 26 CFR, 03.228(a) s amended as
foows:
( ) y strkng out the frst three sentences of such secton and
nsertng n eu thereof the foowng:
(1) In genera Secton 1607(b) (1) of the ct provdes an annua 3,000 mta-
ton on the amount of remuneraton that may consttute wages, by e ceptng from
the term wages remuneraton pad after 3,000 has been pad. Under such
secton as amended by secton 12(1)) of the Soca Securty ct mendments of
19 6, the amount frst to be ncuded n wages, after whch the e cepton operates,
s measured n two ways, dependng on whether the remuneraton s pad before
19 7 or s pad after 19 6. In the case of remuneraton pad before 19 7, the
amount frst to be ncuded n wages s remuneraton pad up to and ncudng
3,000 for empoyment performed by an empoyee for hs empoyer durng each
caendar year regardess of when pad (before 19 7) ; and addtona amounts
for empoyment performed n sueh caendar year by such empoyee for such
empoyer are e cuded regardess of when pad (before 19 7). In the case of
remuneraton pad after 1916. the amount frst to be ncuded n wages n each
caendar year s remuneraton up to and ncudng 3,000 pad n the caendar
year by an empoyer to an empoyee for empoyment performed at any tme
after December 31, 1938; and addtona amounts pad n such caendar year
by such empoyer to sueh empoyee are e cuded regardess of when earned.
In genera, the change s from an earned wthn the caendar year bass to
a pad wthn the caendar year bass. For a more compete e panaton of the
mtaton, see subparagraphs (2) and (3) of ths paragraph.
(2) Remuneraton pad before 19 7. Ths subparagraph (2) (endng wth -
ampe 3) appes ony wth respect to remuneraton pad before anuary 1, 19 7.
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163
Regs. 106, 02.201.
The term wages does not ncude that part of the remuneraton pad before
anuary 1,19 7, by an empoyer to an empoyee for empoyment performed for hm
durng any caendar year whch e ceeds the frst 3,000 pad by such empoyer to
such empoyee for empoyment performed durng such caendar year.
In the case of remuneraton pad before 10 7, the 3,000 mtaton appes ony If
the remuneraton pad to an empoyee by the same empoyer for empoyment dur-
ng any one caendar year e ceeds 3,000. The mtaton n such case reates to
remuneraton for empoyment durng any one caendar year and not to the
amount of remuneraton (Irrespectve of the year of empoyment) whch s pad
n any one caendar year.
( ) y nsertng n the parenthetca matter n the thrd sentence
of e ampe 1, mmedatey after the word pad where t ast appears
theren, the foowng: before anuary 1, 19 7, .
(C) y strkng out the cause mmedatey foowng e ampe 1,
If an empoyee has more than one empoyer durng a caendar year,
and nsertng n eu thereof the foowng: In the case of remunera-
ton pad before 19 7, f an empoyee has more than one empoyer dur-
ng a caendar year, .
(D) y nsertng at the begnnng of the frst and ffth sentences of
e ampe 2 the foowng: Durng 19 0.
( ) y nsertng at the begnnng of the second sentence of e -
ampe 3, the foowng: Durng such year.
(F) y nsertng mmedatey foowng e ampe 3 the foowng
new subparagraph:
(3) Remuneraton pad after 19 6. Ths subparagraph (3) appes ony wth
respect to remuneraton pad after December 31, 19 6.
The term wages does not ncude that part of the remuneraton pad wthn
any caendar year begnnng after December 31, 10 6, by an empoyer to an em-
poyee whch e ceeds the frst 3,000 pad wthn such caendar year by such
empoyer to such empoyee for empoyment performed for hm at any tme after
December 31, 1938.
In the case of remuneraton pad after 19 6, the 3,000 mtaton appes ony If
the remuneraton pad durng any one caender year by an empoyer to the same
empoyee for empoyment performed after 1938 e ceeds 3,000. The mtaton n
such case reates to the amount of remuneraton pad durng any one caendar
year for empoyment after 1938 and not to the amount of remuneraton for em-
poyment performed n any one caendar year.
ampe 1. mpoyer , n 19 7, pays empoyee G 2,500 on account of 3,000
due 1dm for empoyment performed In 19 7. In 19-18 empoyer pays empoyee G
the baance of 500 due hm for empoyment performed n the pror year (19 7),
and thereafter In 19 8 aso pays G 3,000 for empoyment performed In 19 8.
The 2,500 pad n 19 7 s sub|ect to ta n 19 7. The baance of 500 pad n 19 8
for empoyment durng 1917 s sub|ect to ta n 19 8, as s aso the frst 2,500
pad of the 3,000 for empoyment durng 19 8 (ths 500 for 19 7 empoyment
added to the frst 2,500 pad for 19 8 empoyment consttutes the ma mum wages
whch coud be pad n 19 8 by to G). The fna 500 pad by to G n 19 8 s
not ncuded as wages and s not sub|ect to the ta .
ampe 2. mpoyer , In 19 0, pays 3,000 to empoyee I on account of
6,000 due hm for empoyment performed n 19 6. In 19 7 before payng any
remuneraton for empoyment performed n 19 7 empoyer pays to I the
baance of 3,000 due empoyee I on account of empoyment performed In 19 6.
The 3,000 pad n 19 6 consttutes wages n 19 6 and s sub|ect to the ta , n
accordance wth the provsons set forth n subparagraph (2) of ths paragraph.
The baance of 3,000 pad n 19 7 on account of empoyment n 19 6 consttutes
wages and Is sub|ect to the ta n 19 7 In accordance wth the provsons set
forth n ths subparagraph (3). The 3,000 pad n 19 7 for 19 6 empoyment
consttutes the ma mum wages whch coud be pad by to I n 19 7. ny
further remuneraton pad n 19 7 to empoyee I for servces performed for
s not ncuded as wages and s not sub|ect to the ta , whether for servces per-
formed before, durng, or after 19 7. ( ssumng the same amounts of remuner-
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Regs: 106, 02.201.
16
aton and tmes of payment, the same resut woud be reached If empoyee I had
eft the empoy of and performed no further servces for after 19 6.)
If durng a caendar year (after 19 6) an empoyee s pad remuneraton
by more than one empoyer, the mtaton of wages to the frst 3,000 of remuner-
aton pad appes, not to the aggregate remuneraton pad-by a empoyers wth
respect to empoyment performed after 1938, but nstead to the remuneraton pad
durng such caendar year by each empoyer wth respect to empoyment per-
formed after 1938. In such case the frst 3,000 pad durng the caendar year
by each empoyer consttutes wages and s sub|ect to the ta .
ampe 3. Durng 19 7 empoyer L pays to empoyee a saary of 600 a
mouth for empoyment performed for L durng the frst seven months of 19 7,
or tota remuneraton of ,200. t the end of the ffth month has been pad
3,000 by empoyer L, and ony that part of hs tota remuneraton from L
consttutes wages sub|ect to the ta . The 600 pad to empoyee by empoyer
L n the s th month, and the ke amount pad n the seventh mouth, are not
ncuded as wages and are not sub|ect to the ta . t the end of the seventh
month eaves the empoy of L and enters the empoy of M. mpoyer M pays to
remuneraton of 600 a month n each of the remanng fve months of 19 7,
or tota remuneraton of 3,000. The entre 3,000 pad by M to empoyee
consttutes wages and s sub|ect to the ta . Thus, the frst 3,000 pad by em-
poyer L and the entre 3,000 pad by empoyer M consttute wages.
ampe . Durng the caendar year 19 7 N s smutaneousy an offcer (an
empoyee) of the O Corporaton, the P Corporaton, and the Corporaton, each
such corporaton beng an empoyer for such year. Durng such year N s pad
a saary of 3,000 by each corporaton. ach 3,000 pad to N by each of the
corporatons O, P, and (whether or not such corporatons are reated) con-
sttutes wages and Is sub|ect to the ta .
Par.-28. Immedatey precedng secton 03. 01 26 CFR, 03. 01 ,
the foowng s nserted:
S CTION 10(b) OF T SOCI L S CURITY CT M NDM NTS
OP 19 6.
The ast sentence of subsecton (f) of secton 1607 of the Federa Un-
empoyment Ta ct, as amended, s amended by strkng out the perod
at the end thereof and Insertng n eu thereof the foowng: -.Pro-
vded, That an amount equa to the amount of empoyee payments nto
the unempoyment fund of a State may be used n the payment of cash
benefts to ndvduas wth respect to ther dsabty, e cusve of e -
penses of admnstraton.
Par. 29. Ths Treasury decson sha be effectve on the thrty-frst
day after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 1 29 and 1609 of the Interna Revenue Code (53 Stat., 178,
188; 26 U. S. C, 1 29/1609) and sectons 101, 102, 302, 303, 30 , 305,
12, 13, and 16(b) of the Soca Securty ct mendments of 19 6
(Pubc Law 719, Seventy-nnth Congress; 60 Stat., 978), approved
ugust 10,19 6.)
oseph D. Nunan, r.,
Commssoner of Interna Revenue.
pproved une 23, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
Pubshed n the Federa Regster une 27,19 7.)
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165
Regs. 106, 02.201.
Secton 1 26: Defntons.
Reguatons 106, Secton 02.201: Genera
defntons and use of terms.
( so Sectons 1 00 and 1 10; Reguatons 106,
Sectons 02.302 and 02. 02.)
TITL 26 INT RN L R NU . C PT R L SU C PT R D, P RT 02.
MPLOY S T ND MPLOY RS T UND R T F D R L INSUR NC
CONTRI UTIONS CT.
Reguatons 106 amended to conform to certan provsons of the
Soca Securty ct mendments of 19 7, changng the rates of the
ta es under the Federa Insurance Contrbutons ct for the caendar
year 19 8 and subsequent years.
Treasury Department,
Offce of. Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 106 26 CFR, Part 02 , reatng
to the empoyees ta and the empoyers ta under the Federa In-
surance Contrbutons ct (Subchapter , Chapter 9, Interna Rev-
enue Code), to sectons 1, 2, and 6 of the Soca Securty ct mend-
ments of 19 7 (Pubc Law 379, ghteth Congress), approved u-
gust 6,19 7 page 3 6, ths uetn , such reguatons are amended as
foows:
Paragraph 1. Immedatey precedng secton 02.201 26 CFR,
02.201 , the foowng s nserted:
S CTION 6 OF PU LIC L W 379 ( IG TI T CONGR SS),
PPRO D UGUST 6, 19 7.
Ths ct may be cted as the Soca Securty ct mendments of 19 7.
Par. 2. Secton 02.201 26 CFR, 02.201 s amended by nsertng
after paragraph (p) 26 CFR, 02.201 (p) , added by Treasury De-
cson 5566, approved une 23, 19 7 page 1 8, ths uetn , the fo-
owng new paragraph:
(g) Soca Securty ct mendments of 19.f means the ct approved ugust
6, 19 7 (Pubc Law 379, ghteth Congress).
Par. 3. Immedatey precedng secton 02.301 26 CFR, 02.301 ,
the foowng s nserted:
S CTION 1 OF T SOCI L S CURITY CT M NDM NTS
OF 19 7.
That causes (1), (2), and (3) of secton 1 00 of the Federa Insurance
Contrbutons ct (Interna Revenue Code, sec. 1 00), as amended, are
hereby amended to read as foows:
(1) Wth respect to wages receved durng the caendar years
1939 to 19 9, both ncusve, the rate sha be 1 per centum.
(2) Wth respect to wages receved durng the caendar years
1950 and 1951, the rate sha be 1 per centum.
(3) Wth respect to wages receved after December 31, 1951,
the rate sha be 2 per centum.
19 7-25-12712
T. D.5592
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Regs. 106, 02.201.
166
Par. . Secton 02.302, as amended by Treasury Decson 5566
26 CFR, 02.302 , s further amended to read as foows:
Sec. 02.302. Rates and Computaton of mpoyees Ta . The rates of em-
poyees ta appcabe for the respectve caendar years are as foows:
Per cent.
For the caendar years 19 0 to 19 9, both ncusve 1
For the caendar years 1950 and 1951 1
For the caendar year 1952 and subsequent caendar years 2
The empoyees ta s computed by appyng to the wages receved by the em-
poyee the rate n effect at the tme such wages are receved.
ampe. Durng 19 9 s an empoyee of and Is engaged n the perform-
ance of servces whch consttute empoyment (see secton 02.203). In the
foowng year, 1950, receves from 1,000 as remuneraton for servces per-
formed by n the precedng year. The ta s payabe at the 1 per cent rate
n effect for the caendar year 1950 (the year n whch the wages are receved)
and not at the 1 per cent rate whch s n effect for the caendar year 19 9 (the
year n whch the servces are performed).
Par. 5. Immedatey precedng secton 02. 01 26 CFR, 02. 01 ,
the foowng s nserted:
S CTION 2 OF T SOCI L S CURITY CT M NDM NTS
OF 19 7.
Causes (1), (2), and (3) of secton 1 10 of the Federa Insurance
Contrbutons ct (Interna Revenue Code, sec. 1 10), as amended, are
hereby amended to read as foows:
(1) Wth respect to wages pad durng the caendar years 1939
to 19 9, both ncusve, the rate sha be 1 per centum.
(2) Wth respect to wages pad durng the caendar years 1950
and 1951, the rate sha be 1 per centum.
(3) Wth respect to wages pad after December 31, 1951, the
rate sha be 2 per centum.
Par. 6. Secton 02. 02, as amended by Treasury Decson 5566
26 CFR, 02. 02 , s further amended to read as foows:
Sec. 02. 02. Rates and Computaton of mpoyers Ta . The rates of em-
poyers ta appcabe for the respectve caendar years are as foows:
Per cent.
For the caendar years 19 0 to 19 9, both ncusve 1
For the caendar years 1950 and 1951 1
For the caendar year 1952 and subsequent caendar years 2
The empoyers ta s computed by appyng to the wages pad by the empoyer
the rate n effect at the tme such wages are pad.
(Ths Treasury decson s ssued under the authorty contaned n
secton 1 29 of the Interna Revenue Code (53 Stat., 178; 26 U. S. C,
1 29) and sectons 1, 2, and 6 of the Soca Securty ct mendments
of 19 7 (Pubc Law 379, ghteth Congress), approved ugust 6,
1917.)
ecause the amendments made by ths Treasury decson merey
gve effect to the change n the rates of the ta es under the Federa
Insurance Contrbutons ct made by sectons 1 and 2 of the Soca
Securty ct mendments of 19 7, t s hereby found that t s un-
necessary to ssue ths Treasury decson wth notce and pubc pro-
cedure thereon under secton (a) of the dmnstratve Procedure
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167
Regs. 106, 02.20
ct, approved une 11,19 6, or sub|ect to the effectve date mtaton
of secton (c) of sad ct.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 20, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 25, 19 7, 8. 6 a. m.)
Secton 1 2C: Defntons. 19 7-15-12598
Reguatons 106, Secton 02.20 : Who are Ct. D. 1688
empoyees.
( so Subchapter C (Federa Unempoyment
Ta ct), Secton 1607; Reguatons 107, Sec-
ton 03.20 ; and Soca Securty ct, Sectons
811 and 907; Reguatons 91 and 90, rtces
3 and 205.)
soca securty ta soca securty act nterna revenue code-
decson OF SUPR M COURT.
1. mpoyees Independent Contractors- Tests ppcabe n
Determnng Dstncton etween mpoyees and Inde-
pendent Contractors.
ed : Coa unoaders who unoad coa from raroad cars for a
reta deaer who s n a poston to e ercse a necessary super-
vson over ther smpe tasks are not ndependent contractors but
empoyees wthn the meanng of Ttes III and I of the Soca
Securty ct and Subchapters and C of Chapter 0 of the Interna
Revenue Code. Truckers who own and drve ther own trucks, hre
ther own hepers, n one nstance haung for a snge busness and
the other for any customer, wth much responsbty for nvest-
ment and management, are ndependent contractors wthn the
meanng of the above statutory provsons. The reatonshp of
empoyer-empoyee s not to be determned soey by the dea of con-
tro over the detas of the servce rendered. The prmary consdera-
ton n the determnaton of whether an ndvdua s an empoyee
for soca securty ta purposes s whether effectuaton of the pocy
and purposes of the Soca Securty ct comprehend securng to such
Indvdua the rghts guaranteed and protecton afforded by such
ct. Permanency of the reaton, the sk requred, the nvestment
In the factes for work and opportuntes for proft or oss from
the actvtes, are aso factors. It s the tota stuaton, however,
that contros. The rue apped to the Natona Labor Reatons
ct n oard v. earst Pubcatons (322 U. S., I) Is aso app-
cabe to soca securty egsaton.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Seventh
Crcut (156 Fed. (2d), 12), affrmed.
3. Decson ffrmed n Part and Reversed n Part.
Decson of the Unted States Crcut Court of ppeas, Tenth
Crcut (155 Fed. (2d), 356), affrmed n part and reversed n
part.
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Regs. 106, 02.20 .
168
Supreme Court of the Unted States.
312. The Unted States of merca, pettoner, v. bert k, Dong usness as
bert Sk Coa Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
673. Carter . arrson, Indvduay and as Coector of Interna Revenue,
pettoner, v. reyvan Lnes, Inc.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
une 16, 19 7.
OPINION.
Mr. ustce Reed devered the opnon of the Court.
We consder together the above two cases. oth nvove suts to recover sums
e acted from busnesses by the Commssoner of Interna Revenue as empoy-
ment ta es on empoyers under the Soca Securty ct.1 In both nstances the
ta es were coected on assessments made admnstratvey by the Commssoner
because he concuded the persons here nvoved were empoyees of the ta payers.
oth cases turn on a determnaton as to whether the workers Invoved were
empoyees under that ct or whether they were ndependent contractors. Wrts
of certorar were granted ( U. S., , and U. S., ), because of the genera
mportance n the coecton of soca securty ta es of decdng what are the
appcabe standards for the determnaton of empoyees under the ct. aryng
standards have been apped n the Federa courts.2
Respondent n No. 312, bert Sk, dong busness as the bert Sk Coa Co.,
sued the Unted States, pettoner, to recover ta es aeged to have been egay
assessed and coected from respondent for the years 1936 through 1939 under the
Soca Securty ct. The ta es were eved on respondent as an empoyer of cer-
tan workmen some of whom were engaged In unoadng raway coa cars and
the others In makng reta deveres of coa by truck.
Respondent ses coa at reta n the cty of Topeka, ans. s coayard con-
ssts of two budngs, one for an offce and the other a gatherng pace for work-
ers, raroad tracks upon whch caroads of coa are devered by the raroad, and
bns for the dfferent types of coa. Respondent pays those who work as un-
oaders an agreed prce per ton to unoad coa from the raroad cars. These
men come to the yard when and as they pease and are assgned a car to unoad
and a pace to put the coa. They furnsh ther own toos, work when they wsh
and work for others at w. One of these unoaders testfed that he worked
as reguary as a man has to when he has to eat but there was aso testmony
that some of the unoaders were foaters who came to the yard ony ntermttenty.
Respondent owns no trucks hmsef but contracts wth workers who own ther
own trucks to dever coa at a unform prce per ton. Ths s pad to the trucker
by the respondent out of the prce he receves for the coa from the customer.
When an order for coa s taken n the company offce, a be s rung whch rngs
n the budng used by the truckers. The truckers have vountary adopted a ca
st upon whch ther names come up n turn, and the top man on the st has an
opportunty to dever the coa ordered. The truckers are not nstructed how
to do ther |ohs, but are merey gven a tcket teng them where the coa s to
be devered and whether the charge s to be coected or not. ny damage
caused by them s pad for by the company. The dstrct court found that the
truckers coud and often dd refuse to make a devery wthout penaty. Further,
the court found that the truckers may come and go as they pease and fre-
quenty dd eave the premses wthout permsson. They may and dd hau for
Ttes III and I , Soca Securty ct ( 9 Stat., 636 and 639), as repeaed n part
(53 Stat., 1).
See Interna Revenue Code, Chapter 0, Subchapters and C.
Te an Co. v. ggns (118 Fed. (2d), 636) ; ones v. Ooodson (121 Fed. (2d). 176) :
Deecy Product Co. v. Wech (12 Fed. (2d), 592) ; mercan O Co. v. Fy (135 Fed.
(2d), 91) ; Genn v. eard (1 1 Fed. (2d), 376) ; Magruder v. Yeow Cab Co. (1 1 Fed.
(2d). 32 ) ; Unted States v. Mutua Truckng Co. (1 1 Fed. (2d), 655) ; Oenn v. Standard
O Co. (1 8 Fed. (2d), 51, 53) ; McGowan v. LazeroS (1 8 Fed. (2d), 512) ; Unted State
v. Whoesae O Co. (15 Fed. (2d), 7 5) ; Unted States v. ogue, Inc. (1 5 Fed. (2d),
609, 612) ; Unted States v. berdeen ere, No. t (1 8 Fed. (2d), 655, 658) ; Grace v.
agruder (1 8 Fed. (2d). 079. 680-081) ; evns, Inc., . Rothenses (151 Fed. (2d), 189).
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169
Regs. 106, 02.20 .
others when they peased. They pay a the e penses of operatng ther trucks,
and furnsh e tra hep necessary to the devery of the coa and a equpment
e cept the yard storage bns. No record s kept of ther tme. They are pad
after each trp, at the end of the day or at the end of the week, as they request.
The coector rued that the unoaders and truckers were empoyees of the
respondent durng the years 1936 through 1939 wthn the meanng of the
Soca Securty ct and he accordngy assessed addtona ta es under Ttes
III and I of the Soca Securty ct and Subchapters and C of Chapter 9
of the Interna Revenue Code. Respondent fed a cam for a refund whch
was dened. e then brought ths acton. oth the dstrct court and the cr-
cut court of appeas3 thought that the truckers and unoaders were ndependent
contractors and aowed the recovery.
Respondent n No. 673, Greyvan Lnes, Inc., a common carrer by motor truck,
sued the pettoner, a coector of nterna revenue, to recover empoyment ta es
aeged to have been egay assessed and coected from t under smar pro-
vsons of the Soca Securty ct nvoved n Sk s case for the years or parts of
years 1937 through the frst quarter of 19 2. From a hodng for the respondent
In the dstrct court pettoner appeaed. The crcut court of appeas affrmed.
The chef queston n ths case s whether truckmen who perform the actua serv-
ce of carryng the goods shpped by the pubc are empoyees of the respondent
oth the dstrct court and the crcut court of appeas thought that the truck-
men were ndependent contractors.
The respondent operates ts truckng busness under a permt ssued by the
Interstate Commerce Commsson under the grandfather cause of the
Motor Carrer ct. (32 M. C. C, 719, 723.) It operates throughout 38 States
and parts of Canada, carryng argey househod furnture. Whe ts prncpa
offce s n Chcago, t mantans agences to soct busness n many of the
arger ctes of the areas t serves, from whch t contracts to move goods. s
eary as 1930, before the passage of the Soca Securty ct, the respondent
adopted the system of reatons wth the truckmen here concerned, whch gves
rse to the present ssue. The system was based on contracts wth the truckmen
under whch the truckmen were requred to hau e cusvey for the respondent
and to furnsh ther own trucks and a equpment and abor necessary to pck
up, hande and dever shpments, to pay a e penses of operaton, to furnsh
a fre, theft, and coson nsurance whch the respondent mght specfy, to
pay for a oss or damage to shpments and to ndemnfy the company for
any oss caused It by the acts of the truckmen, ther servants and empoyees, to
pant the desgnaton Greyvan Lnes on ther trucks, to coect a money due
the company from shppers or consgnees, and to turn n such moneys at the
offce to whch they report after deverng a shpment, to post bonds wth the
company n the amount of 1,000 and cash deposts of 250 pendng fna sette-
ment of accounts, to personay drve ther trucks at a tmes or be present on
the truck when a competent reef drver was drvng (e cept n emergences,
when a substtute mght be empoyed wth the approva of the company), and
to foow a rues, reguatons, and nstructons of the company. contracts
or bs of adng for the shpment of goods were to be between the respondent
and the shpper. The company s nstructons covered drectons to the truck-
men as to where and when to oad freght. If freght was tendered the truck-
men, they were under obgaton to notfy the company so that t coud compete
the contract for shpment n ts own name. s remuneraton, the truckmen were
to receve from the company a percentage of the tarff charged by the company
varyng between 50 and 52 per cent and a bonus up to 3 per cent for satsfactory
performance of the servce. The contract was termnabe at any tme by ether
party. These truckmen were requred to take a short course of nstructon In
the company s methods of dong busness before carryng out ther contractua
obgatons to hau. The company mantaned a staff of dspatchers who Issued
orders for the truckmen s movements, athough not the routes to be used, and
to whch the truckmen, at ntervas reported ther postons. Cargo nsurance
was carred by the company. permts, certfcates and franchses necessary
to the operaton of the vehce n the servce of the company as a motor carrer
under any Federa or State aw were to be obtaned at the company s e pense.
The record shows the foowng addtona undsputed facts, not contaned n
the fndngs. manua of nstructons gven by the respondent to the truck-
men, and a contract between the company and Loca No. 711 of the Inter-
155 Fed. (2d), 856.
156 Fed. (2d), 12.
77338 8 12
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Regs. 106, 02.20 .
170
natona rotherhood of Teamsters, Chauffeurs, Stabemen and epers of
merca were ntroduced n evdence. It suffces to say that the manua pur-
ported to reguate n deta the conduct of the truckmen n the perfornance of
ther dutes, and tat the agreement wth the unon provded that any truckman
must frst be a member of the unon, and that grevances woud be referred to
representatves of the company and the unon. company offca testfed that
the manua was Impractca and that no attempt was made to enforce t. We
understand the unon contract was In effect. The company had some trucks
drven by truckmen who were admttedy company empoyees. Operatons by
the company under the two systems were carred out n the same manner. The
nsurance requred by the company was carred under a banket company pocy
for whch the truckmen were charged proportonatey.
The Soca Securty ct of 1035 was the resut of ong consderaton by the
Presdent and Congress of the ev of the burdens that rest upon arge numbers
of our peope because of the nsecurtes of modern fe, partcuary od age and
unempoyment. It was enacted n an effort to coordnate the forces of Govern-
ment and ndustry for sovng the probems.8 The prncpa method adopted by
Congress to advance ts purposes was to provde for perodc payments n the
nature of annutes to the edery and compensaton to workers durng perods of
unempoyment. mpoyment ta es, such as we are here consderng, are neces-
sary to produce the revenue for Federa partcpaton n the program of aeva-
ton. mpoyers do not pay ta es on certan groups of empoyees, such as agr-
cutura or domestc workers but none of these e ceptons are appcabe to these
cases. (Sectons 811 and 907.) Ta es are ad as e cses on a percentage of
wages pad the none empt empoyees. (Sectons 80 and 901; I. II. C, sectons
1 10, 1600.) Wages means a remuneraton for the empoyment that s cov-
ered by the ct, cash or otherwse. (Sectons 811, 907; I. R. C., sectons 1 26,
1607(b).) mpoyment means any servce, of whatever nature, performed
by an empoyee for hs empoyer, e cept grcutura a-
bor; etc. (Sectons 811 (b), 907 (c) ; I. R. C, sectons 1 26(b), 1007(c).) s a
coroary to the coverage of empoyees whose wages are the bass for the empoy-
ment ta es under the ta sectons of the soca securty egsaton, rghts to
beneft payments under Federa od age nsurance depend upon the recept of
wages as empoyees under the same sectons. (53 Stat., 1360, sectons 202. 209
(a), (b), (g), 205(c) (1).) (See Soca Securty oard v.Nerotko, 327 U. S., 358.)
Ths reatonshp between the ta sectons and the beneft sectons emphaszes the
underyng purpose of the egsaton the protecton of ts benefcares from some
of the hardshps of e stence. ( everng v. Davs, supra, 6 0.) No defnton of
empoyer or empoyee appcabe to these cases occurs In the ct. (See secton
907(a) and I. R. C, secton 1607(h).) Compare, as to carrer empoyment, I. R. C,
secton 1532(d), as amended by Pubc Law 572, Seventy-nnth Congress, second
sesson, secton 1 IC. . 19 6-2, 269 .) Nothng that s hepfu n determnng
the scope of the coverage of the ta sectons of the Soca Securty ct has come
to our attenton n the egsatve hstory of the passage of the ct or amend-
ments thereto.
Snce Congress has made cear by ts many e emptons, such as, for e ampe,
the broad categores of agrcutura abor and domestc servce (53 Stat, 138 ,
1393), that t was not ts purpose to make the ct cover the whoe fed of servce
to every busness enterprse, the sectons n queston are to be read wth the
e emptons n mnd. The very specfcty of the e emptons, however, and the
generaty of the empoyment defntons ndcates that the terms empoyment
and empoyee, are to be construed to accompsh the purposes of the egsaton.
s the Federa soca securty egsaton s an attack on recognzed evs In our
natona economy, a constrcted nterpretaton of the phrasng by the courts
woud not comport wth ts purpose. Such an nterpretaton woud ony make for
a contnuance, to a consderabe degree, of the dffcutes for whch the remedy
Message of the Presdent, anuary 17, 1835, and Report of the Commttee on conomc
Securty ( . Doc. No. 81, Seventy-fourth Congress frst sesson; S. Rept. No. 628, Seventy-
fourth Congress, frst sesson ; S. Rept. No. 73 , Seventy-s th Congress, frst sesson : .
Rept. No. 615, Seventy-fourth Congress, frst sesson; . Rept. No. 728, Seventy-s th
Congress, frst sesson. Steward Machne Co. v. Davs, 301 U. S., 5 8 Ct. D. 1236, C. .,
1937-1. : Reherng v. Davt, 301 U. S., 619 Ct. D. 1235, C. . 1937-1, 360 .)
See 53 Stat.. 138 , 1393, The term empoyment means any servce performed pror
to anuary 1, 19 0, whch was empoyment as defned n ths secton pror to such date,
and any servce, of whatever nature, performed after December 31, 1939, wthn the Unted
States by an empoyee for the person empoyng hm, rrespectve of the ctzenshp or
resdence of ether, e cept . Compare 9 Stat.. 639 and 6 3.
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Regs. 106, 02.20 .
was devsed and woud Invte adrot schemes by some empoyers and empoyees
to avod the mmedate burdens at the e pense of the benefts sought by the
egsaton. These consderatons have heretofore guded our constructon of
the ct. ( uckstaff ath Souse Co. v. Mc ney, 308 U. S., 358; Soca Securty
oard v. Nerotko, 327 U. S., 358.)
Of course, ths does not mean that a who render servce to an ndustry are
empoyees. (Compare Metcaf d ddy v. Mtche, 289 U. S., 51 , 520 T. D. 382 ,
C. . -, 218 (1926) .) Obvousy the prvate contractor who undertakes to
bud at a f ed prce or on cost-pus a new pant on specfcatons s not an
empoyee of the ndustry thus served nor are hs empoyees. The dstrbutor
who undertakes to market at hs own rsk the product of another, or the producer
who agrees so to manufacture for another ordnary can not be san to have the
empoyer-empoyee reatonshp. Producton and dstrbuton are dfferent seg-
ments of busness. The purposes of the egsaton are not frustrated because
the Government coects empoyment ta es from the dstrbutor nstead of the
producer or the other way around.
The probem of dfferentatng between empoyee and an ndependent contractor
or between an agent and an ndependent contractor has gven dffcuty through the
years before soca egsaton mutped ts mportance. When the matter arose
n the admnstraton of the Natona Labor Reatons ct, we ponted out that
the ega standards to f responsbty for acts of servants, empoyees or agents
had not been reduced to such certanty that t coud be sad there was some
smpe, unform and easy appcabe test. The word empoyee, we sad, was
not there used as a word of art, and ts content n ts conte t was a Federa
probem to be construed n the ght of the mschef to be corrected and the
end to be attaned. We concuded that, snce that end was the emnaton of
abor dsputes and ndustra strfe, empoyees ncuded workers who were
such as a matter of economc reaty. The am of the ct was to remedy the
nequaty of barganng power n controverses over wages, hours and workng
condtons. We re|ected the test of the technca concepts pertnent to an
empoyer s ega responsbty to thrd persons for acts of hs servants. Ths Is
often referred to as power of contro, whether e ercsed or not, over the manner of
performng servce to the ndustry. (Restatement of the Law, gency, secton
220.) We approved the statement of the Natona Labor Reatons oard that
the prmary consderaton In the determnaton of the appcabty of the
statutory defnton s whether effectuaton of the decared pocy and purposes
of the ct comprehend securng to the ndvdua the rghts guaranteed and
protecton afforded by the ct. oard v. earst Pubcatons, 322 U. S., I,
120, 123, 12 , 128, 131.)
ppcaton of the soca securty egsaton shoud foow the same rue that
we apped to the Natona Labor Reatons ct In the earst case. Ths, of
course, does not eave courts free to determne the empoyer-empoyee reaton-
shp wthout regard to the provsons of the ct. The ta payer must be an
empoyer and the man who receves wages an empoyee. There Is no
Indcaton that Congress ntended to change norma busness reatonshps
through whch one busness organzaton obtaned the servces of another to per-
form a porton of producton or dstrbuton. Few busnesses are so competey
ntegrated that they can themseves produce the raw matera, manufacture and
dstrbute the fnshed product to the utmate consumer wthout assstance from
Independent contractors. The Soca Securty ct was drawn wth ths ndustra
stuaton as a part of the surroundngs n whch It was to be enforced. Where a
part of an ndustra process s n the hands of Independent contractors, they
are the ones who shoud pay the soca securty ta es.
The ong-standng reguatons of the Treasury and the Federa Securty
gency ( . Doc. 595, Seventy-nnth Congress, second sesson) recognze that
Independent contractors e st under the ct. The pertnent portons are set out
n the margn. Certany the ndustry s rght to contro how work sha be
Nothng to suggest ta avodance appears In these records.
8 Treasury Reguatons 90, promugated under Tte I of the Soca Securty ct,
artce 205 :
Generay the reatonshp e sts when the person for whom servces are performed
has the rght to contro and drect the ndvdua who performs the servces, not ony as
to the resut to be accompshed by the work but aso as to the detas and means by whch
that resut Is accompshed. That s, an empoyee s sub|ect to the w and contro of the
empoyer not ony as to what sha be done but how t sha be done. The rght
to dscharge s aso an mportant factor ndcatng that the person possessng that rght
s an empoyer. Other factors characterstc of an empoyer are the furnshng of toos
and the furnshng of a pace to work, to the ndvdua who performs the servces. In
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Regs. 106, 02.20 .
172
done s a factor n the determnaton of whether the worker s an empoyee or
ndependent contractor. The Government ponts out that the reguatons were
construed by the Commssoner of Interna Revenue to cover the crcumstances
here presented. Ths s shown by hs addtona ta assessments. Other n-
stances of such admnstratve determnatons are caed to our attenton.
So far as the reguatons refer to the effect of contracts, we thnk ther state-
ment of the aw can not be chaenged successfuy. Contracts, however sk-
fuy devsed (Lucas v. ar, 281 U. S., I, 115), shoud not be permtted to
shft ta abty as defntey f ed by the statutes.10
Probaby t s qute mpossbe to e tract from the statute a rue of thumb to
defne the mts of the empoyer-empoyee reatonshp. The Soca Securty
gency and the courts w fnd that degrees of contro, opportuntes for proft
or oss, nvestment n factes, permanency of reaton and sk requred n the
camed Independent operaton are mportant for decson. No one s controng
nor s the st compete. These unoaders and truckers and ther assstants are
from one standpont an ntegra part of the busnesses of retang coa or trans-
portng freght. Ther energy, care and |udgment may conserve ther equpment
or ncrease ther earnngs but Grey van and Sk are the drectors of ther bus-
nesses. On the other hand, the truckmen hre ther own assstants, own ther
trucks, pay ther own e penses, wth mnor e ceptons, and depend upon ther own
ntatve, |udgment and energy for a arge part of ther success.
oth ower courts n both cases have determned that these workers are
ndependent contractors. These nferences were drawn by the courts from facts
concernng whch there s no rea dspute. The e cerpts from the opnons beow
show the reasons for ther concusons.11
genera, f an Indvdua Is sub|ect to the contro or drecton of another merey as to the
resut to be accompshed by the work and not as to the means and methods for accom-
pshng the resut, he s an Independent contractor, not an empoyee.
If the reatonshp of empoyer and empoyee e sts, the desgnaton or descrpton of
the reatonshp by the partes as anythng other than that of empoyer and empoyee s
Immatera. Thus, f two Indvduas In fact stand n the reaton of empoyer and
empoyee to each other, It s of no consequence that the empoyee s desgnated as a partner,
coadventurer, agent, or ndependent contractor.
The measurement, method, or desgnaton of compensaton Is aso mmatera, f the rea-
tonshp of empoyer and empoyee n fact e sts.
Indvduas performng servces as ndependent contractors are not empoyees. Gen-
eray, physcans, awyers, dentsts, veternarans, contractors, subcontractors, pubc
stenographers, auctoneers, and others who foow an Independent trade, busness, or pro-
fesson, n whch they offer ther servces to the pubc, are Independent contractors and
not empovees. (26 C. F. R., secton 00.205. See aso Treasury Reguatons 91. 26
C. F. R., secton 01.3.)
0 The ctaton of these cases does not mpy approva or dsapprova of the resuts. The
cases do show the constructon of the reguaton by the agency. (Unted States v. Mutua
Truckng Co., 1 1 Fed. (2d), 055: ones v. Oootnon, 121 Fed. (2d), 176: Magruder v.
Yeow Cab Co., 1 1 Fed. (2d), 32 : Te as Co. v. ggns, 118 Fed. (2d), 636: mercan
O Co. v. Fu, 135 Fed. (2d), 91; Genn v. Standard O Co., 1 8 Fed. (2d), 51.)
See aso note 2.
Gregory v. everng (293 U. S., 05 Ct. D. 911, C. . I -1, 193 (1033) ) ; Grffths
v. Commssoner (308 U. S.. 355 Ct. I). 1 31, C. . 19 0-1, 136 ) ; ggns . Smth (308
U. S., 73 Ct. D. 1 3 , C. . 19 0-1, 127 ) ; everng . Cfford (309 U. S., 331 Ct. D.
1 . C. . 1910-1, 105 ).
11 Unted States v. Sk (155 Fed. (2d), 356, 358-359) : ut even whe they work for
appeee they are not sub|ect to hs contro as to the method or manner n whch they are
to do ther work. The undsputed evdence s that the ony supervson or contro ever
e ercsed or that coud he e ercsed over the hauers was to gve them the saes tcket
If they were wng to take t, nnd et them dever the coa. They were free to choose
any route In gong to or returnng. They were not requred even to take the coa for
devery.
We thnk that the reatonshp between appeee and the unoaders s not materay
dfferent from that between hm and the hauers. In response to a queston on cross
e amnaton, nppeee dd testfy that the unoaders dd what hs superntendent at the
coayard tod them to do. but when consdered n the ght of a hs testmony, a that ths
answer meant was that they unoaded the car assgned to them Into the desgnated
bn.
The undsputed facts fa to estabsh such reasonabe measure of drecton and con-
tro over the method nnd means of performng the servces performed by these workers
as Is necessary to estabsh a ega reatonshp of empoyer and empoyee between appeee
and the workers n queston.
Greyvan Lnes v. arrson (156 Fed. (2d), 12, 1 - 16). fter statng the tra court s
fndng that the truckmen wTere not empoyees, the appeate court noted :
ppeant contends that n determnng these facts the court faed to gve effect to
mnortant provsons of the contracts whch t asserts ceary show the reservaton of the
rght of contro over the truckmen and ther hepers as to the methods and means of ther
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173
Regs. 106, 02.20 .
GIvog fu consderaton to the concurrence of the two ower courts n a con-
trary resut, we can not agree that the unoaders In the Sk case were nde-
pendent contractors.13 They provded ony pcks and shoves. They had no
opportunty to gan or ose e cept from the work of ther hands and these
smpe toos. That the unoaders dd not work reguary Is not sgnfcant.
They dd work n the course of the empoyer s trade or busness. Ths brngs
them under the coverage of the ct. They are of the group that the Soca
Securty ct was ntended to ad. Sk was n a poston to e ercse a necessary
supervson over ther smpe tasks. Unoaders have often been hed to be em-
poyees n tort cases.
There are cases, too, where drver-owners of trucks or wagons have been
hed empoyees n accdent suts at tort or under workmen s compensaton
aws. ut we agree wth the decsons beow n Sk and Greyvan that where
the arrangements eave the drver-owners so much responsbty for nvestment
and management as here, they must be hed to be ndependent contractors.
These drver-owners are sma busnessmen. They own ther own trucks.
They hre ther own hepers. In one Instance they hau for a snge busness,
n the other for any customer. The dstncton, though Important, s not con-
trong. It s the tota stuaton, ncudng the rsk undertaken, the contro
e ercsed, the opportunty for proft from sound management, that marks these
drver-owners as ndependent contractors.
No. 312, Unted States v. Sk, s affrmed In part and reversed n part.
No. 673, arrson v. reyvan Lnes, Inc., s affrmed.
Mr. ustce ack, Mr. ustce Dougas, and Mr. ustce Murphy are of the
vew that the appcabe prncpes of aw, stated by the Court and wth whch
they agree, requre reversa of both udgments n ther entrety.
Opnon by Mr. ustce Rutedge concurrng In part.
operatons whch, t s agreed, furnsh the test for determnng the reatonshp here n
queston .
It then dscussed the manua and concuded:
Whe t s true that many provsons of the manua, If strcty enforced, woud go
far to estabsh an empoyer-empoyee reatonshp between the company and Its truckmen,
we agree wth appeee that there was evdence to |ustfy the court s dsregardng of It. It
wa not prepared unt pr, 19 0, athough the ta perod Invoved was from November,
1937, through March, 19 2, and there was no evdence to show any change or tghtenng
of contros after ts adopton and dstrbuton ; one drver testfed that he was never In-
structed ,to foow the rues theren provded; an ofcer of the company testfed that It
had been prepared by a group of three men no onger n ther empoy, and that It had been
Impractca and was not adhered to.
fter a dscusson of the heper probem, ths statement appears: the com-
pany can not be hed abe for empoyment ta es on the wages of persons over whom t
e erts no contro, and of whose empoyment It has no knowedge. nd ths eement of
contro of the truckmen over ther own hepers goes far to prevent the empoyer-empoyee
reatonshp from arsng between them and the company. Whe many factors In ths
case ndcate such contro as to gve rse to that reatonshp, we thnk the most vta one
Is mssng because of the compete contro of the truckmen as to how many, If any, and
what hepers thev make use of In ther operatons .
u Cf. Grace v. agruder (1 8 Fed. (2d). 679).
. R. C., Chapter 9, Subchapter , secton 1 26(b) :
The term empoyment means any servce performed by an empoyee for
the person empoyng hm e cept
(3) Casua abor not n the course of the empoyer s trade or busness : .
Swft d Co. v. ston ( 8 Ga. pp., 6 9) ; omes v. .Raroad Co. ( 9 La. nn., 1 68) ;
Munce Foundr| Co. v. Thompson (TO Ind. pp., 157) ; Chcago, R. I. d P. R. Co. .
ennett (36 Oka.. 358) ; Murray s Case (130 Me., 181) ; Decatur R. Co. v. Industra
oard (276 111., 72) ; en|amn v. Fertzer Co. (169 Mss., 162).
u Western press Co. v. Smetzer (88 Fed. (2d). 9 ) : Industra Commsson v. onfs
(78 Coo., 806) : Coppes ros. d Zook v. Pontus (76 Ind. pp., 298) : urruss v. . M. C.
Loggng Co. (38 N. M.. 25 ) ; radey v. Repubc Creosotng Co. (281 Mch., 177) ; ouse
v. Town of rd Isand (169 Mnn., 367) ; Industra Commsson v. ammond (77 Coo.,
1 ) ; . r v. Lme Co. d Insurance Co. (137 Me., 73) ; Showers v. Lund (128 Nebr., 56) ;
urt v. Davs-Wood Lumber Co. (157 La 111) ; Dunn v. Reeves Coa Yards Co., Inc.
(150 Mnn.. 282) ; Waters v. Poneer Fue Co. (52 Mnn., 7 ) ; Warner v. ardwood Lum-
ber Co. (231 Mch., 828) ; Frost v. ue Rdge Tmber Corporaton (158 Tenn., 18) ; Lee
v. Mark . rown Lumber Co. (15 La. pp., 29 ).
See partcuary Snger Manufacturng Co. v. Rahn (132 U. S., 518).
Compare Unted States v. Mutua Truckng Co. (1 1 Fed. (2d), 655) ; Genn v. Standard
O Co. (1 8 Fed. (2d), 51).
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Regs. 106, 02.20 .
17
Secton 1 26: Defntons. 19 7-15-12599
Reguatons 106, Secton 02.20 : Who are Ct. D. 1689
empoyees.
( so Subchapter C (Federa Unempoyment Ta
ct), Secton 607; Reguatons 107, Secton
03.20 ; and Soca Securty ct, Sectons 811
and 907; Reguatons 91 and 90, rtces 3 and
205.)
soca securty ta soca securty act nterna revenue code
decson of supreme court.
1. mpoyers Independent Contractors Leaders of Name
ands Statutory Power of Commssoner ceeded n
Issung Mmeographs 5638 and 5767.
Leaders of so-caed name bands who contract wth baroom
operators to pay at ther estabshments for a contract prce, and
who organze and tran the bands, seect the members and bear the
oss or gan the proft after payment of wages and other band e -
penses, are empoyers of the band members wthn the meanng of
Ttes III and I of the Soca Securty ct and correspondng
provsons of the Interna Revenue Code. In the appcaton of
soca egsaton empoyees are those who as a matter of economc
reaty are dependent upon the busness to whch they render serv-
ce. The band eaders are ndependent contractors despte the pro-
vsons of a unon contract purportng to make the dance ha propre-
tors the empoyers of the muscans and ther eaders. Mmeographs
5638 and 5767 (C. . 10 , 5 7, 5 8) are erroneous and e ceed the
statutory power of the Commssoner.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, ghth
Crcut (157 Fed. (2d), 295), reversed.
Supreme Court of the Unted States.
Roy artes, d attes, Car artes and ustn Conon, d. 6. a. Crysta broom,
pettoners, v. . . rmngham, Indvduay and as Coector of Interna
Revenue for the State of Iowa, Grff Wams, et a.
Larry . Oeer and Margaret ( eer, d. . a. Larry Oeer arooms, pettoners, v.
. . rmngham, Indvduay and as Coector of Interna Revenue for the
State of Iowa.
On wrts of certorar to the Unted States Crcut Court of ppea for the ghth Crcut
une 23, 10 7.
opnon.
Mr. ustce Reed devered the opnon of the Court.
Pettoners, operators of pubc dance has, brought these actons, whch were
consodated for tra, aganst the respondent coector of nterna revenue to
recover ta es pad under the Soca Securty ct, Ttes III and I , and I. R. C.,
Chapter 9, Subchapters and C. Recovery depends on whether pettoners
arrangements for bands to pay at the dance has made the band eaders and
other members of the bands empoyees of the pettoners or whether, despte the
arrangements, the eaders were Independent contractors and therefore themseves
the empoyers of the other members. Severa band eaders were aowed to
Intervene n the artes case as defendants to protect ther own Interests. fter a
recovery n the dstrct court was reversed by the crcut court of appeas
rmngham v. artes, 157 Fed. (2d), 295), they sought certorar whch we
granted because of the mportance of the ssue to the admnstraton of the
ct. ( U.S., .) (See Nos. 312 and 673, Unted States v. Sk and arrson
v. Grey van Lnes, decded une 16, 19 7 Ct. D. 1688, page 167, ths uetn .
These eases are not concerned wth muscans hred by pettoners to pay regu-
ary for ther dance has but wth name bands hred to pay for mted en-
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175
Regs. 106, 02.20 .
gagements at ther estabshments. These bands are but around a eader whose
name, and dstnctve stye n the presentaton and rendton of dance musc, s
ntended to gve each band a marked ndvduaty. The eader contracts wth
dfferent baroom operators to pay at ther estabshments for a contract prce.
most a of the engagements here nvoved were 1-ght stands, some few beng
for severa successve nghts. The tra court found, and there s no rea dspute,
that the eader e ercses compete contro over the orchestra. e es the
saares of the muscans, pays them, and tes them what and how to pay.
e provdes the sheet musc and arrangements, the pubc address system, and
the unforms. e empoys and dscharges the muscans, and he pays agents1
commssons, transportaton and other e penses out of the sum receved from
the dance ha operators. ny e cess s hs proft and any defct hs persona
oss. The operators of the dance has furnsh the pano but not the other
nstruments.
The mercan Federaton of Muscans, of whch the eaders and the muscans
are members, adopted a standard contract known as Form . The terms of
ths contract create the dffcutes n the determnaton of ths case. s com-
pensaton to the bands, some contracts ca for a guaranteed sum, wth the
prvege to the bands to take a percentage of the gross. Other contracts are for
a f ed sum, ony, and others for a percentage of gross, not to e ceed a f ed sum.
The contract States that the baroom operator s the empoyer of the muscans
and ther eader, and sha have compete contro of the servces whch the em-
poyees w render under the specfcatons of ths contract. The form para-
graph, so far as pertnent, s set out n the margn.1 The dstrct court found
that the contract was adopted by the unon n order to shft the ncdence of the
soca securty ta es from the eader to the baroom operator, and that t had
no practca effect on the rentons between the muscans, eader, and operator.
The dstrct court hed that the queston of empoyment under the ct was one
of fact, and that the contract was ony one factor to be consdered. Snce the
dstrct court beeved that the contract was not entered nto by far negota-
ton and that ts purpose was to protect the eaders from ta es as empoyers,
It concuded that the contract was of no effort and that the eader was an nde-
pendent contractor empoyng the muscans.
The crcut court of appeas thought otherwse. It concuded that the test of
empoyment was the common aw test of contro, . e., that one was an empoyer
f he had the rght to drect what shoud be done and how t shoud be done.
It concuded that the contract between the partes gave the baroom operators
the rght to contro the muscans and the eader, whether or not the contro
was actuay e ercsed. Whe the ma|orty thought that such a contract was
not bndng on the Government, they thought It was bndng on the partes and
woud contro abty for empoyment ta es f the ureau of Interna Revenue
chose to accept the arrangement as vad. ( rmngham v. artes, supra, at 3UO.)
The Government here rees entrey on the contract, concedng that otherwse
the band eaders are ndependent contractors empoyng the muscans. On the
other hand, the band eaders nvoved contend aso that though the contract be
thought nconcusve, the eaders and muscans are empoyees of the operators.
They rey upon the dependence of the orchestra members upon the b;room
operators |udged In the ght of the purposes of the ct.
In Unted States v. Sk. No. 312, supra, we hed that the reatonshp of em-
poyer-empoyee, whch determnes the abty for empoyment ta es under the
Soca Securty ct was not to be determned soey by the dea of contro whch
an aeged empoyer may or coud e ercse over the detas of the servce rendered
to hs busness by the worker or workers. Obvousy contro s characterstcay
1 Wtnesscth, That the empoyer empoys the persona servces of the empoyees, as
muscans severay, and the empoyees severay, through ther representatve, agree to
render coectvey to the empoyer servces as muscans n the orchestra under the
eadershp of Grff Wams, accordng to the foowng terms and condtons:

Tho empoyer sha at a tmes have compete contro of the servces whch the em-
poyees w render under the specfcatons of ths contract. On behaf of the empoyer
the eader w dstrbute the amount receved from the empoyer to the empoyees, ncud-
ng hmsef, as Indcated on the opposte sde of ths contract, or In pace thereof on separate
memorandum supped to the empoyer at or before the commencement of the empoyment
hereunder and take and turn over to the empoyer recepts therefor from each empoyee,
ncudng hmsef. The amount pad to the eader ncudes the cost of transportaton,
whch w be reported by the eader to the empoyer. The empoyer hereby authorzes the
eader on hs behaf to repace any empoyee who by ness, absence, or for any other
reason does not perform any or a of the servces provded for under ths con-
tract.
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Regs. 106, 02.20 .
176
assocated wth the empoyer-empoyee reatonshp but n the appcaton of soca
egsaton empoyees are those who as a matter of economc reaty are dependent
upon the busness to whch they render servce. In Sk, we ponted out that
permanency of the reaton, the sk requred, the Investment In the factes for
work and opportuntes for proft or oss from the actvtes were aso factors that
shoud enter nto |udca determnaton as to the coverage of the Soca Securty
ct. It s the tota stuaton that contros. These standards are as mportant
n the entertanment fed as we have |ust sad, n Sk, that they were n that of
dstrbuton and transportaton.
Consderaton of the reguatons of the Treasury and the Federa Securty
gency, quoted In Sk at note 8, s necessary here. (I. R. C, Chapter 9, sectons
1 29, 1609.) Under those reguatons, the Government successfuy ressted the
effort of a eader of a name band, ke those here Invoved, to recover soca
securty ta es pad on the wages of the members of hs organzaton. (Wams
v. Unted States, 12G Fed. (2d), 129.) The contract n that case was not Form
and dd not contan any correspondng contro cause. Two years ater, the
Commssoner of Interna Revenue ssued Mmeographs 5638 (19 -5-11651)
and 5767 (19 -22-11889), C. . 19 , pages 5 7-5 8. They were drected at
the status of muscans and varety entertaners appearng n theaters, nght
cubs, restaurants and smar estabshments. Coectors and others were theren
advsed that a Form or smar contract wth the entertaners made oper-
ators of amusement paces abe as empoyers under the Soca Securty ct
In the absence of such a contract, that Is, n reaty, the absence of the contro
cause of Form , the entertaners, wth short-term engagements for a
number of dfferent operators of amusement paces, woud be consdered nde-
pendent contractors. The argument of respondents to support the admnstra-
tve nterpretaton of the reguatons s that the Government may accept the
vountary contractua arrangements of the amusement operators and entertan-
ers to shft the ta burden from the band eaders to the operators.3 Cases are
cted to support ths poston. of these cases, however, nvove the probem
of corporate or assocaton entty. They are not pertnent upon the queston of
contracts to shft ta abty from one ta payer to another whoy dstnct and
dsconnected corporaton or ndvdua. We do not thnk that such a contractua
shft authorzes the Commssoner to coect ta es from one not covered by the
ta ng statute. The nterpretve rungs on the reguatons, referred to n ths
paragraph do not have the force and effect of Treasury decsons. We are of
the opnon that such admnstratve acton goes beyond routne and e ceeds the
statutory power of the Commssoner. (Soca Securty oard v. Ncrotko, 327
U. S.. 358, 3C9-370.)
Ths brngs us then to a determnaton of whether the members of a name
band under the crcumstances heretofore detaed are empoyees of the oper-
ator of the dance ha or of the eader. If the operator s the empoyer, the
eader s aso hs.empoyee.
We are of the opnon that the eements of empoyment mark the band eader
as the empoyer n these cases. The eader organzes and trans the band. e
seects the members. It s hs musca sk and showmanshp that determnes
the success or faure of the organzaton. The reatons between hm and the
oher members are permanent; those between the band and the operator are
transent. Mantenance costs are a charge aganst the prce receved for the
performance. e bears the oss or gnns the proft after payment of the mem-
bers wages and the other band e penses.
The |udgments of the crcut court of appeas are reversed and those of the
dstrct court are affrmed.
Dssentng opnon by Mr. ustce Dorot S, wth whom Mr. ustce ack and
Mr. ustce Mukfhy concur.
There Is a contenton that the contracts were coerced because the operators coud not
secure these muscans under other arrangements. We do not fnd It necessary to rey or
pass upon that contenton.
dv-ards v. Che Copper Co. (270 U. 8.. 52, 56) : urnet v. Commonweath Improve-
ment Co. (287 U. R.. 15 Ct. D. 622, C. . II-1, 277 (1932) ) ; . ew Coona Ice Co. .
Ieverng (292 U. S.. 35 Ct. D. 8 1, C. . IIM, 19 (193 ) ) : evrrng v. Coeman
Gbert ssocates (296 U. S., 369. 37 Ct. 1). 1067, C. . I, 261 (1935) ) : ggns
v. Smth, 308 . S.. 73. 77 Ct. D. 1 3 . C. . 19 0-1. 127 ) : Gran v. Pov-e (31 O. S.,
02) : Motne Propertes Inc., v. Commssoner (319 U. S., 36, 39 Ct. D. 158 . C.
19 3, 1011 ): Interstate Transt Lnes v. Commssoner (319 D. S., 590 Ct. D. 1586,
C. . 19 3, 1016 ) : Rchenev Corporaton v. Unted States (326 U. S., 32, 37).
See Cumuatve uetn 19 , notce, pag I.
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177
Regs. 106, 02.205.
Secton 1 2G: Defntons. 19 7-22-12677
Reguatons 106, Secton 02.205: Who are em- Mm. 6187
poyers.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.205.)
Status of certan muscans for purposes of the Federa empoy-
ment ta es and ncome ta wthhodng under secton 1622 of the
Interna Revenue Code.
Mmeograph 5(38 (C. . 19 , 5 7) and Mmeograph 5767 (C. .
18 , 5 8) modfed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, September 25,191 7.
To Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. It has been the poston of the ureau that the operator for whom
muscans, entertaners, and actors perform servces pursuant to a
u Form contract, or other contract havng substantay smar
provsons, s the empoyer of such muscans, ncudng the eader,
entertaners, and actors, for purposes of empoyment ta es and ncome
ta wthhodng. (See paragraph 2 of Mmeograph 5638, C. . 19 ,
5 7, and paragraph of Mmeograph 5767, C. . 19 , 5 8.)
2. In the cases of Roy artes et a. v. rmngham and Larry .
Geer et a. v. rmngham (67 S. Ct., 15 7 ( une 28, 19 7), Ct. D.
1689, page 17 , ths uetn), the queston for decson was whether the
members of an organzed orchestra who performed servces under a
Form contract of the mercan Federaton of Muscans, and
crcumstances and condtons detaed n these cases, were empoyees
of the operator or of the eader. The factua stuaton consdered
n such cases concerned organzed orchestras engaged by the operators
to pay for mted engagements at ther estabshments. ach of such
orchestras was but around a eader whose name, and dstnctve stye
n the presentaton and rendton of dance musc, s ntended to gve
the orchestra a marked ndvduaty. The eader organzed the or-
chestra and seected and traned the members thereof. ach eader
entered nto a Form contract wth each operator to pay at hs
estabshment for a contract prce, usuay for a 1-nght stand or for
severa successve nghts. Such contract provdes that the operator
s the empoyer of the muscans and ther eader, and sha have
compete cpntro of the servces whch the empoyees w render under
the specfcatons of ths contract. The Unted States Supreme Court
hed that such contractua arrangement was not concusve of the rea-
tonshp between the partes for purposes of the Federa empoyment
ta es and stated as foows:
We are of the opnon that the eements of empoyment mark the orchestra
eader as the empoyer In these cases. The eader organzes and trans the band.
e seects the members. It s hs musca sk and showmanshp that deter-
mnes the success or faure of the organzaton. The reatons between hm and
the other members are permanent; those between the band and the operator
are transent. Mantenance costs are a charge aganst the prce receved for
the performance. e bears the oss or gans the proft after payment of the
members wages and the other band e penses.
s
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Regs. 106, 02.205.
178
3. The decson of the Court w be apped n smar cases, for
Federa empoyment ta purposes. It s the poston of the ureau
that the eaders of organzed orchestras performng servces under
crcumstances such as those present n the artes case w be con-
sdered the empoyers of the members of ther musca organzatons
for purposes of ncome ta wthhodng. ccordngy, the eader, as
empoyer, s requred to coect from the ndvdua members of hs
musca organzaton both the empoyees ta under the Federa Insur-
ance Contrbutons ct and ncome ta under secton 1G22 of the In-
terna Revenue Code, and to make returns and payments of such ta es
to the coector of nterna revenue. The eader aso s requred to
pay empoyers ta under the Federa Insurance Contrbutons ct
wth respect to wages pad by hm to the members of hs musca
organzaton. Such wages aso must be shown n hs annua return
under the Federa Unempoyment Ta ct f he s an empoyer of
eght or more as denned n that ct.
. Mmeograph 5638 and Mmeograph 5767, n so far as they are
n confct wth the decson of the Court cted heren, are hereby
modfed.
5. Under the authorty granted n secton 3791(b) of the Interna
Revenue Code, an orchestra eader who performed servces under a
Form contract, or other contract havng substantay smar
provsons, and who was consdered to be n an empoyee status pror
to the artes case, but s an empoyer under such decson, w not be
requred to fe returns or pay ta es under the Federa Insurance
Contrbutons ct or under secton 1622 of the Interna Revenue Code
wth respect to the wages pad to the members of hs musca organ-
zaton pror to uy 1, 19 7, or to fe returns or pay the ta under
the Federa Unempoyment Ta ct wth respect to the wages pad to
such ndvduas pror to anuary 1, 19 7. ny such ta es whch
have been pad by the eaders, however, w not be refunded.
6. n orchestra eader who s hed to be an empoyer by reason of
the decson n the artes case s requred to report and pay ta es
under the Federa Insurance Contrbutons ct wth respect to wages
pad after une 30, 19 7, to the members of hs musca organzaton.
Such eader s requred aso to pay the ta mposed by the Federa
Unempoyment Ta ct wth respect to wages pad after December
31, 19 6, f he s an empoyer of eght or more ndvduas as defned
n that ct.
7. If doubt e sts n any case, the facts shoud be presented to the
ureau wth a request for a rung.
8. Inqures reatve to the ncome ta wthhodng shoud refer to
ths mmeograph by number and be addressed to ths offce for the
attenton of IT: P: TR. Correspondence otherwse reatng to the
contents of ths mmeograph shoud refer to the number hereof and
to the symbos mT: RR.
Geo. . Schoenekan,
Commssoner.
pproved September 25,19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
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179 Regs. 100, rt. 01.
Secton 1 26: Defntons.
Reguatons 106, Secton 02.216: Raroad ndus-
try empoyees and empoyee representatves under
secton 1532 of the Interna Revenue Code.
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page
180.)
Secton 1 26: Defntons.
Reguatons 106, Secton 02.227: Wages.
Remuneraton n e cess of 3,000, receved by an ndvdua durng
anv caendar year, not ncuded as wages. (See T. D. 5566, page
1 8.)
Secton 1 26: Defntons.
Reguatons 106, Secton 02.228: cusons from wages.
Remuneraton n e cess of 3,000, receved by an ndvdua durng
any caendar year, not ncuded as wages. (See T. D. 5566, page
1 8.)
C PT R 9, SU C PT R . R ILRO D R TIR M NT T CT.
Secton 1500: Rate of ta .
Reguatons 100, rtce 201: Measure of empoyees
ta .
Reguatons amended to conform to ct approved uy 31, 10 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page 180.)
Secton 1500: Rate of ta .
Reguatons 100, rtce 202: Rates and computaton
of empoyees ta .
Reguatons amended to conform to ct approved uy 31, 19 6
Pubc Law 572, Seventy-nnth Congress). Changes n rates of ta .
See T. D. 557 , page 180.)
Secton 1501: Deducton of ta from compensaton.
Reguatons 100, rtce 203: Coecton of, and
abty for, empoyees ta .
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 ,page 180.)
Secton 1510: Rate of ta .
Reguatons 100, rtce 01: Measure of empoyee
representatves ta .
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page 180.)
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Regs. 100, rt. I.
ISO
Secton 1510: Rate of ta .
Reguatons 100, rtce 02: Rates and computaton
of empoyee representatves ta .
Reguatons amended to conform to ct approved uy 31, 19 G
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , beow.)
Secton 1520: Rate of ta .
Reguatons 100, rtce 301: Measure of empoyers
ta .
Reguatons amended to conform to ct approved uy 31, 19 G
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , beow.)
Secton 1520: Rate of ta .
Reguatons 100, rtce 302: Rates and computaton
of empoyers ta .
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). Changes n rates of ta .
(SeeT. D. 557 , beow.)
Secton 1532: Defntons.
Reguatons 100, rtce 1: Defntons of
msceaneous terms; appcabty of pro-
vsons of Interna Revenue Code.
( so Sectons 1500, 1501, 1510, 1520. 1532,
1536, and 1538; Reguatons 100, rtces 2,
3, 5, G, 7, 201, 202, 203, 301, 302, 01, 02,
and 806; aso Subchapter (Federa Insur-
ance Contrbutons ct), Secton 1 26; Reg-
uatons 106, Secton 02.216; aso Subchap-
ter C (Federa Unempoyment Ta . ct),
Secton 1607; Reguatons 107, Secton
03.216.)
TITL 2G INT RN L R NU . C PT R I, SU C PT R D, P RTS 02, 03,
ND 10.
Reguatons 100 ony as made appcabe to the Interna Revenue
Code by Treasury Decson 885 C. . 1939-1 (Part 1), 396 , Regu-
atons 106, and Reguatons 107, amended to conform to certan
provsons of te ct approved uy 31, 19 6 (Tubc Law 572,
Seventy-nnth Congress C. . 19 6-2, 269 ).
Treasury Department,
Obtce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
On pr 17, 19 7, notce of proposed rue makng, regardng
amendments to the empoyment ta reguatons under Subchapters
, , and C of Chapter 9 of the Interna Revenue Code, made neces-
sary by certan provsons of the ct approved uy 31, 19 6 (Pubc
Law 572, Seventy-nnth Congress C. . 19 6-2, 269 ), was pubshed
n the Federa Regster (12 F. R., 2 79). fter consderaton of a
such reevant matter as was presented by nterested persons regardng
19 7-17-12625
T. D. 557
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181
Regs. 100, rt; 1.
the proposa, the amendments set forth beow are hereby adopted.
The amendments are made n order to conform Reguatons 100 26
CFR, Part 10 ony as made appcabe to the Interna Revenue Code
by Treasury Decson 885 C. . 1939-1 (Part 1), 396 26 CFR,
Cum. Supp., 5876 , reatng to the empoyers ta , empoyees ta , and
empoyee representatves ta under Subchapter of Chapter 9 of the
Interna Revenue Code; Reguatons 106 26 CFR, Part 02 , reat-
ng to the empoyees ta and empoyers ta under the Federa Insur-
ance Contrbutons ct (Subchapter , Chapter 9, Interna Revenue
Code); and Reguatons 107 26 CFR, Part 03 , reatng to the e cse
ta on empoyers under the Federa Unempoyment Ta ct (Sub-
chapter C, Chapter 9, Interna Revenue Code), to sectons 1, 2, 3, 01,
and 02 of the ct approved uy 31,19 6 (Pubc Law 572, Seventy-
nnth Congress). Such reguatons are amended as foows:
R GUL TIONS 100 26 CFR, P RT 10 .
Paragraph 1. Immedatey precedng artce 1 26 CFR, 10.1 , the
foowng s nserted:
S CTION 1 OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
secton 1532(d) of the Interna Revenue Code are each
amended as foows: fter the word f where t frst appears theren
nsert () and for the phrase whch servces he renders for com-
pensaton substtute the foowng: or he s renderng professona
or technca servces and s ntegrated nto the staff of the empoyer, or
he s renderng, on the property used n the empoyer s operatons, other
persona servces the rendton of whch Is ntegrated nto the empoyer s
operatons, and (II) he renders such servce for compensaton .
Sad subsectons are further amended by nsertng at the end of the frst
provso the foowng: , and If the appcaton of such meage formua,
or such other formua as the oard may prescrbe, woud resut n the
compensaton of the ndvdua beng ess than 10 per centum of hs
remuneraton for such servce no part of such remuneraton sha be
regarded as compensaton .
S CTION 3 (e) ND (f) OF T CT PPRO D ULY 31, 19 6
(PU LIC L W 572, S NTY-NINT CONGR SS).
(e) Secton 1532(b) of the Interna Revenue Code s amended to read
as foows:
(b) mpoyee. The term empoyee means any Indvdua n the
servce of one or more empoyers for compensaton: Provded, however,
That the term empoyee sha Incude an empoyee of a oca odge or
dvson defned as an empoyer n subsecton (a) ony f he was n the
servce of or n the empoyment reaton to a carrer on or after ugust
29,1935. n Indvdua sha be deemed to have been n the empoyment
reaton to a carrer on ugust 29, 1935, f () he was on that date on
eave of absence from hs empoyment, e pressy granted to hm by the
carrer by whom he was empoyed, or by a duy authorzed representa-
tve of such carrer, and the grant of such eave of absence w have been
estabshed to the satsfacton of the Raroad Retrement oard before
uy 19 7; or (11) he was n the servce of a carrer after ugust 29,
1935, and before anuary 19 6 n each of s caendar months, whether
or not consecutve; or () before ugust 29,1935, he dd not retre and
was not retred or dscharged from the servce of the ast carrer by
whom he was empoyed or ts corporate or operatng successor, but ( )
soey by reason of hs physca or menta dsabty e ceased before
ugust 29, 1935, to be n the servce of such carrer and thereafter re-
maned contnuousy dsabed unt he attaned age s ty-fve or unt
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Regs. 100, rt. 1. 182
ugust 19 5, or ( ) soey for such ast stated reason a carrer by whom
he was empoyed before ugust 29, 1935, or a carrer who s Its suc-
cessor dd not on or after ugust 29, 1935, and before ugust 19 5 ca
hm to return to servce, or (C) f he was so caed he was soey for such
reason unabe to render servce n s caendar months as provded In
cause () ; or (v) he was on ugust 29, 1935, absent from the servce
of a carrer by reason of a dscharge whch, wthn one year after the
effectve date thereof, was protested, to an approprate abor representa-
tve or to the carrer, as wrongfu, and whch was foowed wthn ten
years of the effectve date thereof by hs renstatement n good fath to
hs former servce wth a hs senorty rghts: Provded, That an n-
dvdua sha not be deemed to have been on ugust 29, 1935, n the em-
poyment reaton to a carrer If before that date he was granted a pen-
son or gratuty on the bass of whch a penson was awarded to hm
pursuant to secton 0 of the Raroad Retrement ct of 1937, or f
durng the ast pay-ro perod before ugust 29, 1935, In whch he
rendered servce to a carrer he was not n the servce of an empoyer,
n accordance wth subsecton (d), w|th respect to any servce n such
pay-ro perod, or f he coud have been n the empoyment reaton to
an empoyer ony by reason of hs havng been, ether before or after
ugust 29, 1935, In the servce of a oca odge or dvson defned as an
empoyer n subsecton (a).
The term empoyee ncudes an offcer of an empoyer.
The term empoyee sha not ncude any ndvdua whe such
ndvdua s engaged n the physca operatons consstng of the mnng
of coa, the preparaton of coa, the handng (other than movement by
ra wth standard raroad ocomotves) of coa not beyond the mne
tppe, or the oadng of coa at the tppe.
(f) Secton 1532(e) of the Interna Revenue Code s amended by
addng at the end thereof the foowng new paragraph:
payment made by an empoyer to an Indvdua through the em-
poyer s pay ro sha be presumed, n the absence of evdence to the
contrary, to be compensaton for servce rendered by such ndvdua as
an empoyee of the empoyer n the perod wth respect to whch the
payment Is made. n empoyee sha be deemed to be pad, for tme
ost the amount he s pad by an empoyer wth respect to an dentf-
abe perod of absence from the actve servce of the empoyer, ncudng
absence on account of persona n|ury, and the amount he s pad by the
empoyer for oss of earnngs resutng from hs dspacement to a ess
remuneratve poston or occupaton. If a payment s made by an em-
poyer wth respect to a persona n|ury and ncudes pay for tme ost,
the tota payment sha be deemed to be pad for tme ost uness, at the
tme of payment, a part of such payment Is specfcay apportoned to
factors other than tme Iost. n whch event ony such part of the pay-
ment as s not so apportoned sha be deemed to be pad for tme ost.
S CTION 02 OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments to secton 1532 of the Interna Revenue Code made
by sectons 1 and 3 (e) and (f) sha be effectve ony wth respect to
servces rendered after December 31, 19 6.
S CTION 3(g) OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
(g) Subchapter of Chapter 9 of the Interna Revenue Code s
amended by addng at the end thereof the foowng new secton:
S C. 1538. TITL OF SU C PT R.
Ths subchapter may be cted as the Raroad Retrement Ta
ct .
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183
Regs. 100, rt. I.
S CTION 01 OF T CT PPRO D ULY 31, 10 0 (PU LIC
L W 572, S NTY-NINT CONGR SS).
cept as otherwse provded n ths ct, the provsons thereof sha
become effectve upon approva.
Par. 2. rtce 1 26 CFR, 10.1 s amended as foows:
( ) y strkng out the headng thereof and nsertng n eu
thereof the foowng:
rtce 1 26 CFR, 10. 1 . Defntons of Msceaneous Terms; ppca-
bty of Provsons of Interna Revenue Code.
( ) y nsertng at the end of the artce the foowng:
(m) Raroad Retrement Ta ct means Subchapter of Chapter 9 of the
Interna Revenue Code, as amended.
(n) Interna Revenue Code means the ct approved February 10, 1039 ( 53
Stat., Part 1), entted n ct To consodate and codfy the nterna revenue
aws of the Unted States, as amended.
Subchapter of Chapter 9 of the Interna Revenue Code corresponds to and,
effectve pr 1, 1939. superseded the Carrers Ta ng ct of 1037. Such sub-
chapter comprses certan sectons numbered from 1500 to 1538, both ncusve.
provsons of, or references to, the Carrers Ta ng ct of 1037 or other aws
of the Unted States whch have been codfed n the Interna Revenue Code, but
whch reman n the reguatons n ths part as made appcabe to the Code,
sha be deemed to be, and sha be read as f they were, the correspondng
provsons of the Interna Revenue Code or references thereto.
Par. 3. rtce 2(f) 26 CFR, 10.2(f) s amended to read as
foows:
(f) ny subordnate unt of a natona rnway-abor-organzaton empoyer,
that s, any State or Natona egsatve commttee, genera commttee, nsurance
department, or oca odge or dvson, of an empoyer as defned n paragraph (e)
of ths artce, estabshed pursuant to the consttuton and by-aws of such
empoyer.
Par. . Immedatey foowng the provsons of aw under the
capton Sectons 3 and of the ct pproved ugust 13, 19 0
(Pubc, No. 76 , Seventy-s th Congress, Thrd Sesson), added
by Treasury Decson 5017, approved October 2 , 19 0 C. . 19 0-2,
266 , precedng artce 3 26 CFR, 10.3 , the foowng s nserted:
S CTION 3(e) OF T CT PPRO D ULY 31, 19 G (PU LIC
L W 572, S NTY-NINT CONGR SS).
(e) Secton 15312(b) of the Interna Revenue Code s amended to
read as foows:
(b) mpoyee. The term empoyee means any ndvdua n the
servce of one or more empoyers for compensaton: Provded, however.
That the term empoyee sha ncude an empoyee of a oca odge
or dvson defned as an empoyer n subsecton (a) ony f he was n
the servce of or In the empoyment reaton to a carrer on or after
ucust 29. 1935. n ndvdua sha be deemed to have been n the
empoyment reaton to a carrer on ugust 29, 1035, f () he was on that
date on eave of absence from hs empoyment, e pressy granted to
hm by the carrer by whom he was empoyed, or by a duy authorzed
representatve of such carrer, and the grant of such eave of absence
w have been estabshed to the satsfacton of the Raroad Retrement
oard before uy 19 7; or () he was n the servce of a carrer after
ugust 29, 1935, and before anuary 10 0 n each of s caendar months,
whether or not consecutve; or (M) before ugust 29, 1035, he dd not
retre and was not retred or dscharged from the servce of the ast
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Regs. 100, rt. 1
1S
carrer by whom he was empoyed or ts corporate or operatng successor,
but ( ) soey by reason of hs physca or menta dsabty he ceased
before ugust 29, 1035, to be n the servce of such carrer and thereafter
remaned contnuousy dsabed unt he attaned age s ty-fve or unt
ugust 19-15, or ( ) soey for such ast stated reason a carrer by whom
he was empoyed before ugust 29, 1935, or a carrer who Is ts suc-
cessor dd not on or after ugust 29, 1935, and before ugust 19 5 ca
hm to return to servce, or (C) If he was so caed he was soey for
such reason unabe to render servce n s caendar months as provded
n cause () ; or (v) he was on ugust 29,1935, absent from the servce
of a carrer by reason of a dscharge whch, wthn one year after the
effectve date thereof, was protested, to an approprate abor repre-
sentatve or to the carrer, as wrongfu, and whch was foowed wthn
ten years of the effectve date thereof by hs renstatement n good fath
to hs former servce wth a hs senorty rghts: Provded, That an
Indvdua sha not be deemed to have been on ugust 29, 1935, n the
empoyment reaton to a carrer f before that date he was granted a
penson or gratuty on the bass of whch a penson was awarded to hm
pursuant to secton G of the Raroad Retrement ct of 1937, or f durng
the ast pay-ro perod before ugust 29, 1935, n whch he rendered
servce to a carrer he was not In the servce of an empoyer, n accord-
ance wth subsecton (d), wth respect to any servce n such pay-ro
perod, or f he coud have been n the empoyment reaton to an em-
poyer ony by reason of hs havng been, ether before or after ugust 29,
1935, n the servce of a oca odge or dvson defned as an empoyer
n subsecton (a).
The term empoyee ncudes an offcer of an empoyer.
The term empoyee sha not ncude any ndvdua whe such
ndvdua Is engaged n the physca operatons consstng of the mnng
of coa, the preparaton of coa, the handng (other than movement
by ra wth standard raroad ocomotves) of coa not beyond the mne
tppe, or the oadng of coa at the tppe.
Par. 5. Immedatey precedng the capton Secton 1 (h) and ()
of the ct whch precedes artce 3 26 CFR, 10,3 , the foowng
s nserted:
S CTION 1 OF T CT PPRO D PRIL 8, 19 2 (PU LIC
L W 520, S NTY-S NT CONGR SS).
The frst provso n subsecton (d) of secton 1532 of the Interna
Revenue Code, approved February 10, 1939 ( 53 Stat. 1), s hereby
amended to read as foows: Provded, however, That an ndvdua
sha bo deemed to be n the servce of an empoyer, other than a oca
odge or dvson of a genera commttee of a raway-abor-organzaton
empoyer, not conductng the prncpa part of ts busness n the Unted
States ony when he s renderng servce to t n the Unted States; and
an Indvdua sha be deemed to be n the servce of such a oca odge
or dvson ony f (1) a, or substantay a, the ndvduas const-
tutng ts membershp are empoyees of an empoyer conductng the
prncpa part of ts busness n the Unted States; or (2) the head-
quarters of such oca odge or dvson s ocated n the Unted States;
and an ndvdua sha be deemed to be n the servce of such a genera
commttee ony f (1) he s representng a oca odge or dvson de-
scrbed n causes (1) or (2) mmedatey above; or (2) a, or sub-
stantay a, the ndvduas represented by t are empoyees of an
empoyers conductng the prncpa part of ts busness n the Unted
States; or (3) he acts n the capacty of a genera charman or an
assstant genera charman of a genera commttee whch represents
Indvduas renderng servce n the Unted States to an empoyer, but
In such case f hs offce or headquarters s not ocated n the Unted
States and the ndvduas represented by such genera commttee are
empoyees of an empoyer not conductng the prncpa part of ts bus-
ness In the Unted States, ony such proporton of the remuneraton for
such servce sha be regarded as compensaton as the proporton whch
the meage In the Unted States under the ursdcton of such genera
commttee bears to the tota meage under ts |ursdcton, uness such
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185
Regs. 100, rt. I.
meage formua Is Inappcabe, In whch case such other formua as
the Raroad Retrement oard may have prescrbed pursuant to sub-
secton (c) of secton 1 of the Raroad Retrement ct of 1937 sha
be appcabe: .
The amendment n ths secton sha operate n the same manner and
hare the same effect as f t had been part of the Interna Revenue Code
when that code was enacted on February 10, 1939 .
S CTION 1 OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
secton 1532(d) of the Interna Revenue Code are each
amended as foows: fter the word f where t frst appears theren
Insert () and for the phrase whch servces he renders for compensa-
ton substtute the foowng: or he s renderng professona or tech-
nca servces and s ntegrated nto the staff of the empoyer, or he s
renderng, on the property used In the empoyer s operatons, other per-
sona servces the rendton of whch s ntegrated Into the empoyer s
operatons, and () he renders such servce for compensaton .
Sad subsectons are further amended by nsertng at the end of the frst
provso the foowng: , and If the appcaton of such meage for-
mua, or such other formua as the oard may prescrbe, woud resut
n the compensaton of the ndvdua beng ess than 10 per centum of
hs remuneraton for such servce no part of such remuneraton sha be
regarded as compensaton .
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments to secton 1532 of the Interna Revenue Code made
by sectons 1 and 3(e) sha be effectve ony wth respect to
servces rendered after December 31, 19 6.
Par. 6. rtce 3, as amended by Treasury Decson 5017 and by
Treasury Decson 51G1 approved uy 6, 19 2 C. . 19 2-2, 212
26 CFR, 10.3 , s further amended as foows:
( ) y strkng out the ast sentence of the frst paragraph and
the whoe of the second paragraph of artce 3(a) 26 CFR, 10.3(a)
and nsertng n eu thereof the foowng:
n ndvdua performng servces as an ndependent contractor s not sub|ect
to the contnung authorty of the empoyer to supervse and drect the manner
of rendton of such servces.
n ndvdua renderng professona or technca servces or other persona
servces pror to anuary 1, 19 7, to an empoyer for compensaton s n the serv-
ce of the empoyer f e s sub|ect to the contnung authorty of the empoyer
to supervse and drect the manner of rendton of such servces. The fact that
an Indvdua renderng professona or technca servces pror to anuary 1,
19 7, Is ntegrated nto the staff ot an empoyer s an Important factor ndcatng
that such ndvdua s sub|ect to the contnung authorty of the empoyer to
supervse and drect the manner of rendton of such servces. Wth respect to
other persona servces rendered pror to anuary 1, 19 7, the fact that such serv-
ces are rendered on the property used In the empoyer s operatons and that the
rendton of such servces s ntegrated nto the empoyer s operatons are m-
portant factors ndcatng that the ndvdua renderng such servces s sub|ect
to the contnung authorty of the empoyer to supervse and drect the manner
of rendton of such servces. owever, wth respect to professona or technca
servces or other persona servces rendered after December 31, 19 6, the afore-
mentoned factors are not merey ndca of the contnung authorty of the em-
poyer to supervse and drect the manner of rendton of such servces but n-
stead consttute ndependent tests for determnng whether the ndvdua render-
ng such servces s In the servce of the empoyer wth respect to the rendton
of such servces. Thus, an ndvdua renderng professona or technca servces
to an empoyer for compensaton s n the servce of the empoyer wth respect
to such servces rendered after December 31, 19 G, f he s ntegrated nto the
7733S 8 13
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Rcgs OO, rt. 1.
186
staff of the empoyer. Lkewse, an Indvdua renderng other persona servces
to an empoyer for compensaton Is n the servce of the empoyer wth respect
to such servces rendered after December 31, 10 6, f the servces are rendered
on the property used n the empoyer s operatons and the rendton of such serv-
ces s ntegrated nto the empoyer s operatons. Under the two tests ast men-
toned, an ndvdua renderng professona or technca servces or other per-
sona servces after December 31, 19 6, as an ndependent contractor may be,
as to such servces, n the servce of an empoyer.
( ) y strkng out the parenthetca cross-reference at the end of
subparagraph (1) of artce 3(Z ) 26 CFR, 10.3(b) (1) .
(C) y strkng out subparagraph (2) of artce 3(6) 26 CFR,
10.3(b) (2) and nsertng n eu thereof the foowng:
(2) n ndvdua In the servce of a oca odge or dvson s not an
empoyee wthn the meanng of the aw and the reguatons In ths part
uness he was, on or after ugust 29, 1935, n the servce of a carrer (see
paragraph (a) of ths artce) or he was, on ugust 29,1935, n the empoy-
ment reaton to a carrer.
Wth respect to servces rendered pror to anuary 1, 19 7, an ndvdua was
n the empoyment reaton to a carrer on ugust 29, 1935, If on that date he
was. In accordance wth the estabshed rues and practces n effect on the
carrer, on furough sub|ect to ca for servce wthn or wthout the Unted
States and ready and wng to serve, or on eave of absence, or absent on
account of sckness or dsabty. owever, an ndvdua sha not be deemed to
have been n the empoyment reaton to a carrer on ugust 29, 1935, uness
durng the ast pay-ro perod before ugust 29, 1935, n whch he rendered
servce to t, he was, wth respect to that servce, n the servce of an empoyer
(see paragraph (a) of ths artce).
Wth respect to servces rendered after December 31, 19 6, an ndvdua sha
be deemed to have been n the empoyment reaton to a carrer on ugust 29,
1935, f (I) he was on that date on eave of absence from hs empoyment,
e pressy granted to hm by the carrer by whom he was empoyed, or by a duy
authorzed representatve of such carrer, and the grant of such eave of absence
w have been estabshed to the satsfacton of the Raroad Retrement oard
before uy, 19 7; or () he was n the servce of a carrer after ugust 29,1935,
and before anuary, 19 6. n each of s caendar months, whether or not con-
secutve; or () before ugust 29, 1935, he dd not retre and was not retred
or dscharged from the servce of the ast carrer by whom he was empoyed or
ts corporate or operatng successor, but ( ) soey by reason of hs physca or
menta dsabty he ceased before ugust 29, 1935, to be n the servce of such
carrer and thereafter remaned contnuousy dsabed unt he attaned age 65
or unt ugust, 19 5, or ( ) soey for such ast stated reason a carrer by whom
he was empoyed before ugust 29, 1935, or a carrer who s ts successor dd
not on or after ugust 29, 1935, and before ugust, 19 5, ca hm to return to
servce, or (C) f he was so caed he was soey for such reason unabe to render
servce n s caendar months as provded n cause () ; or (Iv) he was on
ugust 29, 1935, absent from the servce of a carrer by reason of a dscharge
whch, wthn one year after the effectve date thereof, was protested, to an
approprate abor representatve or to the carrer, as wrongfu, and whch was
foowed wthn 10 years of the effectve date thereof by hs renstatement n
good fath to hs former servce wth a hs senorty rghts. owever, an
Indvdua sha not be deemed to have been In the empoyment reaton to a
carrer on ugust 29, 1935, f before that date he was granted a penson or
gratuty on the bass of whch a penson was awarded to hm pursuant to secton
6 of the Raroad Retrement ct of 1937, or f durng the ast pay-ro perod
before ugust 29, 1935, In whch he rendered servce to a carrer he was not,
wth respect to any servce n such pay-ro perod, In the servce of an empoyer
(see paragraph (a) of ths artce).
(For defnton of carrer, see artce 2(a) 26 CFR, 10.2(a) .)
(D) y nsertng at the end of subparagraph (3) of artce 3(c)
26 CFR, 10.3(c) (3) the foowng:
owever, no part of hs remuneraton for such servce rendered after
December 31, 19 6, sha be regarded as compensaton f the appcaton of
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187
Regs. 100, rt. 1.
such meage formua, or such other formua as the Raroad Retrement
oard may have prescrbed, woud resut n hs compensaton for the servce
beng ess than 10 per cent of hs remuneraton for such servce.
( ) y strkng out the parenthetca cross-reference at the end of
artce 3(c) 26 CFR, 10.3(c) .
Par. 7. Immedatey foowng the provsons of aw under the
capton Secton 27 of the ct pproved October 10,19 0 (Pubc,
Ng. 833, Seventy-s th Congress, Thrd Sesson) . added by Treas-
ury Decson 5029, approved December 27, 19 0 C. . 19 1-1, 09 ,
precedng artce 5 26 CFR, 10.5 , the foowng s nserted:
S CTION 3(f) OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
(f) Secton 1532(e) of the Interna Revenue Code s amended by add-
ng at the end thereof the foowng new paragraph:
payment made by an empoyer to an ndvdua through the em-
poyer s pay ro sha be presumed, n the absence of evdence to the
contrary, to be compensaton for servce rendered by such Indvdua as
an empoyee of the empoyer n the perod wth respect to whch the
payment s made. n empoyee sha be deemed to be pad, for tme
ost the amount he s pad by an empoyer wth respect to an dentf-
abe perod of absence from the actve servce of the empoyer, ncudng
absence on account of persona In|ury, and the amount he Is pad by the
empoyer for oss of earnngs resutng from hs dspacement to a ess
remuneratve poston or occupaton. If a payment s made by an em-
poyer wth respect to a persona n|ury and ncudes pay for tme ost,
the tota payment sha be deemed to be pad for tme ost uness, at the
tme of payment, a part of such payment Is specfcay apportoned to
factors other than tme ost, n whch event ony such part of the payment
as s not so apportoned sha be deemed to be pad for tme ost.
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments to secton 1532 of the Interna Revenue Code made
by sectons 3 (f) sha be effectve ony wth
respect to servces rendered after December 31, 19 0. .
Par. 8. rtce 5, as amended by Treasury Decsons 5029 and 5161
26 CFR, 10.5 , s further amended to read as foows:
bt. 5 26 CFR, 10.5 . Defnton of Compensaton. The term com-
pensaton means a remuneraton n money, or n somethng whch may be
used n eu of money (for e ampe, scrp and merchandse orders), wheh s
earned by an ndvdua for servces rendered as an empoyee to one or more
empoyers, or as an empoyee representatve. payment for servces rendered
after December 31, 19 0, whch s made by an empoyer to an Indvdua through
the empoyer s pay ro sha be presumed, n the absence of evdence to the con-
trary, to be compensaton for servces rendered by such ndvdua as an empoyee
of the empoyer. Lkewse, a payment for servces rendered after December 31,
19 0, whch s made by an empoyee organzaton (that s, a raway abor
organzaton whch s not ncuded as an empoyer under the ct) to an empoyee
representatve through the organzaton s pay ro sha be presumed, n the
absence of evdence to the contrary, to be compensaton for servces rendered
by the empoyee representatve as such.
The term compensaton s not confned to amounts earned or pad for actve
servce, but ncudes amounts earned or pad for an dentfabe perod durng
whch the empoyee s absent from the actve servce of the empoyer and, n
the case of an empoyee representatve, amounts earned or pad for an dentf-
abe perod durng whch the empoyee representatve s absent from the actve
servce of the empoyee organzaton. mounts pad to an empoyee for an
dentfabe perod of absence from the actve servce of the empoyer on account
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Regs. 100, rt. 1.
188
of persona n|ury are Incuded wthn the term compensaton. Lke pay-
ments made to an empoyee representatve on account of persona n|ury aso
consttute compensaton. If a payment s made to an empoyee or empoyee
representatve wth respect to a persona n|ury and ncudes pay for an Identf-
abe perod of absence from actve servce, the tota payment sha be deemed
to be pad for such perod of absence from actve servce uness, at the tme of
payment, a part of such payment s specfcay apportoned to factors other than
absence from actve servce, n whch event ony such part of the payment as
s not so apportoned sha be deemed to be pad for such perod of absence from
actve servce. The presumpton set forth n the precedng sentence s app-
cabe ony wth respect to an dentfabe perod of absence from actve servce
after December 31, 19 6. mounts pad to an empoyee or empoyee representa-
tve for oss of earnngs durng an dentfabe perod as the resut of the ds-
pacement of the empoyee or empoyee representatve to a ess remuneratve
poston or occupaton sha be deemed to be pad for absence from actve servce
durng such perod. Such amounts are aso ncuded wthn the term compensa-
ton.
The term compensaton does not ncude tps, or the vountary payment by
an empoyer of the empoyees ta , wthout the deducton of such ta from the
remuneraton of the empoyee.
(See artce 7 26 CFR, 10.7 , reatng to when compensaton Is earned. See
aso artce 201 26 CFt, 10.201 , artce 301 26 CFR, 10.301 , and artce 01
26 CFt, 10. 01 , reatng to the amount of compensaton ncuded for the
purpose of determnng the empoyees ta , the empoyers ta , and the empoyee
representatves ta , respectvey. For speca provsons reatng to the com-
pensaton of certan genera charmen or assstant genera charmen of a genera
commttee of a raway-abor-organzaton empoyer, see artce 3(c) 26 CFR,
10.3(c) .)
Par. 9. rtce 6 26 CF , 10.6 s amended by nsertng at the
end thereof the foowng:
For provsons reatng to payments for persona In|ury or for oss of earnngs
resutng from dspacement to a ess remuneratve poston or occupaton, see
artce 5 26 CFR, 10.5 .
Par. 10. rtce 7 26 CFR, 10.7 s amended by strkng out the
parenthetca cross-reference at the end of such artce and nsertng
n eu thereof the foowng:
payment made by an empoyer or empoyee organzaton (that s, a raway
abor organzaton whch Is not ncuded as an empoyer under the ct) to an
ndvdua through the pay ro of the empoyer or empoyee organzaton for a
perod commencng after December 31, 19 0, sha be presumed, n the absence
of evdence to the contrary, to be for servces rendered by such ndvdua In the
perod covered by the pay ro and, thus, to have been earned n such perod.
(See artces 5 and 6 28 CFR. 10.5 and 10.6 .)
Par. 11. Immedatey precedng the capton Secton 27 or the
ct pproved October 10; 19 0 (Pubc, No. 833; Seventy-S th
Congress, Thrd Sesson) , added by Treasury Decson 5029, whch
precedes artce 201 26 CFR, 10.201 , the foowng s nserted:
S CTION 3(a) OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NT -NINT CONGR SS).
(a) Secton 1500 of the Interna Revenue Code s amended to read
as foows:
S C. 1500. R T OF T .
In addton to other ta es, there sha be eved, coected, and pad
upon the ncome of every empoyee a ta equa to the foowng per-
centages of so much of the compensaton, pad to such empoyee after
December 31, 19 6, for servces rendered by hm after such date, as s
not n e cess of 300 for any caendar month :
1. Wth respect to compensaton pad durng the caendar years
19 7 and 19 8, the rate sha be 5 per centum;
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189
Regs. 100, rt. 1.
2. Wth respect to compensaton pad durng the caendar years
10 9,1950, and 1951, the rate sha be 6 per centum ;
3. Wth respect to compensaton pad after December 31, 1951,
the rate sha be 6 per centum.
S CTION 02 OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments made by secton 3(a) sha take
effect anuary 1, 19 7. Sectons 1500 of the Interna Reve-
nue Code as n effect on December 31, 19 6, sha reman n fu force
and effect on and after anuary 1,19 7, wth respect to any remuneraton
whch consttutes compensaton under the aw as n effect on December
31,19 6, to whch such sectons as amended by ths ct are not appcabe.
Par. 12. rtce 201, as amended by Treasury Decson 5029 26
CFR, 10.201 , s further amended as foows:
( ) y strkng out paragraph (a) 26 CFR, 10.201(a) and
nsertng n eu thereof the foowng:
(a) Genera rue. (1) Compensaton earned or pad pror to anuary 1,
19 7. cept as provded n paragraph (6) of ths artce
() the empoyees ta wth respect to compensaton earned pror to
anuary 1, 19 7, s measured by the amount of compensaton earned pror
to such date by an ndvdua as an empoyee for servces rendered to one
or more empoyers after March 31, 1939, e cudng, however, the amount
of such compensaton In e cess of 300 whch s earned by the empoyee
for servces rendered durng any one caendar month ;
() the empoyees ta wth respect to compensaton pad pror to anuary
1, 19 7, for servces rendered after December 31, 19 6, s measured by the
amount of compensaton pad pror to anuary 1, 19 7, to an ndvdua for
servces rendered as an empoyee to one or more empoyers after December
31, 19 6, e cudng, however, the amount of such compensaton n e cess of
300 whch s pad pror to anuary 1, 19 7, to the empoyee for servces
rendered durng any one caendar month after 19 6.
(For the purposes of the reguatons n Chapter II of ths part 26 CFR, Part
10, Subpart , see artces 5, 6, 7, and 8 26 CFR, 10.5, 10.6, 10.7, and
10.8 , reatng to compensaton.)
(2) Compensaton pad after December 31, 19 6, for servces rendered after
suoh date. cept as provded n paragraph (6) of ths artce, the empoyees
ta wth respect to compensaton pad after December 31, 19 6, for servces
rendered after such date s measured by the amount of compensaton pad after
December 31, 19 6, to an ndvdua for servces rendered as an empoyee to one
or more empoyers after such date, e cudng, however, the amount of such
compensaton n e cess of 300 whch s pad after December 31, 19 6, to the
empoyee for servces rendered durng any one caendar month after 19 6.
( ) y strkng out the desgnaton (6) and nsertng n eu
thereof the foowng:
(6) cepton; empoyee of oca odge or dvson of raway-abor-organ-
zaton empoyer.
Pab. 13. rtce 202 26 CFR, 10.202 s amended to read as
foows:
rt. 202 26 CFR, 10.202 . Rates and Computaton of mpoyees Ta . (a)
Compensaton earned or pad pror to anuary 1, 19 7.- The rates of empoyees
ta appcabe for the respectve caendar years wth respect to compensaton
ether earned, or pad pror to anuary 1, 19 7, are as foows:
Per cent.
Compensaton earned durng the caendar year 1939 2
Compensaton earned durng the caendar years 19 0, 19 1, 19 2 3
Compensaton earned durng the caendar years 19 3, 19 , 19-15 3
Compensaton earned durng the caendar years 19 6, 19 7, 19 8 3
Compensaton earned durng the caendar year 19 9 and subsequent
caendar years 8
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Re;s. 100, rt. 1.
190
The empoyees ta wth respect to compensaton ether earned or pad pror
to anuary 1, 19 7, s computed by appyng to the amount of the empoyee s
compensaton wth respect to whch the empoyees ta s mposed the rate for
the caendar year n whch the compensaton s earned.
(6) Compensaton pad after December 31, 19 6, for servces rendered after
such date. The rates of empoyees ta appcabe for the respectve caendar
years wth respect to compensaton pad after December 31, 19 6, for servces
rendered after such date are as foows:
Per cent.
Compensaton pad durng the caendar years 19 7,19 8 5
Compensaton pad durng the caendar years 19 9, 1950, 1951 6
Compensaton pad durng the caendar year 1952 and subsequent caendar
years 6
The empoyees ta wth respect to compensaton pad after December 31, 19 6,
for servces rendered after such date s computed by appyng to the amount
of the empoyee s compensaton wth respect to whch the empoyees ta s
mposed the rate for the caendar year n whch the compensaton s pad.
Par. 1 . Immedatey precedng the capton Secton 607 of the
evenue ct of 193 , Made ppcabe bt Secton 7(c) of the ct
whch precedes artce 203 26 CFR, 10.203 , the foowng s
nserted:
S CTION 3(b) OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
(b) The second sentence of secton 1501(a) of the Interna Revenue
Code s amended to read as foows: If an empoyee s pad compensa-
ton after December 31, 19 6, by more than one empoyer for servces
rendered durng any caendar month after 19 6 and the aggregate of
such compensaton s n e cess of 300, the ta to be deducted by each
empoyer other than a subordnate unt of a natona raway-Iabor-
organzaton empoyer from the compensaton pad by hm to the em-
poyee wth respect to such month sha be that proporton of the ta
wth respect to such compensaton pad by a such empoyers whch the
compensaton pad by hm after December 31, 19 6, to the empoyee for
servces rendered durng such month bears to the tota compensaton
pad by a such empoyers after December 31, 19 6, to such empoyee
for servces rendered durng such month ; and n the event that the com-
pensaton so pad by such empoyers to the empoyee for servces ren-
dered durng such month s ess than 300, each subordnate unt of a
natona raway-abor-organzaton empoyer sha deduct such propor-
ton of any addtona ta as the compensaton pad by such empoyer
after December 31, 19 6, to such empoyee for servces rendered durng
such month bears to the tota compensaton pad by a such empoyers
after December 31, 19 6, to such empoyee for servces rendered durng
such month.
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments made by secton 3 (b)
sha take effect anuary 1, 19 7.
Par. 15. rtce 203 26 CFR, 10.203 s amended as foows:
( ) y strkng out paragraph (a) 26 CFR, 10.203(a) and
nsertng n eu thereof the foowng:
(a) Coecton; genera rue. The empoyer sha coect from each of hs
empoyees the empoyees ta Imposed wth respect to the compensaton of the
empoyee by deductng or causng to be deducted the amount of such ta from
the compensaton sub|ect to the ta as and when such compensaton s pad.
( s to the measure of the empoyees ta , see artce 201 20 CFR, 10.201 .)
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191
Regs. 100, rt. 1.
( ) y strkng out paragraph (5) 26 CFR, 10.203(b) and n-
sertng n eu thereof the foowng:
(6) Coecton; aggregate monthy compensaton n e cess of 300 pad by two
or more empoyers. (1) Compensaton earned or pad pror to anuary 1,
19 7. If durng any one caendar month before 19 7 an empoyee earns compen-
saton from two or more empoyers and If the aggregate of such compensaton
pad s n e cess of 300, each empoyer sha deduct, from the compensaton as
and when pad by hm to the empoyee, the empoyees ta wth respect to that
proporton of 300 of compensaton whch the compensaton pad by such em-
poyer to the empoyee for the month bears to the tota compensaton pad to
such empoyee by a empoyers for that month. If an empoyee s pad compen-
saton pror to anuary 1, 10 7, by two or more empoyers for servces rendered
durng any one caendar month after 19 0, and f the aggregate compensaton
pad to such empoyee pror to anuary 1, 19 7, by a empoyers for servces
rendered durng such month s n e cess of 300, each empoyer sha deduct,
from the compensaton as and when pad by hm to the empoyee, the empoyees
ta wth respect to that proporton of 300 of compensaton whch the compensa-
ton pad by such empoyer pror to anuary 1, 19 7, to the empoyee for the
month bears to the tota compensaton pad pror to anuary 1, 19 7, to such
empoyee by a empoyers for that month. (See artce 201(b) 26 CFR, 10.201
(b) , whch provdes that for the purpose of determnng the empoyees ta cer-
tan nomna compensaton earned by an empoyee of a oca odge or dvson of
a raway-abor-organzaton empoyer sha be dsregarded.)
(2) Compensaton pad after December 31, 191/6, for servces rendered after
such date. If an empoyee s pad compensaton after December 31, 19 0, by two
or more empoyers for servces rendered durng any one caendar month after
19 6, and f the aggregate compensaton pad to such empoyee after December 31,
19 6, by a empoyers for servces rendered durng such month s n e cess of
300, the empoyees ta to be deducted by each empoyer from the compensaton
as and when pad by hm to the empoyee sha be determned as foows:
(1) If such compensaton s pad by two or more empoyers, none of whom
s a subordnate unt of a natona raway-abor-organzaton empoyer (see
artce 2(f) 26 CFR, 10.2(f) ), each empoyer sha deduct the empoyees
ta wth respect to that proporton of 300 of compensaton whch the com-
pensaton pad after December 31, 19 0, by such empoyer to the empoyee
for the month bears to the tota compensaton pad after December 31, 19 6,
to such empoyee by a empoyers for that month (see e ampe (1), beow) ;
(It) If such compensaton Is pad by two or more empoyers, each of whch
Is a subordnate unt of a natona raway-abor-organzaton empoyer, each
subordnate unt sha deduct the empoyees ta wth respect to that propor-
ton of 300 of compensaton whch the compensaton pad after December 31,
19 6, by such subordnate unt to the empoyee for the month bears to the
tota compensaton pad after December 31, 19 6, to such empoyee by a
such subordnate unts for that month;
() If such compensaton s pad by two or more empoyers, ony one of
whom s an empoyer other than a subordnate unt of a natona raway-
abor-organzaton empoyer, and f the compensaton pad after December
31,19 6, to the empoyee by the empoyer other than a subordnate unt equas
or e ceeds 300 for the month, then no empoyees tu sha be deducted by
any such subordnate unt from the compensaton pad by t after December
31, 19 6, to such empoyee for that month, and the empoyer other than a
subordnate unt sha deduct the empoyees ta wth respect to 300 of
compensaton pad by hm after December 31, 19 0, to such empoyee fer that
month (see e ampe (2), beow) ;
(v) If such compensaton s pad by two or more empoyers other than
a subordnate unt of a natona raway-abor-organzaton empoyer and
by one or more subordnate unts of a natona raway-abor-organzaton
empoyer, and If the tota compensaton pad after December 31, 19 6, to the
empoyee by the empoyers other than a subordnate unt equas or e ceeds
300 for the month, then no empoyees ta sha be deducted by any such
subordnate unt from the compensaton pad by t after December 31, 19 6,
to such empoyee for that month, and each empoyer other than a subordnate
unt sha deduct the empoyees ta wth respect to that proporton of 300
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Regs. 100, rt. I.
192
of compensaton whch the compensaton pad after December 31, 19 6, by
such empoyer to the empoyee for the month bears to the tota compensaton
pad after December 31, 19 6, to such empoyee by a such empoyers other
than n subordnate unt for that month (see e ampe (3), beow) ;
(v) If such compensaton s pad by two or more empoyers, ony one of
whom s a subordnate unt of a natona raway-abor-organzaton em-
poyer, and f the tota compensaton pad after December 31, 19 6, to the
empoyee by a empoyers other than the subordnate unt s ess than 300
for the month, then each empoyer other than the subordnate unt sha
deduct the empoyees ta wth respect to the fu amount of compensaton
pad by hm after December 31, 19 6, to such empoyee for that month, and
the subordnate unt of a natona raway-abor-organzaton empoyer sha
deduct the empoyees ta wth respect to the remander of 300 of compensa-
ton ess the tota compensaton pad after December 31, 19 6, to such em-
poyee for that month by a other empoyers (see e ampe ( ), beow); or
(v) If such compensaton s pad by one or more empoyers other than
a subordnate unt of a natona raway-abor-organzaton empoyer and
by two or more subordnate unts of a natona raway-abor-organzaton
empoyer, and f the tota compensaton pad after December 31, 19 6, to
the empoyee by a empoyers other than the subordnate unts s ess
than 300 for the month, then each empoyer other than the subordnate
unts sha deduct the empoyees ta wth respect to the fu amount of
compensaton pad by hm after December 31, 19 6, to such empoyee for
that month, and each subordnate unt of a natona raway-abor-organza-
ton empoyer sha deduct the empoyees ta wth respect to that pro-
porton of the remander of 300 of compensaton ess the tota compensaton
pad after December 31,19 6, to such empoyee for the month by a empoyers
other than the subordnate unts whch the compensaton pad after December
31, 19 6, by such subordnate unt to the empoyee for that month bears
to the tota compensaton pad after December 31, 19 6, to such empoyee
by a such subordnate unts for that month (see e ampe (5), beow).
(See artce 201(6) 26 CF . 10.201(b) 1, whch provdes that for the purpose
of determnng the empoyees ta certan nomna compensaton earned by an
empoyee of a oca odge or dvson of a raway-abor-organzaton empoyer
sha be dsregarded.)
The appcaton of certan of the foregong prncpes may be ustrated by
the foowng e ampes:
ampe (1). , an empoyee, renders servces durng anuary, 19 7. for
empoyers , T, and Z, none of whom s a subordnate unt of a natona raway-
abor-organzaton empoyer. fter December 31, 19 6, s pad for the month
compensaton of 100 by , 100 by Y, and 200 by Z, or an aggregate of 00
for the month. In such case pays one-fourth of s aggregate compensaton
for the month, Y pays one-fourth, and Z pays one-haf. and Y, therefore,
are each requred to deduct the empoyees ta wth respect to one-fourth of
300, or 75, and Z s requred to deduct the empoyees ta wth respect to
one-haf of 300, or 150.
ampe (2). , an empoyee, renders servces durng anuary, 19 7, for
empoyer , an empoyer other than a subordnate unt of a natona raway-
ahor-organzaton empoyer, and for empoyers Y and Z, each of whch s a
subordnate unt of a natona raway-abor-orgauzaton empoyer. fter De-
cember 31, 19 6, s pad for the month compensaton of 300 by , 50 by Y,
and 25 by Z. Snce the compensaton pad for the month by equas
300, nether Y nor Z Is requred to deduct any empoyees ta from the com-
pensaton pad by them to for the month; and s requred to deduct the
empoyees ta wth respect to the fu 300 pad by hm to for the month.
ampe (3). , an empoyee, renders servces durng anuary, 19 7, for
empoyers W and , each of whom s an empoyer other than a subordnate
unt of a natona raway-abor-organzaton empoyer, and for empoyers Y
and Z, each of whch s a subordnate unt of a natona raway-abor-organza-
ton empoyer. fter December 31, 19 6, s pad for the month compensaton
of 200 by W and 200 by , or an aggregate of 00 fOT the month, and com-
pensaton of 50 by Y and 50 by Z. Snce the aggregate compensaton pad
for the month by W and Is n e cess of 300, nether Y nor Z s requred to
deduct any empoyees tu from the compensaton pad by them to for the
month. Of the aggregate compensaton of 00 pad for the month by W
and , W pays one-haf and pays one-af. W and , therefore, are each
requred to deduct the empoyees ta wth respect to one-haf of 300, or 150.
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193
Regs. 100, rt. 1.
ampe ( ). , an empoyee, renders servces durng anuary, 19 7, for
empoyer , an empoyer other than a subordnate unt of a natona raway-
abo r-organzaton empoyer, and for empoyer Y, a subordnate unt of a na-
tona raway-abor-organzaton empoyer. fter December 31, 19 6, s pad
for the month compensaton of 250 by and 100 by Y. In such case s
requred to deduct the empoyees ta wth respect to the fu 250 pad by hm
to for the month; and Y s requred to deduct the empoyees ta ony wth
respect to 50 ( 300 mnus 250 pa Id by ).
ampe (5). , an empoyee, renders servces durng anuary, 19 7, for
empoyers W and , each of whom s an empoyer other than a subordnate unt
of a natona raway-abor-organzaton empoyer, and for empoyers Y and Z,
each of whch s a subordnate unt of a natona raway-abor-organzaton
empoyer. fter Dreember 81, 19 0, s pad for the month compensaton of
1 0 by W, 100 by , 50 by Y, and 100 by Z. In such case W and are each
requred to deduct the empoyees ta wth respect to the fu amount pad by
them to for the month, that Is, W wth respect to 1 0 and wth respect to
100; and Y and Z are each requred to deduct the empoyees ta wth respect
to ther proportonate share of 00 ( 300 mnus 2 0 pad by W and ). Of
the aggregate compensaton of 150 pad by Y and Z, 50, or one-thrd, was pad
by Y, and 100, or two-thrds, was pad by Z. In such case Y s requred to
deduct -the empoyees ta wth respect to one-thrd of 60, or 20, and Z s
requred to deduct the empoyees ta wth respect to two-thrds of 00, or 0.
(3) Undercotteetong or ocercoectons. ny undercoecton or overcoecton
of empoyees ta resutng from the empoyer s Inabty to determne, at the
tme compensaton s pad, the correct amount of compensaton wth respect to
whch the deducton shoud be made sha be corrected n accordance wth the
provsons of Chapter I 26 CFR, Part 10, Subpart F , reatng to an ad|ust-
ment of empoyees ta and empoyers ta , and Chapter II 20 CFIt, Part 10,
Subpart G , reatng to credts and refunds.
(C) y strkng out the desgnaton (c) and nsertng n eu
thereof the foowng:
(c) When fractona part of cent may be dsregarded.
(D) y strkng out the desgnaton (d) and nsertng n eu
thereof the foowng:
(d) mpoyer s abty.
Par. 16. Immedatey precedng the capton Secton 27 of the
ct pproved October 10, 19 0 (Pubc, No. 833, Seventy-s th
Congress, Thrd Sesson) whch precedes artce 301 26 CFR,
10.301 , the foowng s nserted:
S CTION 3(d) OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
(d) Secton 1520 of the Interna Revenue Code s amended to read as
foows:
S C. 1520. R T OF T .
In addton to other ta es, every empoyer sha pay an e cse ta ,
wth respect to havng ndvduas n hs empoy, equa to the foowng
percentages of so much of the compensaton, pad by such empoyer after
December 31, 19 6, for servces rendered to hm after December 31, 15)36,
as s, wth respect to any empoyee for any caendar month, not n e cess
of 300: Provded, however, That f an empoyee s pad compensaton
after December 31,19 6, by more than one empoyer for servces rendered
durng any caendar month after 1936, the ta Imposed by ths secton
sha appy to not more than 300 of the aggregate compensaton pad
to such empoyee by a such empoyers after December 31, 19 6, for
servces rendered durng such month, and each empoyer other than a
nbordnate unt of a natona raway-abor-organzaton empoyer sha
be abe for that proporton of the ta wth respect to such compensaton
pad by a such empoyers whch the compensaton pad by hm after
December 31, 19 6, to the empoyee for servces rendered durng such,
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Regs. 100, rt. 1.
19
month bears to the tota compensaton pad by a such empoyers after
December 31, 19 6, to such empoyee for servces rendered durng such
month ; and n the event that the compensaton so pad by such em-
poyers to the empoyee for servces rendered durng such month s ess
than 300, each subordnate unt of a natona raway-abor-organza-
ton empoyer sha be abe for such proporton of any addtona ta
as the compensaton pad by such empoyer after December 31, 19 6,
to such empoyee for servces rendered durng such month bears to the
tota compensaton pad by a such empoyers after December 31, 19 6,
to such empoyee for servces rendered durng such month:
1. Wth respect to compensaton pad durng the caendar years
19 7 and 19 S, the rate sha be 5 per centum;
2. Wth respect to compensaton pad durng the caendar years
19 9, 1950, and 1951, the rate sha be 6 per centum ;
3. Wth respect to compensaton pad after December 31, 1951,
the rate sha be 6 per centum.
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments made by secton 3 (d) sha
take effect anuary 1, 19 7. Sectons 1520 of the Interna
Revenue Code as n effect on December 31,19 6, sha reman In fu force
and effect on and after anuary 1,19 7, wth respect to any remuneraton
whch consttutes compensaton under the aw as n effect on December
31, 19 0, to whch such sectons as amended by ths ct are not
appcabe.
Par. 17. rtce 301, as amended by Treasury Decson 5029 2G
CFR, 10.301 , s further amended to read as foows:
rt. 301 26 CFR, 10.301 . Measure of mpoyers Ta . (a) Genera rue.
(1) Compensaton pad pror to anuary 1, 7 ). 7. cept as provded n para-
graphs (b)(1) and (c) of ths artce, the empoyers ta wth respect to com-
pensaton pad pror to anuary 1, 19 7, s measured by the amount of compensa-
ton pad pror to such date-by an empoyer to hs empoyees for servces rendered
after December 31, 1930, e cudng, however, the amount of compensaton n
e cess of 300 whch s pad pror to anuary 1, 19 7, by the empoyer to any
empoyee for servces rendered durng any one caendar month. (For the pur-
poses of the reguatons n Chapter III of ths part 26 CFR, Part 10, Subpart
C , see artces 5, 6. and 7 20 CFR, 10.5, 10.6, and 10.7 , reatng to compensa-
ton, and partcuary artce 8 20 CFR, 10.8 , reatng to the tme when com-
pensaton s deemed to be pad.)
(2) Compensaton pad after December 31, 191)6. cept as provded n para-
graphs (6) (2) and (c) of ths artce, the empoyers ta wth respect to com-
pensaton pad after December 31, 19 6, s measured by the amount of compensa-
ton pad after such date by an empoyer to hs empoyees for servces rendered
after December 31, 1936, e cudng, however, the amount of compensaton n
e cess of 3U0 whch s pad after December 31, 19 6, by the empoyer to any
empoyee for servces rendered durng any one caendar month.
(6) ggregate monthy compensaton n e cess of 300 pad by two or more
empoyers. (1) Compensaton pad pror to anuary 1, 19 /7. If an empoyee s
pad compensaton pror to anuary 1, 19 7, by two or more empoyers for servces
rendered durng any one caendar month after 1936, and f the aggregate com-
pensaton pad to such empoyee pror to anuary 1, 19 7, by a empoyers for
servces rendered durng such month s n e cess of 300, then there s ncuded
n the measure of the empoyers ta of each empoyer wth respect to the com-
pensaton pad by hm pror to anuary 1,19 7. to the empoyee for the month ony
that proporton of 300 whch the compensaton pad to the empoyee pror to
anuary 1,19 7, by such empoyer for the month bears to the tota compensaton
pad pror to anuary 1, 19 7, to such empoyee by a empoyers for that month.
(See paragraph (c) of ths artce, whch provdes that for the purpose of deter-
mnng the empoyers ta certan nomna compensaton earned by an empoyee
of a oca odge or dvson of a raway-abor-organzaton empoyer sha be
dsregarded.)
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195
Regs. 100, rt. .
(2) Compensaton pad after December 31, 19 6. If an empoyee Is pad
compensaton after December 31, 19 6, by two or more empoyers for servces
rendered durng any one caendar month after 1930, and f the aggregate com-
pensaton pad to such empoyee after December 31, 19 6, by a empoyers for
servces rendered durng such month s n e cess of 300, the measure of the em-
poyers ta of each empoyer wth respect to the compensaton pad by hm after
December 31, 19 6, to the empoyee for the month sha be determned as foows:
() If such compensaton s pad by two or more empoyers, none of whom
Is a subordnate unt of a natona raway-abor-organzaton empoyer (see
artce 2(f) 26 CFR, 10.2(f) ), the measure of the empoyers ta of each
empoyer sha be that proporton of 300 whch the compensaton pad after
December 31, 19 6, by such empoyer to the empoyee for the month bears to
the tota compensaton pad after December 31, 19 6, to such empoyee by
a empoyers for that month (see e ampe (1), beow) ;
() If such compensaton s pad by two or more empoyers, each of whch
Is a subordnate unt of a natona raway-nbor-organzaton empoyer, the
measure of the empoyers ta of each subordnate unt sha be that propor-
ton of 300 whch the compensaton pad after December 31, 19 0, by such
subordnate unt to the empoyee for the month bears to the tota compensa-
ton pad after December 31, 19 6, to such empoyee by a such subordnate
unts for that month;
() If such compensaton s pad by two or more empoyers, ony one of
whom Is an empoyer other than a subordnate unt of a natona raway-
abor-organzaton empoyer, and If the compensaton pad after December
81, 19 6, to the empoyee by the empoyer other than a subordnate unt
equas or e ceeds 300 for the month, then no subordnate unt sha be abe
for any empoyers ta wth respect to the compensaton pad by It after
December 31, 19 6, to such empoyee for that month, and the measure of the
empoyers ta of the empoyer other than a subordnate unt wth respect
to the compensaton pad by hm after December 31, 19 6, to such empoyee
for that month sha be 300 (see e ampe (2), beow) ;
(Iv) If such compensaton Is pad by two or more empoyers other than a
subordnate unt of a natona raway-abor-organzaton empoyer and by
one or more subordnate unts of a natona raway-abor-organzaton em-
poyer, and f the tota compensaton pad after December 31, 19 0, to the
empoyee by the empoyers other than a subordnate unt equas or e ceeds
300 for the month, then no subordnate unt sha be abe tor any empoyers
ta wth respect to the compensaton pad by t after December 31, 19 0, to
such empoyee for that month, and the measure of the empoyers ta of each
empoyer other than a subordnate unt sha be that proporton of 300 whch
the compensaton pad after December 31, 19 0, by such empoyer to the
empoyee for the month bears to the tota compensaton pad after December
81, 19 0, to such empoyee by a such empoyers other than a subordnate
unt for that month (see e ampe (3), beow) ;
(v) If such compensaton s pad by two or more empoyers, ony one of
whom s a subordnate unt of a natona raway-abor-organzaton em-
poyer, and If the tota compensaton pad after December 31, 19 6, to the
empoyee by a empoyers other than the subordnate unt s ess than 300
for the month, then the measure of the empoyers ta of each empoyer
other than the subordnate unt sha be the fu amount of compensaton
pad by hm after December 31, 19 6, to such empoyee for that month, and
the measure of the empoyers ta of the subordnate unt of a natona
raway-abor-organzaton empoyer sha be the remander of 300 ess the
tota compensaton pad after December 31, 19 6, to such empoyee for that
month by a other empoyers (see e ampe ( ), beow) ; or
(v) If such compensaton Is pad by one or more empoyers other than
a subordnate unt of a natona raway-abor-organzaton empoyer and
by two or more subordnate unts of a natona raway-abor-organzaton
empoyer, and If the tota compensaton pad after December 31, 19 6, to
the empoyee by a empoyers other than the subordnate unts s ess
than 300 for the month, then the measure of the empoyers ta of each
empoyer other than the subordnate unts sha be the fu amount of
compensaton pad by hm after December 31, 19 6, to such empoyee for
thnt month, and the measure of the empoyers ta of each subordnate unt
of a natona raway-abor-organzaton empoyer sha be that proporton
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Regs. 100, rt. 1.
196
of the remander of 300 ess the tota compensaton pad after December
31, 19 6, to such empoyee for the month by a empoyers other than the
subordnate unts whch the compensaton pad after December 31, 19 6,
by such subordnate unt to the empoyee for that month bears to the tota
compensaton pad after December 31, 19 6, to such empoyee by a such
subordnate unts for that month (see e ampe (5), beow).
(See paragraph (c) of ths artce, whch provdes that for the purpose of
determnng the empoyers ta certan nomna compensaton earned by an
empoyee of a oca odge or dvson of a raway-abor-organzaton empoyer
sha be dsregarded.)
The appcaton of certan of the foregong prncpes may be Iustrated by
the foowng e ampes:
ampe (1). , an empoyee, renders servces durng anuary, 19 7, for
empoyers and Y, nether of whom s a subordnate unt of a natona raway-
abor-organzaton empoyer. fter December 31, 19 6, s pad for the month
compensaton of 200 by and 300 by Y, or an aggregate of 500 for the month.
In such case pays two-ffths of s aggregate compensaton for the month,
and Y pays three-ffths. , therefore, s abe for the empoyers ta wth
respect to two-ffths of 300, or 120, and Y s abe for the empoyers ta
wth respect to three-ffths of 300, or 180.
ampe (2). , an empoyee, renders servces durng anuary, 19 7, for
empoyer , an empoyer other than a subordnate unt of a natona raway-
abor-ofganzaton empoyer, and for empoyer Y, a subordnate unt of a natona
raway-abor-organzaton empoyer. fter December 31, 19 6, s pad for
the month compensaton of 350 by and 50 by Y. Snce the compensaton
pad for the month by e ceeds 300, Y s not abe for any empoyers ta
wth respect to the compensaton pad for the month; and s abe for the
empoyers ta wth respect to 300 of the compensaton pad by hm to for
the month.
ampe (3). , an empoyee, renders servces durng anuary, 19 7, for
empoyers W and , each of whom s an empoyer other than a subordnate
unt of a natona raway-abor-organzaton empoyer, and for empoyers Y
and Z, each of whch s a subordnate unt of a natona raway-abor-organzaton
empoyer. fter December 31, 19 6, s pad for the month compensaton
of 150 by W and 300 by , or an aggregate of 50 for the month, and com-
pensaton of 100 by Y and 50 by Z. Snce the aggregate compensaton pad
for the month by W and s n e cess of 300, nether Y nor Z s abe for
any empoyers ta wth respect to the compensaton pad by them to for
the month. Of the aggregate compensaton of 50 pad for the month by
W and , W pays one-thrd and pays two-thrds. W, therefore, s abe
for the empoyers ta wth respect to one-thrd of 300, or 100, and s abe
for the empoyers ta wth respect to two-thrds of 300, or 200.
ampe ( ). , an empoyee, renders servces durng anuary, 19 7, for
empoyer , an empoyer other than a subordnate unt of a natona raway-
abor-organzaton empoyer, and for empoyer Y, a subordnate unt of a natona
raway-abor-orgnnzaton empoyer. fter December 31, 19 6, s pad for
the month compensaton of 250 by and 100 by Y. In such ease s abe
for the empoyers ta wth respect to the fu 250 pad by hm to for the
month; and Y s abe for the empoyers ta wth respect to 50 ( 300 mnus
250 pad by ).
ampe (5). , an empoyee, renders servces durng anuary, 19 7, for
empoyers W and , each of whom s an empoyer other than a subordnate unt
of a natona raway-abor-organzaton empoyer, and for empoyers Y and Z,
each of whch s a subordnate unt of a natona raway-abor-organzaton em-
poyer. fter December 31, 19 6, Is pad for the month compensaton of 1 0
by W, 100 by , 50 by Y, and 100 by Z. In such case W and are each abe
for the empoyers ta wth respect to the fu amount pad by them to for
the month, that Is, W wth respect to 1 0 and wth respect to 100; and Y and
Z are each abe for the empoyers ta wth respect to ther proportonate share
of 60 ( 300 mnus 2 0 pad by W and ). Of the aggregate compensaton of
150 pad by Y and Z, 50, or one-thrd, was pad by Y, and 100, or two-thrds,
was pad by Z. In such case Y s abe for the empoyers ta wth respect to
one-thrd of 60, or 20, and Z Is abe for the empoyers ta wth respect to
two-thrds of 60, or 0.
(c) Nomna monthy compensaton earned by empoyee of oca odge or dv-
son of raheay-abor-organzaton empoyer. If the amount of compensaton
earned n any caendar month by an ndvdua as an empoyee n the servce of
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197
Regs. 100, rt. 1.
a oca odge or dvson of a raway-abor-organzaton empoyer s es-s than 3,
such amount sha be dsregarded for the purpose of determnng the empoyers
ta , provded:
(1) such compensaton s earned before pr 1,19 0, and the ta es thereou
are not pad to the coector before uy 1,10 0, or
(2) such compensaton s earned after March 31, 19 0.
(d) Underpayments or overpayments ny underpayment or overpayment
of empoyers ta resutng from the empoyer s nabty to determne, at the
tme such ta s pad, the correct amount of compensaton wth respect to whch
the ta shoud be pad sha be corrected n accordance wth the provsons of
artce 003 26 CFR, 10.G03 , reatng to ad|ustment of empoyers ta , and
Chapter II 2G CFR, Part 10, Subpart G , reatng to credts and refunds.
Par. 18. rtce 302 2G CFR, 10.302 s amended to read as
foows:
rt. 302 26 CFR, 10.302 . Rates and Computaton of mpoyers Ta
(a) Compensaton pad pror to anuary 1, 19 /7. The rates of empoyers ta
appcabe for the respectve caendar years wth respect to compensaton pad
pror to anuary 1, 10 7, are as foows:
Per cent.
Compensaton earned durng the caendar year 1930 2-;
Compensaton earned durng the caendar years 10 0, 10 1, 10 2 3
Compensaton earned durng the caendar years 19 3, 10 , 10 r 3M
Compensaton earned durng the caendar years 10 6, 10 7, 10 8 3
Compensaton earned durng the caendar year 10 0 and subsequent ca-
endar years 3
The empoyers ta wth respect to compensaton pad pror to anuary 1,
19 7, s computed by appyng to the amount of compensaton wth respect to
whch the empoyers ta s mposed the rate for the caendar year n whch the
compensaton s earned.
(6) Compensaton pad after December SI, f) /G. The rates of empoyers ta
appcabe for the respectve caendar years wth respect to compensaton pad
after December 31, 19 6, are as foows:
Per cent.
Compensaton pad durng the caendar years 19 7, 10 8 5
Compensaton pad durng the caendar years 10 0, 1050, 19.11 0
Compensaton pad durng the caendar year 1052 and subsequent caendar
years 6
The empoyers ta wth respect to compensaton pad after December 31, 1016,
Is computed by appyng to the amount of compensaton wth respect to whch
the empoyers ta s mposed the rate for the caendar year n whch the com-
pensaton s pad.
Par. 19. Immedatey precedng artce 01 26 CFR. 10. 01 , the
foowng s nserted:
S CTION 3(c) OF T CT PPRO D ULY 31, 1016 (PU LIC
L W 572, S NTY-NINT CONGR SS).
(c) Secton 1510 of the Interna Revenue Code s amended to read
as foows:
S C. 1510. R T OF T .
In addton to other ta es, there sha be eved, coected, and pad
upon the ncome of each empoyee representatve a ta equa to the fo-
owng percentages of so much of the compensaton, pad to such em-
poyee representatve after December 31, 10 6, for servces rendered
by hm after such date, as s not n e cess of 300 for any caendar
month:
1. Wth respect to compensaton pad durng the caendar years
10 7 and 10 8, the rate sha be 11M per centum;
2. Wth respect to compensaton pad durng the caendar years
10 0, 1050, and 1951, the rate sha be 12 per eentvm:
3. Wth respect to compensaton pad after December 31, r-51,
the rate sha be 12 per centum.
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Regs. 100, rt. 1.
198
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments made by secton 3 (c)
sha take effect anuary 1, 19 7. Sectons 1510
of the Interna Revenue Code as In effect on December 81, 19 6, sha
reman In fu force and effect on and after anuary 1,19 7, wth respect
to any remuneraton whch consttutes compensaton under the aw as
In effect on December 81, 19 6, to whch such sectons as amended by
ths ct are not appcabe.
Par. 20. rtce 01 26 CFR, 10. 01 s amended to read as
foows:
bt. 01 26 CFR, 10. 01 . Measure of mpoyee Representatves Ta .
(a) Compensaton earned or pad pror to anuary 1, 19 7. The empoyee rep-
resentatves ta wth respect to compensaton earned pror to anuary 1, 19 7,
Is measured by so much of the compensaton earned pror to such date by an
Indvdua for servces rendered after March 31, 1939, as an empoyee representa-
tve, as does not e ceed 300 for any one caendar month. The empoyee repre-
sentatves ta wth respect to compensaton pad pror to anuary 1, 19 7, for
servces rendered after December 31, 19 6, Is measured by so much of the
compensaton pad pror to anuary 1, 19 7, to an Indvdua for servces ren-
dered after December 81,19 6, as an empoyee representatve, as does not e ceed
300 for any one caendar month. (For the purposes of the reguatons n
Chapter I of ths part 26 CFR, Part 10, Subpart D , see artces 5, 6, 7, and 8
26 CFR. 10.5, 10.6, 10.7, and 10.8 , reatng to compensaton.)
(6) Compensaton pad after December SI, 19 6, for servces rendered after
such date. The empoyee representatves ta wth respect to compensaton pad
after December 31, 19 6, for servces rendered after such date s measured by
so much of the compensaton pad after December 81, 19 6, to an Indvdua for
servces rendered after such date, as an empoyee representatve, as does not
e ceed 300 for any one caendar month.
Par. 21. rtce 02 26 CFR, 10. 02 s amended to read as foows:
rt. 02 26 CFR, 10. 02 . Rates and Computaton of mpoyee Representa-
tves Ta . (a) Compensaton earned or pad pror to anuary 1, 19 7. The
rates of empoyee representatves ta appcabe for the respectve caendar years
wth respect to compensaton ether earned or pad pror to anuary 1, 19 7,
are as foows:
Per cent.
Compensaton earned durng the caendar year 1939 6
Compensaton earned durng the caendar years 19 0, 19 1, 19 2 6
Compensaton earned durng the caendar years 19 3, 19 , 19 5 6
Compensaton earned durng the caendar years 19 6, 19 7, 19 8 7
Compensaton earned durng the caendar year 19 9 and subsequent caen-
dar years 7
The empoyee representatves ta wth respect to compensaton ether earned
or pad pror to anuary 1, 1917, s computed by appyng to the amount of com-
pensaton wth respect to whch the empoyee representatves ta s Imposed the
rate for the caendar year In whch the compensaton s earned.
(6) Compensaton pad after December 31, 19 6, for servces rendered after
such date. The rates of empoyee representatves ta appcabe for the respec-
tve caendar years wth respect to compensaton pad after December 31, 19 8,
for servces rendered after such date are as foows:
Per cent.
Compensaton pad durng the caendar years 19 7,19 8 11 2
Compensaton pad durng the caendar years 19 9, 1950, 1951 12
Compensaton pad durng the caendar year 1952 and subsequent caendar
years 12
The empoyee representatves ta wth respect to compensaton pad after
December 31, 19 6, for servces rendered after such date s computed by appyng
to the amount of compensaton wth respect to whch the empoyee representa-
tves ta s mposed the rate for the caendar year In whch the compensaton
s pad.
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199
Regs. 100, rt. 1.
Par. 22. rtce 806(c) 26 CFR, 10.806(c) s amended by nsert-
ng at the end thereof the foowng:
Wth respect to servces rendered after December 31, 19 6, the records of each
ndvdua abe for empoyee representatves ta sha show, n eu of the
nformaton requred by paragraph (2), above, the amount and date of each
payment of compensaton (ncudng any sum wthhed therefrom) earned as an
empoyee representatve and as an empoyee and the perod of servces covered
by such payment.
R GUL TIONS 106 26 CFR, T RT 02 .
Par. 23. Immedatey precedng secton 02.216 26 CFR, 02.216 ,
the foowng s nserted:
S CTION 1 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
secton 1532(d) of the Interna Revenue Code are each
amended as foows: fter the word f where t frst appears theren
Insert () and for the phrase whch servces he renders for compen-
saton substtute the foowng; or he s renderng professona or
technca servces and s ntegrated nto the staff of the empoyer, or
he s renderng, on the property used n the empoyer s operatons, other
persona servces the rendton of whch s ntegrated nto the empoyer s
operatons, and () he renders such servce for compensaton .
Sad subsectons are further amended by nsertng at the end of the frst
provso the foowng: , and f the appcaton of such meage formua,
or such other formua as the oard may prescrbe, woud resut n the
compensaton of the ndvdua beng ess than 10 per centum of hs
remuneraton for such servce no part of such remuneraton sha be
regarded as compensaton .
S CTION 3 (e) ND (f) OF T CT PPRO D ULY 31, 19 6
(PU LIC L W 572, S NTY-NINT CONGR SS).
(e) Secton 1532(b) of the Interna Revenue Code s amended to read
as foows:
(b) mpoyee. The term empoyee means any ndvdua In the
servce of one or more empoyers for compensaton: Provded, however,
That the term empoyee sha Incude an empoyee of a oca odge or
dvson defned as an empoyer n subsecton (a) ony f he was In the
servce of or n the empoyment reaton to a carrer on or after ugust
29. 1935. n ndvdua sha be deemed to have been n the empoyment
reaton to a carrer on ugust 29, 1935, If (1) he was on that date on
eave of absence from hs empoyment, e pressy granted to hm by the
carrer by whom he was empoyed, or by a duy authorzed representatve
of such carrer, and the grant of such eave of absence w have been
estabshed to the satsfacton of the Raroad Retrement oard before
uy 19 7; or () he was n the servce of a carrer after ugust. 29,
1935, and before anuary 1910 n each of s caendar months, whether
or not consecutve; or () before ugust 29, 1935, he dd not retre and
was not retred or dscharged from the servce of the ast carrer by
whom he was empoyed or ts corporate or operatng successor, but
( ) soey by reason of hs physca or menta dsabty he ceased before
ugust 29, 1935, to be In the servce of such carrer and thereafter re-
maned contnuousy dsabed unt he attaned age s ty-fve or unt
ugust 19 5, or ( ) soey for such ast stated reason a carrer by
whom he was empoyed before ugust 9, 1C35, or a carrer who Is ts
successor dd not on or after ugust 29, 1935, and before ugust 19 5
ca hm to return to servce, or (C) f he was so caed he was soey
for such reason unabe to render servce n s caendar months as pro-
vded n cause () ; or (v) he was on ugust 29, 1935, absent from the
servce of a carrer by reason of a dscharge whch, wthn one year after
the effectve date thereof, was protested, to an approprate abor repre-
sentatve or to the carrer, as wrongfu, and whch was foowed wthn
ten years of the effectve date thereof by hs renstatement n good fath
to hs former servce wth a hs senorty rghts: Provded, That an
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Regs. 100, rt. 1.
200
Indvdua sha not be deemed to have been on ugust 29, 1935, In the
empoyment reaton to a carrer f before that date he was granted a
penson or gratuty on the bass of whch a penson was awarded to hm
pursuant to secton 6 of the Raroad Retrement ct of 1937, or If durng
the Inst pay-ro perod before ugust 29, 1935, n whch he rendered
servce to a carrer he was not In the servce of an empoyer, n accord-
ance wth subsecton (d), wth respect to any servce n such pay-ro
perod, or f he coud have been In the empoyment reaton to an em-
poyer ony by reason of hs havng been, ether before or after ugust
29,1935, n the servce of a oca odge or dvson denned as an empoyer
n subsecton (a).
The term empoyee Incudes an offcer of an empoyer.
The term empoyee sha not ncude any Indvdua whe such
ndvdua s engaged n the physca operatons consstng of the mnng
of coa, the preparaton of coa, the handng (other than movement by
ra wth standard raroad ocomotves) of coa not beyond the mne
tppe, or the oadng of coa at the tppe.
(f) Secton 1532(e) of the Interna Revenue Code Is amended by
addng at the end thereof the foowng new paragraph:
payment made by an empoyer to an ndvdua through the em-
poyer s pay ro sha be presumed, In the absence of evdence to the
contrary, to be compensaton for servce rendered by such Indvdua as
an empoyee of the empoyer In the perod wth respect to whch the
payment s made. n empoyee sha be deemed to be pad, for tme
ost the amount he s pad by an empoyer wth respect to an dentfabe
perod of absence from the actve servce of the empoyer, ncudng
absence on account of persona In|ury, and the amount he s pad by the
empoyer for oss of earnngs resutng from hs dspacement to a ess
remuneratve poston or occupaton. If a payment s made by an em-
poyer wth respect to a persona n|ury and ncudes pay for tme ost,
the tota payment sha be deemed to be pad for tme ost uness, at the
tme of payment, a part of such payment s specfcay apportoned to
factors other than tme ost, n whch event ony such part of the payment
as s not so apportoned sha be deemed to be pad for tfme ost.
S CTION 02 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).

The amendments to secton 1532 of the Interna Revenue Code made by
sectons 1 and 3 (e) and (f) sha be effectve ony wth respect to
servces rendered after December 31, 19 ft.
S CTION 3(g) OP T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
Subchapter of Chapter 9 of the Interna Revenue Code s amended
by addng at the end thereof the foowng new secton:
S C. 1538. TITL OF SU C PT R.
Ths subchapter may be cted as the Raroad Retrement Ta ct .
S CTION 01 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
cept as otherwse provded n ths ct, the provsons thereof sha
become effectve upon approva.
R GUL TIONS 107 28 CFR, P RT 031.
Par. 2 . Immedatey precedng secton 03.216 26 CFR, 03.216 ,
the foowng s nserted:
S CTION 1 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
secton 1(e) of the Raroad Unempoyment Insurance ct
are each amended as foows: fter the word f where It
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201
Regs. 100, rt. 1.
frst appears theren Insert (I) and for the phrase whch servces he
renders for compensaton substtute the foowng: or he s renderng
professona or technca servces and Is ntegrated Into the staff of the
empoyer, or he s renderng, on the property used n the empoyer s
operatons, other persona servces the rendton of whch s Integrated
nto the empoyer s operatons, and (II) he renders such servce for
compensaton Sad subsectons are further amended by n-
sertng at the end of the frst provso the foowng: , and f the appca-
ton of such meage formua, or such other formua as the oard may
prescrbe, woud resut n the compensaton of the ndvdua beng ess
than 10 per centum of hs remuneraton for such servce no part of such
remuneraton sha be regarded as compensaton- .
S CTION 2 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
secton () of the Raroad Unempoyment Insurance ct
s amended by substtutng for the word payabe the word pad ;
and by nsertng at the end of sad secton () of the Ra-
road Unempoyment Insurance ct, the foowng: payment made by
an empoyer to an ndvdua through the empoyer s pay ro sha be
presumed, n the absence of evdence to the contrary, to be compensaton
for servce rendered by such ndvdua as an empoyee of the empoyer
n the perod wth respect to whch the payment s made. n empoyee
sha be deemed to be pad, for tme ost the amount he s pad by an
empoyer wth respect to an dentfabe perod of absence from the
actve servce of the empoyer, Incudng absence on account of persona
n|ury, and the amount he s pad by the empoyer for oss of earnngs
resutng from hs dspacement to a ess remuneratve poston or occu-
paton. If a payment s made by an empoyer wth respect to a per-
sona n|ury and Incudes pay for tme ost, the tota payment sha be
deemed to be pad for tme ost uness, at the tme of payment, a part
of such payment s specfcay apportoned to factors other than tme
ost, n whch event ony such part of the payment as s not so appor-
toned sha be deemed to be pad for tme ost. Compensaton earned
n any caendar month before 19 7 sha be deemed pad n such month
regardess of whether or when payment w have been n fact made, and
compensaton earned n any caendar year after 19 6 but pad after the
end of such caendar year sha be deemed to be compensaton pad n
the caendar year n whch It w have been earned f t Is so reported
by the empoyer before February 1 of the ne t succeedng caendar year
or, f the empoyee estabshes, sub|ect to the provsons of sec-
ton 8, the perod durng whch such compensaton w have been
earned.
S CTION 01 OF T CT PPRO D ULY 31, 19 6 (PU LIC
L W 572, S NTY-NINT CONGR SS).
cept as otherwse provded n ths ct, the provsons thereof sha
become effectve upon approva.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 1 29, 1535, and 1G09 of the Interna Revenue Code (53 Stat.,
178, 183, 188; 26 IT. S. C, 1 29, 1535, 1609) and sectons , 2, 3, 01,
and 02 of the ct approved uy 31, 19 6 (Pubc Law 572, Seventy-
nnth Congress), and sha be effectve on the thrty-frst day after the
date of ts pubcaton n the Federa Regster.)
G O. . Sc O N M N,
Commssoner of Interna Revenue.
pproved uy 31, 19 7.
oseph . 0 Conne, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster ugust 6, 19 7.)
77338-1 8 1
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Regs. 100 rt. 1. 202
Secton 1532: Defntons.
Reguatons 100, rtce 2: Who are empoyers.
Reguatons amended. Changes n wordng of artce 2(f), reatng
to subordnate unts of natona raway abor organzatons. (See
T. D. 557 , page 180.)
Secton 1532: Defntons.
Reguatons 100, rtce 3: Who are empoyees.
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). Changes n defnton of
empoyee. (See T. D. 557 , page 180.)
Secton 1532: Defntons.
Reguatons 100, rtce 5: Defnton of compensaton.
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). Changes n defnton of
compensaton. (See T. D. 557 , page 180.)
Secton 1532: Defntons.
Reguatons 100, rtce 6: Items ncuded as
compensaton.
Reguatons amended to conform to ct approved uy 31, 19 6
Pubc Law 572, Seventy-nnth Congress). Reference to artce 5.
See T. D. 557 , page 180.)
Secton 1532: Defntons.
Reguatons 100, rtce 7: Compensaton when earned.
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page 180.)
Secton 1536: Other aws appcabe.
Reguatons 100, rtce 806: Records.
Reguatons amended to conform to ct approved uy 31, 19 6
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page 180.)
Secton 1538: Tte of subchapter.
Reguatons 100, rtce 1: Defntons of mscea-
neous terms; appcabty of provsons of Interna
Revenue Code.
Ctaton of Subchapter of Chapter 9 of the Interna Revenue Code
as the Raroad Retrement Ta ct. (See T. D. 557 , page 180.)
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203
Regs. 107, 03.216.
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT.
Secton 1607: Defntons.
Reguatons 107, Secton 03.201: Genera defntons
and use of terms.
Desgnaton of ct approved ugust 10, 19 6, as Soca Securty
ct mendments of 19 6. (See T. D. 5566, page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.202: mpoyment pror
anuary 1, 19 0. (See T. D. 5566, page 1 8.)
Status of servces performed pror to uy 1, 19 6, and pror to
anuary 1,19 0. (See T. D. 5566, page 18.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.203: mpoyment after
December 31, 1939.
Status of servces performed after December 31, 1939. (See T. D.
5566, page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Truck owner-drvers and coa unoaders. (See Ct. D. 1688, page 167.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Orchestra eaders and members. (See Ct. D. 1689, page 17 .)
Secton 1607: Defntons.
Reguatons 107, Secton 03.205: Who are empoyers.
Status of muscans. (See Mm. 6187, page 177.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.206: cepted servces
n genera.
Status of servces performed after December 31, 1939. (See T. D.
5566, page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.211: Offcers and
members of crews.
Martme servces performed after uy 1, 19 6. (See T. D. 5566,
page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.216: Raroad ndustry
empoyees and empoyee representatves under the Ra-
Reguatons amended to conform to ct approved uy 31, 19 6,
(Pubc Law 572, Seventy-nnth Congress). (See T. D. 557 , page 180.)
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Regs. 90, rt. 205. 20
Secton 1607: Defntons.
Reguatons 107, Secton 03.226(b) : Fshng.
Status of servces performed n certan fshng actvtes after uy
1,19 6. (SeeT. D. 5566, page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.227: Wages.
Wages n e cess of 3,000 pad to an ndvdua durng any caendar
year, e cuded. (See T. D. 5566, page 1 8.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.228: cuson from wages.
Wages n e cess of 3,000 pad to an ndvdua durng any caendar
year, e cuded. (See T. D. 5566, page 1 8.)
T S UND R SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 811: Defntons.
Reguatons 91, rtce 3: Who are empoyees.
Truck owner-drvers and coa unoaders. (See Ct. D. 1688, page
167.)
Secton 811: Defntons.
Reguatons 91, rtce 3: Who are empoyees.
Orchestra eaders and members. (See Ct. D. 1689, page 17 .)
TITL I . T ON MPLOY RS OF IG T OR MOR .
Secton 907: Defntons.
Reguatons 90, rtce 205 : mpoyed ndvduas.
Truck owner-drvers and coa unoaders. (See Ct. D. 1688, page 167.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Orchestra eaders and members. (See Ct. D. 1689, page 17 .)
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MISC LL N OUS T .RULINGS.
INT RN L R NU COD .
19 7-1 -12588
TITL 2G INT RN L R NU . C PT R I, P RTS 130 ND 1 3.
empton from ta es.
une 20, 19 7.
y vrtue of the authorty vested n me by secton 307(c) of the
Revenue ct of 19 3 (Pubc Law 235, Seventy-eghth Congress),
as amended by secton 303 of the Revenue ct of 19 5 (Pubc Law
21 , Seventy-nnth Congress), e empton s hereby authorzed: (1)
from the ta es mposed by secton 3 65 of the Interna Revenue Code
(26 U. S. C, 3 65) as to any payment for teephone, teegraph, cabe,
rado, or eased wre servces or factes furnshed drecty to the
Unted States and for whch payment s made drecty by the Unted
States: Provded, That nothng n ths authorzaton sha be con-
strued to authorze any e empton as to payments for servces or
factes furnshed to a contractor, or other person, operatng under
a contract to perform work on behaf of, or to furnsh artces or
materas to, the Unted States Government or any agency thereof;
(2) from the ta mposed by secton 3 69 of the Interna Revenue
Code (26 U. S. C, 3 69) as to any payment for transportaton of
persons furnshed to the Unted States upon a Unted States Govern-
ment transportaton request; (3) from the ta mposed by secton 3 75
of the Interna Revenue Code (26 U. S. C, 3 75) as to any payment
for transportaton of property to or from the Government of the
Unted States shpped on a Unted States Government b of adng.
Note. The te t set forth above affects the notes foowng 20 CFR, 10 Supp.,
130. ,130.61, and the note precedng 26 CFR, 10 Supp., 1 3.20.
OSF.r . O CONNFLL, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 25, 19 7, 8.50 a. m.)
19 7-15-12600
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RTS 316 ND
320.
empton from manufacturers and retaers e cse ta es.
une 30, 19 7.
y vrtue of the authorty vested n me by secton 307(c) of the
- Revenue ct of 19 3 (Pubc Law 235, Seventy-eghth Congress), as
amended by secton 303 of the Revenue ct of 19 5 (Pubc Law 21 ,
(205)
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Msc.
206
Seventy-nnth Congress), e empton s hereby authorzed from the
ta es mposed by Chapters 19 and 29 of the Interna Revenue Code
(26 U. S. C, Chapters 19 and 29), wth respect to artces sod on or
after une 1, 19 , to any corporaton created by ct of Congress to
act n matters of reef under the treaty of Geneva of ugust 22, 186
( mercan Red Cross), for ts e cusve use, at a prce not ncudng
such ta es.
Note. The te t set forth above affects the notes for Parts 310 and 320 of Tte
20 n the 10 Suppement to the Code of Federa Reguatons.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
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207
Regs. 105, 81.23.
ST T T .
S CTION 811(e)(2), S DD D Y S CTION 02(b) OF T R NU
CT OF 19 2. GROSS ST T COMMUNITY INT R STS.
Reguatons 105, Secton 81.23: Communty 19 7-23-12687
property. . T. 20
Where the decedent and the survvng spouse were engaged n a
|ont busness enterprse n whch the survvor rendered reguar,
substanta, and ganfu persona servces, and not merey ncdenta
or occasona servces or househod dutes, property of the marta
communty whch s shown to be economcay attrbutabe to such
survvor s persona servces s regarded as havng been receved
as, or derved from, compensaton for persona servces actuay
rendered by the survvng spouse wthn the meanng of secton
811(e) (2) of the Interna Revenue Code, even though the survvor
dd not receve compensaton n the form of saary or wages.
dvce s requested as to the treatment, for Federa estate ta pur-
poses, of property of a marta communty whch s economcay
attrbutabe, as herenafter descrbed, to persona servces of the
survvng spouse.
Shorty after marrage the decedent and hs wfe opened a store.
The wfe, nstead of performng the customary servces of a house-
wfe, worked reguary n the store wth her husband unt the tme
of hs death. er busness actvtes ncuded the hrng of empoyees,
purchase of merchandse, supervson of saes, and revew of appca-
tons for credt. Nether spouse drew any defnte saary. prop-
erty acqured durng coverture was communty property under the
aw of the State of ther resdence. such property was earned n
the operaton of the store, or was acqured n e change for property
so earned, or represented ncome on the nvestment of such property.
Secton 811(e) (2) of the Interna Revenue Code, as added by sec-
ton 02(b) of the Revenue ct of 19 2, provdes that there sha be
ncuded n the gross estate any communty property hed by the
decedent and survvng spouse:
e cept such part thereof as may be shown to have been receved
as compensaton for persona servces actuay rendered by the survvng spouse
or derved orgnay from such compensaton or from separate property of the
survvng spouse.
Secton 811(e) (2) further provdes that the nterest ncuded n the
gross estate sha not be ess than the vaue of such part of the com-
munty property as was sub|ect to the decedent s power of testa-
mentary dsposton.
The essenta purpose of ths e cepton s shown n the report of
the Commttee on Fnance (Senate Report No. 1631, C. . 19 2-2,
67 ), whch states:
The amendments thus make due provson for the e cuson from the gross
estate of that porton of the communty property whch Is economcay attrb-
utabe to the survvor.
The report of the Commttee on Ways and Means ( ouse Report
No. 2333, C. . 19 2-2, 02), after commentng on the preferenta
treatment accorded by the then e stng statute to estates of spouses
n communty property States, reads n part as foows:
Your commttee seeks to remedy ths stuaton by provdng that such prop-
erty s ncudbe In the gross estate of the husband uness t can be shown to
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Regs. 105, 81.2 .
208
have been receved as compensaton for persona servces actuay rendered by
the survvng wfe or derved orgnay from such compensaton or other separate
property of the survvng wfe. Ths foows somewhat the treatment whch Is
accorded to |ont estates under the e stng aw.
The commttee thus recognzed that generay t s through the
efforts of the husband that communty property s acqured, and that
n the appcaton of the amendment, ony that part of the communty
property whch was sub|ect to the wfe s power of testamentary ds-
poston woud usuay be found to be ncudbe n her gross estate,
but that where the husband was the frst to de, the entre communty
property woud usuay be found to be ncudbe n hs gross estate.
owever, where a porton of the communty property s shown to
be economcay attrbutabe to persona servces or separate property
of the survvng wfe, the statutory e cepton s to appy.
In vew of the e pressed congressona ntent, the terms compensa-
ton and persona servces appear to have been used n the statute
n a comprehensve sense. The former term s not restrcted to saary
or wages, nor does usage of the atter term contempate that the per-
sona servces of the survvng spouse must have been rendered to a
thrd person. Persona servces, wthn the meanng of the statute,
may aso be rendered by spouses who are ganfuy sef-empoyed,
ether ndependenty or n a |ont enterprse. The ureau has con-
sstenty hed that the part of secton 02 of the Revenue ct of 19 2
whch e cudes from the gross estate of the decedent any part of the
communty property shown to have been receved as compensaton for
persona servces rendered by the survvng spouse or derved org-
nay from such compensaton does not mean that ony such property
may be e cuded whch was derved from saares or wages earned by
the survvng spouse.
In the nstant case the survvng spouse performed n the store
reguar, substanta, and ganfu servces, the same as woud be ren-
dered by a busness partner or busness empo| ee, and not merey
ncdenta or occasona servces or househod dutes. ven though
the survvng spouse dd not receve compensaton n the form of sa-
ary or wages, the porton of the communty property whch s shown
to be economcay attrbutabe to such survvor s persona servces
s regarded as havng been receved as, or derved from, a compensa-
ton for persona servces actuay rendered by the survvng spouse
wthn the meanng of the statute.
Reguatons 105, Secton 81.2 : Property sub- 19 7-21-12666
|ect to power of appontment by decedent. T. D. 5577
TITL 20 INT RN L R NU . C PT R I, SU C PT R , P RT 81.
R GUL TIONS R L TING TO ST T T .
Reguatons 105 amended to conform to Pubc Law 112 ( ghteth
Congress page 33 , ths uetn ), reatng to reease of powers of
appontment.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. O.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 105 26 CFR, Part 81 to Pubc
Law 112 ( ghteth Congress, frst sesson), approved une 25, 19 7
page 33 , ths uetn , such reguatons are amended as foows:
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209
Msc.
Paragraph 1. There s nserted mmedatey foowng Pubc Law
393 (Seventy-nnth Congress, second sesson), whch was nserted n
such reguatons by Treasury Decson 5523, approved uy 2, 19 6
C. . 19 6-2, 163 , and before secton 302(f) of the Revenue ct of
1926 (as orgnay enacted) as set forth precedng secton 81.2 , the
foowng:
PU LIC L W 112 ( IG TI T CONGR SS, FIRST S SSION),
PPRO D UN 25, 19 7.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 03(d) (3) of the
Revenue ct of 19 2 (reatng to the reease of certan powers of ap-
pontment) s hereby amended by strkng out uy 1, 19 7 wherever
t appears and nsertng n eu thereof uy 1,19 8 .
Par. 2. Secton 81.2 (b), added by Treasury Decson 5239, ap-
proved March 10, 19 3 C. . 19 3, 1081 , as amended by Treasury
Decson 5523, approved uy 2,19 6, s further amended as foows:
( ) y strkng out une 30, 19 7 wherever t appears and n-
sertng n eu thereof une 30,19 8.
( ) y strkng from the frst sentence of subparagraph (3) (as
amended by Pubc Law 393 (Seventy-nnth Congress), approved May
29, 19 6) and nsertng n eu thereof (as amended by Pubc Law
112 ( ghteth Congress), approved une 25, 19 7).
(C) y strkng out uy 1,19 7 wherever t appears and nsert-
ng n eu thereof uy 1,19 8.
(Ths Treasury decson s ssued under authorty contaned n sec-
ton 3791 of the Interna Revenue Code (53 Stat., 67; 26 U. S. C,
3791) and Pubc Law 112 ( ghteth Congress), approved une 25,
19 7.)
ecause of the technca nature of the amendments made heren, t
s found that t s unnecessary to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad ct.
Ths Treasury decson sha be effectve upon fng wth the Dvson
of the Federa Regster.
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved September 30,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 7, 19 7, 8.55 a. m.)
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210
CIS T S.
19 7-22-12678
Mm. 619
Termnaton of certan governmenta e cse ta e emptons and
the contnuaton of others.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, October 9,19 7.
Coectors of Interna Revenue and Others Concerned:
Secton 307 of the Revenue ct of 19 3 amended varous sectons
of the Interna Revenue Code so as to termnate, effectve as of une
1, 19 , most of the e cse ta e emptons formery appcabe to ta -
abe artces or servces furnshed to the Unted States Government.
In certan cases, the termnaton of the e empton was made prospec-
tve to take effect as of the the 1st day of the frst month whch begns
s months or more after the date of the termnaton of hosttes n
the recent war. Snce the Presdent has procamed the cessaton of
hosttes n the recent war as of December 31, 19 6, the termnaton
of e empton n the atter cass of cases became effectve on une 30,
19 7.
Secton 307(c) of the Revenue ct of 19 3 empowered the Secre-
tary of the Treasury to authorze, under certan condtons, e cse
ta e emptons wth respect to ta abe artces or servces furnshed
to the Unted States Government. Under the provsons of such sec-
ton as orgnay enacted, the speca e emptons so authorzed coud
be made effectve ony for the perod termnatng as of the 1st day
of the frst month whch begns s months or more after the termna-
ton of hosttes n the recent war. owever, such secton was
amended by secton 303 of the Revenue ct of 19 5 so as to remove
such mtaton, and the Secretary s now empowered to make these
speca e emptons effectve ndefntey. The Secretary had author-
zed certan e emptons under the aw as orgnay enacted, and these
e emptons necessary e pred on une 30,19 7. s to some of these
speca e emptons, the Secretary recenty authorzed ther contnu-
ance ndefntey.
The effects of the foregong changes n e emptons wth respect to
the varous casses of e cse ta es affected thereby are summarzed
beow:
(1) R T IL RS CIS T S.
The e empton from the retaers e cse ta es mposed under
Chapter 19 of the Interna Revenue Code n the case of artces sod
at a ta -e cuded prce to the mercan Red Cross for ts e cusve
use, as orgnay authorzed by the Secretary under date of une 27,
19 , has now been contnued to reman n effect ndefntey through
another authorzaton of the Secretary ssued under date of une 30,
19 7.1
(2) M NUF CTUR RS CIS T S.
. The termnaton of the e emptons from the ta on saes of
pstos and revovers mposed by secton 2700 of the Interna Revenue
Code; from the ta on saes of rado recevng sets, etc., ncudng
1 See copy of Secretary s authorzaton on page 212.
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211
Msc.
certan components thereof, phonograph records, and musca nstru-
ments mposed by secton 3 0 ; and from the ta on certan frearms,
shes, and cartrdges mposed by secton 3 07, whch had been de-
ferred unt s months after the cessaton of hosttes n the recent
war, became effectve on une 30,19 7.
. The e empton from the ta on tres and nner tubes mposed
by secton 3 00 of the Interna Revenue Code n the case of saes to
the War and Navy Departments as authorzed by the Secretary under
date of May 31,19 , e pred on une 30,19 7.
C. The e empton from the manufacturers e cse ta es mposed
under Chapter 29 of the Interna Revenue Code n the case of artces
sod at a ta -e cuded prce to the mercan Red Cross for ts e -
cusve use as orgnay authorzed by the Secretary under date of
une 27, 19 , has now been contnued to reman n effect ndefntey
through another authorzaton of the Secretary ssued under date of
une 30, 19 7.1
(3) T S ON TR NSPORT TION ND COMMUNIC TION S R IC S.
. The e emptons from the ta es on teephone, teegraph, etc.,
factes mposed by secton 3 65 of the Interna Revenue Code; from
the ta on the transportaton of persons mposed by secton 3 69;
and the ta on the transportaton of property mposed by secton 3 75,
as authorzed by the Secretary under date of pr 29, 19 , sub|ect
to the condtons descrbed n such authorzaton, have been contnued
to reman n effect ndefntey through another authorzaton of the
Secretary ssued under date of une 20, 19 7 see beow .
. The e empton from the ta on the transportaton of property
wth respect to amounts pad by or to the War Shppng dmns-
traton for the transportaton of property from one pont n the Unted
States to another, e cept between ponts on the Great Lakes, as pro-
vded by secton 3 75(b) of the Interna Revenue Code e pred on
une 30,19 7.
Ths mmeograph suppements the nformaton contaned n Mmeo-
graph 5681 C. . 19 , 589 , Mmeograph 5696 C. . 19 , 610 ,
and Mmeograph 5712 C. . 19 , 593 .
Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos MT.
Geo. . Scoeneman,
Commssoner.
TITL 26 INT RN L R NU . C PT R I, P RT 130 ND P RT 1 3.
empton from ta es.
une 20, 19 7.
y vrtue of the authorty vested n me by secton 307(c) of the Revenue ct
of 19 3 (Pubc Law 235, Seventy-eghth Congress), as amended by secton 03
of the Revenue ct of 19 5 (Pubc Law 21 , Seventy-nnth Congress), e empton
s hereby authorzed: (1) from the ta es mposed by secton 3 65 of the Interna
Revenue Code (26 U. S. C, 3 65) as to any payment for teephone, teegraph,
cabe, rado, or eased wre servces or factes furnshed drecty to the Unted
States and for whch payment s made drecty by the Unted States: Provded,
That nothng n ths authorzaton sha be construed to authorze any e empton
as to payments for servces or factes furnshed to a contractor, or other person.
1 See copy of Secretary s authorzaton on page 212.
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212
operatng under a contract to perform work on behaf of, or to furnsh artces
or materas to, the Unted States Government or any agency thereof; (2) from
the ta mposed by secton 3 69 of the Interna Revenue Code (26 U. S. C, 3 69)
as to any payment for transportaton of persons furnshed to the Unted States
upon a Unted States Government transportaton request; (3) from the ta m-
posed by secton 3 75 of the Interna Revenue Code (26 U. S. C, 3 75) as to any
payment for transportaton of property to or from the Government of the Unted
States shpped on a Unted States Government b of adng.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 25, 19 7, 8.50 a. m.)
SU C PT R C, P RT 316 ND P RT 320.
empton from manufacturers and retaers e cse ta es.
une 30, 19 7.
y vrtue of the authorty vested n me by secton 307(c) of the Revenue ct
of 19 3 (Pubc Law 235, Seventy-eghth Congress), as amended by secton 303
of the Revenue ct of 19 5 (Pubc Law 21 , Seventy-nnth Congress), e empton
s hereby authorzed from the ta es mposed by Chapters 19 and 29 of the
Interna Revenue Code (26 U. S. C, Chapters 19 and 29), wth respect to artces
sod on or after une 1, 19 , to any corporaton created by ct of Congress to
act n matters of reef under the treaty of Geneva of ugust 22, 186 ( mercan
Red Cross), for ts e cusve use, at a prce not ncudng such ta es.
oseph . O Conne. r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 3, 19 7, 8. 8 a. m.)
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213 Regs. 71, 113.35,113.35 ,
ST MP T S.
Reguatons 71, Sectons 113.35 and 113.35 . 19 7-21-12667
T. D. 5578
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 113.
DOCUM NT RY ST MP T S.
mendng sectons 113.35 and 113.35 of Reguatons 71, reatng
to specfc e emptons provded In secton 1802 (b) and (c) of the
Interna Revenue Code.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On uy 15, 19 7, notce of proposed rue makng reatng to the
specfc e emptons provded n secton 1802 (b) and (c) of the In-
terna Revenue Code from the ta mposed by secton 1802(b) on saes
and transfers of capta stock was pubshed n the Federa Regster
(12 F. R., 688). No ob|ecton to the rues proposed havng been
receved, the foowng amendments to Reguatons 71 26 CFR, Part
113 are hereby adopted. These amendments emnate the requrement
of varous certfcates and statements to cover the severa e emptons
under secton 1802 (b) and (c) and n eu thereof provde a snge
smpfed form of e empton certfcate. Whe the amendments
specfcay dea ony wth saes and transfers of stock, they w permt
the use of a smar smpfed e empton certfcate n the case of cor-
respondng e empt transfers of bonds under secton 3 81 (a) and (b)
of the Interna Revenue Code snce secton 113.65 of Reguatons 71,
as amended by Treasury Decson 5202, approved December 17, 19 2
C. . 19 2-2, 258 26 CFR, 113.65 , makes the rues wth respect to
stock transfer ta e emptons appcabe wth respect to the corre-
spondng bond transfer ta e emptons.
Reguatons 71 26 CFR, Part 113 are amended as foows:
Paragraph 1. Secton 113.35 26 CFR, 113.35 s amended to read
as foows:
Sec. 113.35. Specfc emptons Provded n Secton 1802(b). (o) Stock
deposted as coatera securty. The ta does not appy to an agreement
evdencng a depost of certfcates of stock as coatera securty for money
oaned thereon, whch certfcates are not actuay sod, nor upon the devery or
transfer for such purpose of certfcates so deposted. The e empton appes aso
to transfers of stock to a nomnee of the ender and from such nomnee back to
the ender, f the stock s at a tmes hed as coatera securty for the oan; and
to the return of the stock to the borrower by the ender or hs nomnee upon pay-
ment of the oan. The e empton does not appy, however, to deposts of stock
as coatera securty made otherwse than n connecton wth a money oan.
The persou makng an e empt transfer under ths subsecton sha furnsh and
attach to the certfcate an e empton certfcate n substantay the form
prescrbed n subsecton (ft).
(6) Return of stock oaned. The ta does not appy to the return of stock
oaned; but the person returnng such stock sha furnsh and attach to the
certfcate an e empton certfcate n substantay the form prescrbed n sub-
secton (h). ( ut see secton 113.33 (b).)
(c) Transfer from customer to broker. The mere devery of a certfcate of
stock by a customer to hs broker soey for the purpose of enabng such broker
to se the stock for the customer, where the broker has no ownershp or nterest
theren, s e empt from stamp ta and does not requre an e empton certfcate.
If, n the same crcumstances, the stock s transferred to the name of the broker,
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egs. 71, 113.35.113.35 .
21
or to the name of the broker s regstered nomnee, the transfer Is aso e empt
from ta , provded the broker, at te tme of such transfer, furnshes and
attaches to the certfcate an e empton certfcate In substantay the form
prescrbed n subsecton (ft).
For provsons reatng to the regstraton of nomnees, see secton 113.153.
transfer to the name of a seng agent other than a broker, as, for e ampe,
a bank, whether the sae be made by the agent drect or through a broker for the
agent s account, Is sub|ect to ta , snce the e empton appes ony to deveres
and transfers to brokers. ( ut see subsecton (f) of ths secton.) owever,
abty s not Incurred by the mere devery of a certfcate of stock to an agent
who obtans no ega tte or other nterest n the stock.
(d) Transfer from broker to customer. The mere devery of a certfcate
of stock by a purchasng broker to hs customer, f ta was pad upon the sae
of the stock to such broker who has no ownershp or Interest theren, s not
sub|ect to stamp ta and does not requre an e empton certfcate.
If the stock Is transferred to the purchasng broker or hs nomnee who hods
the stock for the same purpose as f hed by the broker, and ta on such transfer
s pad, transfer may thereafter be made to the name of the purchaser wthout
payment of ta . If the ta was pad upon transfer to the purchasng broker,
transfer may be made to the name of hs nomnee and from such nomnee to the
name of the purchaser, wthout payment of ta . owever, no e empton under
ths paragraph w appy uness the broker at the tme of the e empt transfer
attaches to the stock certfcate an e empton certfcate n substantay the
form ndcated by subsecton (ft).
For provsons reatng to the regstraton of nomnees, see secton 113.153.
Devery to, or transfer to the name of, the customer may not be made ta -free
n any case n whch the stock was transferred from the seer to the broker or
hs regstered nomnee wthout ta payment, snce the aw requres that ta
sha be pad on the transfer or transfers between the actua seer and actua
buyer.
transfer from the name of a purchasng agent other than a broker, as, for
e ampe, a bank, whether the purchase be made drect or through a broker for
the agent s account, s sub|ect to ta . snce the e empton appes ony to deveres
and transfers from brokers. ( ut see subsecton (f) of ths secton.) owever,
abty s not ncurred by the mere devery of a certfcate of stock by an agent
havng no tte or nterest n the stock, or by a broker for the account of such
agent.
(e) Transfers between fducares and ther nomnees. The ta does not appy
to deveres or transfers of stock from a fducary to a nomnee of suc fducary,
or from one nomnee of such fducary to another, f the stock contnues to be
hed by such nomnee for the same purpose for wheh t woud be hed f retaned
by such fducary, or from the nomnee to such fducary. The person makng
an e empt transfer under ths subsecton sha, at the tme of such transfer,
furnsh and attach to the certfcate an e empton certfcate In substantay
the form prescrbed n subsecton (ft).
(/) Transfers to or by a custodan. The ta does not appy to the devery
or transfer of stock from the owner thereof to a custodan f under a wrtten
agreement between the owner and the custodan the stock so devered or trans-
ferred s to be hed or dsposed of by such custodan for, and sub|ect at a tmes
to the nstructons of, the owner; or to the devery or transfer of stock from
such custodan to such owner.
The ta aso does not appy to the devery or transfer from such custodan
to a regstered nomnee of such custodan, or from the owner drect to such
regstered nomnee, or from one such nomnee to another such nomnee, f the
stock contnues to be hed by the nomnee for the same purpose for whch t
woud be hed f retaned by such custodan; or from such nomnee to such
custodan or the owner. No e empton Is granted uness the nomnee s regs-
tered n the manner provded In secton 113.153.
The ta further does not appy to the devery or transfer of stock from a
custodan of the owner to another custodan of the owner, or from the regstered
nomnee of the frst custodan to the second custodan or the regstered nomnee
of the atter, f the transfer woud have been e empt under the frst or second
paragraphs of ths subsecton f made by the owner drect to the second cus-
todan or the regstered nomnee of the atter.
The e empton specfed n ths subsecton sha not be granted n any case
uness the devery or transfer Is accompaned by an e empton certfcate, sgned
by the custodan, In substantay the form prescrbed n subsecton (ft).
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215
Regs. 71, 113.35,113.35y2.
The custodan contempated by ths subsecton s a mere custodan and does
not ncude a trustee. mere custodan s a person to whom there are devered
or transferred shares or certfcates of stock to be hed or dsposed of by the
custodan for, and sub|ect at a tmes to the nstructons of, the owner and not
otherwse.
(g) Transfers of worthess securtes by e ecutors, etc. The ta does not
appy to deveres or transfers of stock by an e ecutor or admnstrator to a
egatee, her, or dstrbutee, f t s shown to the satsfacton of the Commssoner
that the vaue of the stock so devered or transferred s not greater than the
amount of the ta that woud otherwse be mposed on such devery or transfer.
(h) empton certfcate. ach e empt devery or transfer specfed n
subsectons (o) to f), ncusve, e cept as otherwse shown theren, sha be
accompaned by a certfcate n substantay the foowng form:
It s hereby certfed that the transfer of the attached shares s
made under such crcumstances as to come wthn one of the
e emptons specfed In secton 1802 of the Interna Revenue Code
and that evdence n proof of the e empton s mantaned by the
undersgned and s avaabe for Inspecton by nterna revenue
offcers.
(Sgnnture.)
Par. 2. Secton 113.35 , as added by Treasury Decson 5202, ap-
proved December 17, 19 2 26 CFR, 113.35a , s amended as foows:
( ) y strkng out (a) mmedatey precedng the frst sentence,
and by changng the second sentence to read as foows:
owever, no e empton under secton 1802(c) may be aowed uness the devery
or transfer s accompaned by a certfcate n substantay the form prescrbed
n secton 113.35( ).
( ) y strkng out subsecton (6).
(Ths Treasury decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code (53 Stat., 67; 26 U. S. C,
3791).)
Ths Treasury decson, beng wthn the parenthetca e cepton
to secton (c) of the dmnstratve Procedure ct, sha be effectve
upon ts fng for pubcaton n the Federa Regster.
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved September 30,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 7,10 7, 8.55 a. m.)
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MISC LL N OUS RULINGS.
S CTION 3 OF T INSON CT ( 8 ST T., 503, 505),
S M ND D.
19 7-21-1266
Mm.6185
Reports requred under proft-mtng provsons of the nson ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, September 15,19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
The repea of the e cess profts ta agan brought nto effect the
proft-mtng provsons (secton 3) of the nson ct ( 8 Stat., 503,
at 505), as amended by the ct of une 25, 1936 ( 9 Stat., 1926), and
the ct of pr 3, 1939 (53 Stat., 555, at 560), wth respect to e cess
proft on contracts for nava vesses and arcraft and contracts for
rmy arcraft. s to the scope of the ct upon ts reappcaton, see
1. T. 3822 (C. . 19 6-2,186). There has been no repea of the nson
ct. Reports under such ct are requred to be fed n accordance
wth the provsons of sectons 17.15 and 17.16 of Treasury Decson
906 (C. . 1939-2, 0 , 19- 20), reatng to e cess proft on contracts
and subcontracts for nava vesses and arcraft, and sectons 16.1 and
16.15 of Treasury Decson 909 (C. . 1939-2, 22, 33- 3 ), reatng
to e cess proft on contracts and subcontracts for rmy arcraft.
Upon the competon of any contract or subcontract conng wthn
the scope of the reappcaton of the nson ct, the contractng party
s requred to make a report, under oath, to the Secretary of the Navy
or the Secretary of War, as the case may be.
In addton, amua reports of such contracts and subcontracts com-
peted by a contractng party wthn an ncome-ta abe year are re-
qured to be fed on or before the 15th day of the nnth month fo-
owng the cose of the contractng party s ncome-ta abe year wth
the coector of nterna revenue for the coecton dstrct n whch the
contractng party s Federa ncome ta return s requred to be fed.
owever, a genera e tenson of tme s hereby granted to contractors
and subcontractors to and ncudng March 15, 19 8, for fng annua
reports of proft under the proft-mtng provsons of the nson ct,
as amended, for the caendar year 19 6 and for fsca years ended n
19 7 pror to une 1, 19 7. Contractors and subcontractors who take
advantage of ths e tenson of tme w be charged nterest at the rate
of 6 per cent per annum on the unpad nstaments of e cess proft| f
any, from the orgna due date unt pad. The foregong e tenson
77338 8 15
(217)
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380 .
218
of tme s granted under secton 53(a) (2) of the Revenue ct of 193 ,
as made appcabe by secton 651 of the Interna Revenue Code.
Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: IM.
Geo. . Schoeneman,
Commssoner.
S CTION 380 . TIM FOR P RFORMING C RT IN CTS
POSTPON D Y R SON OF W R.
19 7-22-12675
I. T. 387
INT RN L R NU COD .
Postponement of due dates for fng ndvdua ncome ta returns
and for payment of the ta for the years 19 1 through 19 6 where
such due dates, as postponed by secton 380 of the Interna Revenue
Code, as amended by Pubc Law 38 , ghteth Congress, approved
ugust 8,19 7, woud fa on December 31,19 7.
dvce has been requested as to the pocy whch w be foowed n
the appcaton of secton 380 of the Interna Revenue Code, as
amended by Pubc Law 38 , ghteth Congress, approved ugust 8,
19 7 (page 3 8, ths uetn), wth respect to the ncome ta
returns of ndvduas for the years 19 1 through 19 6, n any case
n whch the due date, as postponed by secton 380 of the Code as so
amended, for fng such returns and payng the ta woud fa on
December 31,19 7. In such cases, t w be the pocy of the Comms-
soner to grant to such ndvduas a further postponement to whch-
ever of the foowng dates s the earest:
(1) The 15th day of the s th month foowng the month n
whch the ndvdua ceases (e cept by reason of death or ncom-
petency) to be outsde the mercas or servng as a member of
the mtary or nava forces of the Unted States on sea duty or
outsde the contnenta Unted States; or
2) une 15, 19 8; or
(3) The 15th day of the thrd month foowng the month n
whch an e ecutor, admnstrator, or a conservator of the estate
of the ta payer quafes.
ta payer desrng to take advantage of the above-mentoned post-
ponement shoud attach to each of hs returns a statement showng the
perods of tme after December 6,19 1, and pror to anuary 1, 19 8,
ncudng dates, durng whch the ta payer has been outsde the mer-
cas or, f a member of the mtary or nava forces of the Unted
States, has been servng on sea duty or outsde the contnenta Unted
States.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
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219
M c.
S L RY ST ILIZ TION.
19 7-21-12670
T. D.5579
TITL 29 L OR. C PT R III, P RT 1003. PROC DUR R L TI TO
D T RMIN TION T T S L RI S OR W G S SU CT TO T URISDIC-
TION OF T N TION L W G ST ILIZ TION O RD W R P ID IN
CONTR NTION OF T CT OF OCTO R 2, 19 2, S M ND D.
To provde for the aboton of the Saary Stabzaton Unt and
for the transfer of ts powers and dutes to the Income Ta Unt of
the ureau of Interna Revenue..

Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
The powers and dutes heretofore conferred upon the ead of the
Saary Stabzaton Unt of the ureau of Interna Revenue under
the provsons of Treasury Decson 5176 C. . 19 2-2, 3 7 (7 F. R.,
8820), as amended by Treasury Decson 5511 C. . 19 6-1, 308
(11 F. R., 72 (29 CFR, Part 1001), are hereby transferred to the
Deputy Commssoner or the Income Ta Unt of the ureau of
Interna Revenue, and the Saary Stabzaton Unt, created under
the provsons of Treasury Decson 5176 (29 CFR, Part 1001), s
hereby aboshed.
In vew of the aboton of the Saary Stabzaton Unt and the
transfer to the Deputy Commssoner of the Income Ta Unt of
the powers and dutes conferred upon the ead of the Saary Stab-
zaton Unt, the words Saary Stabzaton Unt, wherever they
mght appear n the reguatons of the Commssoner of Interna
Revenue reatng to the stabzaton of wages and saares under the
ct of October 2, 19 2, as amended, entted n ct to amend the
mergency Prce Contro ct of 19 2, to ad n preventng nfaton,
and for other purposes (56 Stat., 765; 50 U. S. C, pp., sectons
961-971), or n mmeographs, memoranda, orders, or forms ssued
under the above-mentoned reguatons, on and after the effectve
date of ths Treasury decson, sha be read: Income Ta Unt. Lke-
wse, the words Deputy Commssoner of the Saary Stabzaton
Unt or the words ead, Saary Stabzaton Unt sha be read:
Deputy Commssoner of the Income Ta Unt.
Ths Treasury decson sha be effectve upon fng for pubcaton
wth the Federa Regster.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved October 10,19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 15,19 7, 8. 5 a. m.)
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Msc.
220
LCO OL T .
INT RN L R NU COD .
19 7-15-12602
T. D.5571
tte 26 nterna revenue. chapter , subchapter c, part 19 .
whoesae and reta deaers n quors.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. On May 6, 19 7, notce of proposed rue makng regardng the
keepng of records by whoesae quor deaers was pubshed n the
Federa Regster (12 F. R.. 3020).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, the foowng amend-
ments to sectons 19 .27(a), 19 .75 (a) and (b), 19 .76, and 19 .78(a)
of Reguatons 20, approved une 6,19 0 (26 CFR, Cum. Supp., Part
19 ), are hereby adopted.
3. These amendments are desgned to suppement e stng regua-
tons by provdng more defnte nstructons regardng the keepng
of records nvovng the recept and dsposa of dsted sprts through
transactons n warehouse recepts.
. Reguatons 20, approved une 6, 19 0 (26 CFR, Cum. Supp.,
Part 19 ), as amended, are hereby amended as foows:
Secton 19 .27. Wabehouse Recepts Covebtnq Spouts. (a) Snce the sae of
warehouse recepts for sprts s equvaent to the sae of sprts, a person en-
gaged n the busness of seng, or offerng for sae, warehouse recepts for sprts
stored n Government bonded warehouses, or esewhere, Incurs abty to s eca
ta as a deaer n quors, uness e empted by the provsons of sectons 19 .62
to 19 .73, ncusve. .
Seo. 19 .75. Records to be ept by Whoesae Lquor Deaers. (a) very
whoesae deaer n quors who ses dsted sprts (by warehouse recept or
otherwse) sha keep Record 52, Whoesae Lquor Deaer s Record, and
render monthy transcrpts, Form 52 and 52 , Whoesae Lquor Deaer s
Monthy Report, and Form 338, Whoesae Lquor Deaer s Monthy Report
(Summary of Forms 52 and 52 ). Separate Records 52 sha be mantaned
and separate Forms 338 sha be rendered for (1) the recordng of transactons
In warehouse recepts and (2) the recordng of recepts and remova of sprts.
The Record 52 and Form 338 coverng transactons n warehouse recepts sha
be so dentfed.
(1) The recept and dsposa of non-negotabe warehouse recepts ssued by a
warehouseman to the owner of sprts as evdence of the custody of the sprts
need not be entered n the Record 52. The recept and dsposa of other ware-
house recepts or the surrender thereof to a warehouseman to effect changes n
dentfcaton of the sprts represented thereby (by change of package or bottng)
must be recorded n Record 52.
(6) Day entres sha be made on Record 52 of a dsted sprts receved
and dsposed of (by warehouse recept or otherwse), as ndcated by the headngs
of the varous coumns, and n accordance wth the nstructons prnted thereon
and contaned n pertnent reguatons, not ater than the cose of busness of
the day on whch the transactons occur: Provded, That f the keepng of such
separate record s approved by the dstrct supervsor, a whoesae quor deaer
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221
Regs. 7, 178.8, etc.
may keep a separate record of the dsposa of dsted sprts, showng the data
requred to be entered on Record 52, but the day entres of the dsposa of
dsted sprts sha be made on Record 52 not ater than the cose of busness of
the foowng busness day.

Sec. 19 .76. Sepabate Record op Sera Numbers of Cases. Sera numbers of
cases of dsted sprts dsposed of need not be entered on Record 52: Provded,
That the propretor keeps at hs pace of busness a separate record, showng
such sera numbers, wth necessary Identfyng data, ncudng the date of re-
mova (or the date of dsposa n the case of warehouse recepts) and the name
and address of the person or persons to whom sod and consgned: Provded fur-
ther, That the keepng of such record s approved by the dstrct supervsor.
Such separate record may be kept In book form (ncudng oose-eaf books) or
may consst of commerca papers, such as Invoces or bs. Such books, n-
voces, and bs sha be preserved for a perod of four years and n such manner
that the requred nformaton may be ready ascertaned therefrom, and, durng
such perod, sha be avaabe durng busness hours for nspecton and the takng
of abstracts therefrom by revenue offcers. If a record n book form s kept,
entres sha be made on such separate approved record not ater than the cose
of busness of the day on whch the transactons occur. The deaer sha note
on Record 52, n the coumn for reportng sera numbers of cases of sprts ds-
posed of, Sera numbers shown on commerca records per authorty, dated (Sec. 2857, I. R. C.)
Sec. 19 .78. Pace Where Record 52 Sha be ept. (a) very whoesae
deaer In quors sha keep the Record 52 coverng transactons n warehouse
recepts at the pace of busness covered by the whoesae quor deaer speca
ta stamp, and, e cept as provded In paragraph (6) of ths secton, sha keep
Records 52 coverng the recept and remova of sprts at such premses.
5. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Sectons 2857, 2858, 325 , and 3791 of the Interna Revenue Code
(26 U. S. C. ., 2857,2858, 325 , and 3791).)
oseph D. Nun an, r.,
Commssoner of Interna Revenue.
pproved uy 8,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 12, 19 7.)
Reguatons 7 (19 5), Sectons 178.8,178.10, 19 7-19-120 2
178.12, etc. T. D. 5575
TITL 2(5 INT RN L R NU C PT R I, SU C PT R C, P RT 178.
WIN .
mendng Reguatons 7.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of uy 1 , 19 7 (Pubc Law 18G, ghteth Congress
page 336, ths uetn ), amends the Interna Revenue Code as
foows:
1. Secton 2801(e) ( ) of the Interna Revenue Code s amended (a) by deetng
from the second sentence thereof the words havng no nteror communcaton
wth any other department or part of such premses , and (b) by addng Immed-
atey at the end thereof the foowng new sentence: The provsons of ths para-
graph sha appy In the same manner and to the same e tent to apertf wnes
other than vermouth.
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Regs. 7, 178.8, etc.
222
2. Secton 30 3(a), Interna Revenue Code, a amended by deetng the coon
n the second sentence thereof and nsertng In eu thereof the foowng: nor
to appy to or prohbt the fermentaton of grape wne retsna wth resn on
bonded wnery premses: .
3. Secton 30 (b), Interna Revenue Code, Is amended by deetng the words
and not more than 13 per centum of acoho after compete fermentaton, and
nsertng n eu thereof the words and not more than 13 per centum of acoho
after compete fermentaton or, f sweetened, after compete fermentaton and
sweetenng, .
. Secton 30 5, Interna Revenue Code, s amended by deetng the perod at
the end thereof and addng the foowng: : Provded, That n the case of wnes
produced from oganberres, currants, or gooseberres, respectvey, havng a
norma acdty of twenty parts or more per thousand, the voume of the resutant
product may be ncreased more than 35 per centum but not more than 60 per
centum by the addton of sugar and water souton under such reguatons as the
Commssoner of Interna Revenue may prescrbe .
2. Notce and pubc procedure under secton (a) of the dmns-
tratve Procedure ct, approved une 11, 19 6, are found to be un-
necessary n connecton wth the ssuance of these reguatons for the
reason that the soe purpose of the aw, whch the reguatons are de-
sgned to mpement, s to remove restrctons to permt (a) nteror
communcaton between the vermouth department and other depart-
ments or parts of a bonded wnery, ( ) the producton of apertf
wnes n the vermouth department of the wnery, (c) the producton
of retsna wne on bonded wnery premses, (d) wnes produced wth
sugar-water souton to be fermented somewhat n e cess of 13 per
cent of acoho, so that subsequent sweetenng w not ower the a-
cohoc content beow the present 13 per cent mt, and (e) the acdty
of oganberry, currant, and gooseberry wnes to be ad|usted wth a
sugar-water souton not n e cess of 60 per cent (nstead of the present
35 per cent) of the voume of the resutant product. It s aso found
necessary to make these reguatons mmedatey effectve to permt
wnemakers to beneft by the egsaton durng the current vntage
season and to avod confuson n operatons and the keepng of records.
3. Pursuant to the foregong provsons of aw and sectons 3176
and 3901, Interna Revenue Code, Reguatons 7 (26 CFR, Part 178)
are hereby amended n these respects:
(a) Sectons 178.8(c), 178.10, 178.12, 178.2 , 178.27, 178. 5(c),
178.82, 178.87, 178.129, 178.137, 178.160, 178.161, 178.183, 178.18 ,
178.185, 178.199, 178.200, 178.215, 178.238, 178.263, 178.26 , 178.310,
178.370,178.375,178.377,178.378,178.382,178.383,178.398, and 178. 01
are amended by nsertng the term or other apertf wne mmed-
atey after the word vermouth wherever such word appears n
such sectons.
( ;) Secton 178.1 3 s amended by deetng the words sha not
contan more than 13 per cent of acoho after compete fermentaton
and nsertng n eu thereof the words sha not contan more than
13 per cent of acoho after compete fermentaton or, f sweetened,
after compete fermentaton and sweetenng.
(c) Secton 178.1 s amended by deetng the words may not
contan more than 13 per cent of acoho after compete fermentaton
and nsertng n eu thereof the words may not contan more than
13 per cent of acoho after compete fermentaton or, f sweetened,
after compete fermentaton and sweetenng, and by deetng the
sentence The acohoc content of the wne must not e ceed 13 per
cent by voume at any tme durng the process of fermentaton.
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223
Regs. 7, 178.8, etc.
(d) Secton 178.1 9(a) s amended by deetng the words whch
contan more than 13 per cent acoho by voume after fermentaton
and nsertng n eu thereof the words whch contan more than 13
per cent acoho by voume after compete fermentaton or, f sweet-
ened, after compete fermentaton and sweetenng.
(e) Sectons 178.5, 178.21, 178.136, 178.1 5, 178.150, 178.152,
178.153, 178.157, 178.159, 178.162, 178.182, 178.186, 178.187, and
178.211 are amended, and sectons 178.57a, 178.136a, and 178.211a are
added, as foows:
Sec. 178.5. Defntons.

(o)a pertf Wne sha mean apertf wne manufactured n accordance
wth secton 2801(e) ( ), I. R. C, as amended, and sectons 178.182 to 178.187,
Incusve, of these reguatons, us amended, and conformng to the standards of
Identty for apertf wnes prescrbed n Reguatons (27 CFR, Part ), Issued
under the Federa coho dmnstraton ct.

(z) Wne, when used wthout quafcaton. Incudes a st wnes, cham-
pagne and other sparkng wnes, artfcay carbonated wne, retsna wne, and
vermouth or other apertf wne produced on bonded wnery premses.

Sec. 178.21. ermouth oe Other pertf Wne Department. Wnemakers
desrng to manufacture vermouth or other apertf wne must provde a separate
department, consstng of a room or rooms, for such operatons n the bonded
wnery. The department must be of suffcent sze to permt manufacturng
operatons and the storage of suppes necessary or ncdenta to the manufac-
ture of vermouth or other apertf wne on bonded wnery premses. The en-
trance to the department may be from any part of the wnery premses (other
than the fortfyng room) or t may ead drecty nto a pubc street, yard, or
passageway. (Sees. 2801 (e)( ), 3176, 3901, I. R. C.)
Sec. 187.57a. Consents of Surety, Coverng pertf Wne or Retsna
Wne. Where a wnemaker s operatons are covered by a bond on Form 099 or
Form 700, or a bond on Form 700- , revsed anuary, 19 0, or pror thereto, and
such wnemaker desres to produce or receve apertf wne (other than ver-
mouth) or retsna wne, he sha fe consent of surety on Form 1533 coverng
such operatons. (Sees. 30 0, 317G, 8801, I. R. C.)
Sec. 178.130. ssences, Favorng, Coobng, tc. cept as provded n
sectons 178.130a and 178.137, wnemakers may not add essences, e tracts, favor-
ng, coorng matter, or smar nonfernentabe materas to wne (ncudng the
|uce or frut) on bonded premses, before, durng, or after fermentaton. The
addton of such materas to wne, or to the |uce or frut from whch the wne
Is made, makes the product a spurous, mtaton, or compound quor wthn the
meanng and contempaton of secton 325 (g), I. R. C, and for that reason con-
sttutes rectfcaton. If a wnemaker desres to add such materas to wne
(e cept n the producton or manufacture of retsna wne, vermouth, or other
apertf wne), he must ta -pay and remove the wne to a rectfyng pant, where
the materas may be added and the rectfcaton ta of 30 cents a proof gaon
pad on the fnshed product. (Sees. 2800(a)(5), 2801(e)( ), 3030(a), 30 ,
30 5, 3176, 325 (g), 3901, I. R. C.)
Sec. 178.136a. Retsna Wne. The restrcton reatve to the addton of
favorng matera to wne does not appy to the producton of retsna wne by
the addton of resn before or durng fermentaton of grape wne, snce the aw
makes speca provson therefor. statement of formua and process on Form
698 Suppementa must be fed pursuant to the provsons of secton 178.156.
The authorty of aw to produce retsnavwne on bonded wnery premses may
not be construed as authorzng the producton of products smar to retsna
wne. (Sees. 30 3, 3176, 3901, I. R. C.)
Sec. 178.1 5. Frut and erry Wnes.

(a) Use of dry sugar for fermentng. Where t s desred to use dry sugar
for the purpose of perfectng such wnes accordng to standards, as authorzed
n the precedng paragraph, there may be added to the unfermented |uce suffcent
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Regs. 7, 178.8, etc.
22
dry sugar to rase the sugar content of the uce to a pont necessary to produce
(ferment) wne wth an acohoc content of not more than 13 per cent by
voume after compete fermentaton or, f the wne s to be sweetened, after
compete fermentaton and sweetenng. The sugar content, both natura and
added, requred to produce 13 per cent acoho by voume s 20.2 degrees ang,
after correcton for temperature and deducton of 2 degrees for nonsugar sods.
See Tabes II, III, and I n the ppend , showng the ang correcton for
temperature and nonsugar sods, and the quantty of sugar requred, accordng
to the ang of the uce, to ferment 13 per cent acoho by voume.
(6) meoraton. Where the uce or wne has natura defcences, whether
dry sugar has been added as provded n paragraph (a) or not, there may be
added to the uce or to the wne, or both, a souton of water and pure cane,
beet, or de trose sugar, contanng, respectvey, not ess than 05 per cent of
actua sugar, cacuated on a dry bass, for the purpose of correctng such
defcences: Provded, That the resutng product (1) must contan not ess
than 5 parts per thousand of acd before fermentaton, (2) may not contan
more than 13 per cent of acoho after compete fermentaton or, If sweetened,
after compete fermentaton and sweetenng, and (3) may not be ncreased
more than 35 per cent n voume (60 per cent where oganberres, currants, or
gooseberres are used). The quanttes of water and sugar composng the
souton sha be n the proporton necessary to correct the natura defcences
n the uce or wne. Where both the pup and uce are deposted n the
fermenters, the voume of the pup must be e cuded In cacuatng the quantty
of sugar-water souton that may be added. The voume of the |uce or wne,
ncudng the ncrease theren caused by the addton of the dry sugar where
used, must be not ess than 65 per cent of the resutng product ( 0 per cent
where oganberres, currants, or gooseberres are used) and the sugar and
water souton must be not more than 35 per cent of the resutng product (60
per cent where oganberres, currants, or gooseberres are used). The foowng
tabe shows the ma mum quantty n gaons of sugar-water souton that may
be added to each thousand gaons of |uce (e cusve of the pup), based on the
acd e pressed In parts per thousand of ctrc acd (mac acd for appe uce) :
Parts rer 1,000
f ed acd
5.1
5.2
5.3
5.
5.5
5.6
5.7
5.8
5.9
6.0
6.1
6.2
6.3
6.
Gaons of
uce.
, 000
000
, 000
, 000
, 000
000
, 000
, 000
000
, 000
, 000
, 000
, 000
, 000
Gaons of
sugar-water
aowed.
20. 0
0. 0
60. 0
80. 0
100. 0
120. 0
1 0. I)
160. 0
180. 0
200. 0
220. 0
2 0. 0
260. 0
280. 0
Parts
uts per 1.(
f ed acd.
.ooo
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
7.3.
7.
7.5
7.6
For a acdty
over 7.6
Gaons of
uce.
1, 000
1, 000
1,000
1, 000
1, 000
1, 000
1, 000
1, 000
1, 000
1, 000
1, 000
1, 000
1, 000
Gaons of
sugar-water
aowed.
300. 0
320. 0
3 0. 0
360. 0
380. 0
00. 0
20. 0
0. 0
60. 0
80. 0
500. 0
520. 0
1 53
1 Lmtaton not appcabe to oganberry, currant, or gooseberry uce.
ma mum of 1,500 gaons of sugar-water souton may be added to each
1,000 gaons of oganberry, currant, or gooseberry uce. Where a of the sugar-
water souton authorzed s not used pror to or durng fermentaton, the re-
mander or any part thereof may be used, n addton to the dry sugar author-
zed In paragraph (6), to sweeten the wne after fermeutaton, provded the un-
fermented sugar content of t e wne s not ncreased beyond 15 per cent by weght,
or 20 per cent by weght where the wne s made from frut (other than grapes)
havng a natura acd content not ess than 7.5 parts per thousand.
(1) Records. When both the uce and the resutng wne are ameorated
wth a sugar-water souton, there must be ndcated on Form 701 that the resut-
ng wne s to be further ameorated, and there must be ndcated on Form 702
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225
Regs. 7, 178.8, etc.
that the uce Is aso ameorated, n order that t may be determned that the
tota quantty of sugar-water souton used n both the |uce and the resutng
wne does not e ceed the 35 per cent mtaton (60 per cent n the case of
oganberres, currants, or gooseberres). ach ot of |uce and resutng wne so
ameorated must be numbered as Lot 1, Lot 2, etc., the same ot number beng
shown on Form 701 n whch the ameoraton of the |uce s reported and on
Form 702 In whch the ameoraton of the resutng wne s reported, together
wth the notaton See Form 702 for further ameoraton, or See Form 701
for pror ameoraton, as the case may be.

Sec. 178.1,r 0. Iustratons.- Wnes made by the foowng methods come
wthn the cassfcaton of nonstandard wnes:
(1) the use of sugar n e cess of the 11 per cent mtaton for sweetenng;
(2) the deveopment of more than 13 per cent of acoho by fermentaton
after the addton of sugar, or sugnr-water souton wthn the 35 per cent
mtaton (00 per cent mtaton for oganberres, currants, or gooseberres),
where the acohoc content s not reduced to 13 per cent or ess by the add-
ton of sweetenng matera after fermentaton; and
(3) the use of nvert sugar, matose, evuose, or gucose; or of cane, beet,
or de trose sugar contanng ess than 95 per cent of actua sugar cacuated
on a dry bass. (Sees. 3030(a), 30 , 30 5, 3176, 3901, I. R. C.)
Sec. 178.152. Labeng. Substandard wnes must be marked or abeed Sub-
standard Wne, the bank to be fed n wth the name of the frut,
berry, or other agrcutura product used. In each Instance a parts of the desg-
naton must appear n etterng of substantay the same sze and knd. (Sees.
3176, 3901, I. R. C.)
Sec. 178.153. Iustratons. Wnes made by the foowng methods come
wthn the cassfcaton of substandard wnes:
(1) . the use of a sugar-water souton n e cess of the 35 per cent mtaton
(60 per cent n the case of oganberry, currant, or gooseberry wne), or
water n e cess of the 10 per ce t mtaton ;
(2) the reducton of the acd content beow 5 parts per thousand by the
addton of water or sugar-water souton ; and
(3) wnes requred to be abeed substandard under secton 21, cass
8(c), Reguatons No. (27 CFR, Part ). (Sees. 3176, 3901, I. R. C.)
Sec. 178.157. Rectfcaton. The fng of a statement of formua and process
does not gve the wuemaker the prvege of makng a rectfed product on bonded
wnery premses. cept as provded n secton 178.137, carame, True Frut
favorng e tracts, or other coorng and favorng materas (ncudng |uce
or wne from another knd of frut or berry), may be added to wne, ony after
the wne has been ta -pad and removed to a rectfyng pant. cept as pro-
vded n secton 178.136a, coorng or favorng matera may not be added to
the |uce or frut before, durng, or after fermentaton. The m ng together of
unfermented |uces of dfferent fruts or berres or agrcutura products for
the purpose of producng a formua wne s not rectfcaton. (Sees. 2800(a) (5),
2801(e) ( ), 30 3, 3176, 325 (g), 3901, I. R. C.)
Sec. 178.159. Materas. Formua wnes must be produced by the fermenta-
ton of sutabe fermentabe materas, as provded n secton 178.133. Non-
fermentabe coorng or favorng materas may not be used n the manufacture,
ncudng cear treatment, of such wnes, e cept as authorzed n the manu-
facture of vermouth, or other apertf wne, retsna wne, champagne, sparkng
wne, and artfcay carbonated wne. The use of such nonfermentabe coorng
or favorng materas consttutes rectfcaton and mny be done onv at a rect-
fyng pant. (Sees. 2800(a) (5), 2801(e) ( ), 3176, 325 (g), 3901, I. R. C.)
Sec. 178.162. enmno. formua wne (other than heavy boded bendng
wne) may not be bended wth a wne made under another formua, nor wth
standard wne, e cept as provded n secton 178.210. (Sees. 3176, 325 (g),
3901, I. R. C.)
Sec. 178.182. Manufacture. ermouth or other apertf wne, conformng to
standards of dentty for vermouth or such other apertf wne prescrbed n
Reguatons No. (27 CFR, Part ), may be manufactured wth fortfed sweet
wne on bonded wnery premses n accordance wth approved formuas and
processes, as provded n sectons 178.183 to 178.187, ncusve. The vermouth or
other apertf wne may be manufactured ony n a separate department of the
wnery premses. Such department sha be known as the vermouth or other
apertf wne department. No wne other than fortfed sweet wne may be
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Rega T, 178.8, etc.
226
used In the manufacture of vermouth, or other apertf wne, on bonded wnery
premses. No dsted sprts may be added to fortfed sweet wne used n the
manufacture of vermouth or other apertf wne or to the vermouth or other
apertf wne durng or after ts manufacture: Provded, That approved essences,
In the manufacture of whch dsted sprts are used as an e tractve and so-
vent, may be used n manufacturng vermouth or other apertf wne n accord-
ance wth secton 178.183. (Sees. 2801(e) ( ), 3176,3901, L R. C.)
Sec. 178.180. Products Otheb Than ermouth ob pebtf Wne. Favored
wnes and other specates may not be manufactured on bonded wnery premses
under the guse of vermouth or other apertf wne. Ony true vermouth or
other apertf wne may be made n the vermouth or other apertf wne depart-
ment of a wnery, and the product must be defntey desgnated and sod as ver-
mouth or as apertf wne, as the case may be. (Sees. 2800(a) (5), 2801(e) ( ),
3176, 325 (g), 3901, I. R. C.)
Sec. 178.187. Storage, tc., fter Manufacture. Upon competon of manu-
facture n the vermouth or other apertf wne department of the wnery, the
vermouth or other apertf wne may be stored, bended, botted, shpped, etc.
(but not fortfed or carbonated), n the same manner as wne, n the vermouth
or other apertf wne department, or esewhere n the wnery f t s kept
separate and apart from wne and the contaners are marked vermouth or aper-
tf wne, as the case may be. (Sees. 3176, 3901, I. R. C.)
Sec. 178.211. ermouth or Other pertf Wnes. ermouths may be m ed
or Wended wth each other for the soe purpose of perfectng them accordng to
commerca standards, but may not be m ed or bended wth any other wnes.
Lkewse, the same knds of apertf wnes may be m ed or bended wth each
other for the soe purpose of perfectng them accordng to commerca standards,
but may not be m ed or bended wth other knds of apertf wnes, or wth any
other wnes. (Sees. 30 3, 3176, 3901, I. R. C.)
Sec. 178.211a. Retsna Wne. Retsna wnes may be m ed or bended wth
each other for the soe purpose of perfectng them accordng to commerca
standards, but such wnes may not be m ed or bended wth other wnes. (Sees.
30 3, 3176, 3901, L R. C.)
. Ths Treasury decson sha be effectve upon fng for pub-
caton n the Federa Regster.
(Sectons 2800,2801,3036,30 0,30 3,30 ,30 5,3176,325 . and 3901
of the Interna Revenue Code (26 U. S. C. ., 2800, 2801, 3036, 30 0,
30 3, 30 , 30 5, 3176, 325 , and 3901).)
Geo. . Schoe|teman,
Commssoner of Interna Revenue.
pproved ugust 28, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 5, 19 7, 8. 6 a. m.)
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227 Regs. 3, 182.6, etc.
INDUSTRI L LCO OL.
INT RN L R NU COD .
Reguatons.3, Sectons 182.6 (h) and (a-), 19 7-15-12603
182.9 , 182.99, etc. T. D. 5568
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 182.
INDUSTRI L LCO OL.
mendng Reguatons 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. On pr 23, 19 7, a notce of proposed rue makng regardng
ndustra acoho was pubshed n the Federa Regster (12 F. R.,
2605).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, the foowng amend-
ments of Reguatons 3, Industra coho (26 CFR, Part 182),
sectons 182.6 (h) and (a-), 182.9 , 182.99, 182.102, 182.175, 182.179,
182.182, 182.183, 182.229 (y), 182.371(a), 182.377(a), 182.383(a),
182.389(a), 182.51 , 182.706, 182.728, 182.731, 182.738, 182.750,
182.752(6), 182.75 (paragraph 1), 182.785, 182.786, 182.798, 182.802,
182.811, 182.812 (paragraph 1), 182.813, 182.816, 182.908, 182.99 ,
182.995,182.997, and 182.1006 are hereby adopted.
3. These amendments are desgned to termnate the transportaton
n tank trucks of ta -free acoho and ta -free dsted sprts author-
zed by reguatons ssued durng the natona emergency due to the
shortage of transportaton factes, but consdered a |eopardy to the
revenue durng peacetme; to strengthen the requrements for the
transportaton n tank trucks of denatured acoho; and to authorze
the transportaton n tank trucks of buty acoho, acetone, ether and
fuse o produced by ndustra acoho pants.
rtce I . Defntons.
Sec. 182.6. Defntons. (h) Carrer sha mean a person or agency regu-
ary engaged n the transportaton of movabe property by raroad, steamshp,
ferryboat, barge, motortruck, arpane, or other vehce capabe of beng used as
a means of transportaton on and, In water, or through the ar. The term
motor carrer sha mean a motor carrer censed under the Motor Carrer
ct of 1935 or an appcabe State aw, the consgnor or consgnee actng as a
prvate carrer, or a prvate carrer empoyed by, or actng as agent for, the
consgnor or consgnee.
(a-) Tank car sha mean a raroad tank car conformng to the requre-
ments of these reguatons. Tank truck sha mean a motor drven tank truck,
ncudng tank truck traer, conformng to the requrements of these reguatons
and of a capacty of not ess than 1,000 gaUons. (Sees. 3105, 312 , 3176, I. R. C.)
rtce TI. qupment.
D N TURING PL NTS.
Seo. 182.9 . Denatured coho Storage Tanks. The propretor of the dena-
turng pant sha provde substantay constructed denatured acoho storage
tanks for the storage of a acoho denatured by hm. uness permsson s granted
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egs. 3, 83 182.6, etc.
228
by the dstrct supervsor to use m ng tanks for the storage of denatured aco-
ho or the denatured acoho Is drawn Into packages or other portabe contaners
for mmednte shpment or storage In the denatured acoho storeroom, or trans-
ferred to tank cars or tank trucks for Immedate shpment, or transferred by
ppe ne to contguous premses operated by the denaturer. Where denatured
acoho storage tanks are provded, they sha be constructed and secured In
conformty wth the provsons of secton 182.7 , and must be equpped wth
a sutabe measurng devce whereby the actua contents w be correcty nd-
cated : Provded, That wooden storage tanks may be used for formuas for
whch meta storage tanks are unsutabe. ach such tank sha have pany
and egby panted thereon the words Denatured coho Storage Tank, fo-
owed by Its sera number and capacty In wne gaons. The denatured acoho
storage tanks must be ocated n the denaturng pant: Provded further, That
the propretor may be permtted to store denatured acoho n tanks constructed
In conformty wth these provsons not necessary ocated n a room or budng,
provded they are permanenty f ed and of such sze that they may not be ready
removed. (Sees. 2829, 3105, 312 , 3176, I. . 0.)
SP CI LLY D N TUR D LCO OL US S PR MIS S.
Sec. 182.09. Tanks. If the propretor desres to receve specay denatured
acoho In tank cars, tank trucks, or by ppe ne from a denaturng pant on con-
tguous premses operated by hm, he must provde tanks for the storage of
the specay denatured acoho so receved by hm. ach such tank must be
constructed of meta, and sha be of unform dmensons and equpped wth
a sutabe measurng devce whereby the actua contents w be correcty Ind-
cated : Provded, That wooden tanks may be used for formuas for whch meta
tanks are unsutabe. ach such tank sha have pany and egby panted
thereon the words Specay Denatured coho Storage Tank, foowed by Its
sera number and capacty In wne gaons. The tanks sha be equpped for
ockng n such a manner as to prevent access to the denatured acoho. (Sees.
2829, 3105, 312 , 3176,1. R. C.)
6P CI LT.Y D N TUR D LCO OL OND D D L RS PR MIS S.
Sec. 182.102. Tanks. If specay denatured acoho s receved In tank cars
or tank trucks, the propretor must provde sutabe storage tanks for the
storage of sueh acoho. ach such tank must be constructed n the manner
prescrbed n secton 182.99 and a openngs affordng access to the contents sha
be equpped for ockng. ach such tank must have pany and egby panted
thereon the words Specay Denatured coho Storage Tank, foowed by
Its sera number and capacty In wne gaons, and be equpped wth a sutabe
measurng devce, whereby the actua contents w be correcty ndcated. (Sees.
2829, 3105, 312 , 3176, I. . C.)
rtce I . uafyng Documents.
, C RRI RS.
Sec. 182.175. ppcaton, Form 1 . very person desrng to transport
ta -free acoho or specay denatured acoho must fe Form 1 , ppcaton
for Permt to Transport Ta -free or Specay Denatured coho, In trpcate,
for permt so to do. The carrer w specfy the mode of transportaton, such
as raroad, e press company, steamshp, barge ne, truck, etc., and the super-
vsory dstrcts In whch ta -free, or specay denatured acoho w be trans-
ported. Where steamshp or barge nes or motor carrers operate between
certan ponts and over certan courses or routes, such ponts and courses or
routes w be specfed In the appcaton. Where the mode of trans ortaton
s by tank truck, the carrer w gve the sera number of each tank truck and
Its capacty. In cases where transportaton s n more thnn one supervsory
dstrct, the appcaton sha be fed wth the dstrct supervsor In whose
dstrct the prncpa offce or pace of busness of the appcant Is ocated. The
provsons of sectons 182.105, 182.106, 182.115, 182.117, and 182.118 are hereby
e tended, n so far as appcabe, to carrers.
(a) Persons entted to permt. asc permts to transport ta -free or specay
denatured acoho sha be ssued ony to reputabe carrers who are actvey and
reguary engaged generay n the egtmate busness of transportaton, and
who possess adequate factes to nsure safe devery at destnaton of any
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229
Regs. 3, 182.6, etc.
ta -free or specay denatured acoho transported by them. (Sees. 3105,
311 (a), 312 , 317C, I. R. C.)
Sec. 182.179. Condtons of ppeova. No appcaton sha be approved uness
and unt t Is estabshed by the appcant to the satsfacton of the dstrct
supervsor that he s a reputabe carrer and s actvey and reguary engaged
generay In the egtmate busness of transportaton and that he possesses
adequate factes to Insure safe devery at destnaton of any ta -free acoho
or specay denatured acoho whch may be transported by hm. No appcaton
for an orgna or renewa permt for the transportaton n tank trucks of
specay denatured acoho sha be approved uness and unt t s determned
by the dstrct supervsor, after Inspecton, that each tank truck meets the
requrements of these reguatons. (Sees. 3105, 312 , 3176, I. R. C.)
Sec. 182.182. ond, Form 9. (a) Ta -free acoho and specay denatured
acoho n contaners other than tank trucks. very person fng an appcaton
for a basc permt to transport ta -free acoho or specay denatured acoho,
upon fng hs appcaton, Form 1 , and before ssuance of basc permt pur-
suant thereto, and before transportng any ta -free acoho or specay denatured
acoho, sha e ecute a bond on Form 9, ond to Transport Specay
Denatured or Ta -free coho, n trpcate, n conformty wth the provsons
of rtce , and fe the same wth the dstrct supervsor: Provded, That a
bond w not be requred f the appcant s a raroad or steamshp company,
or an e press company operatng thereon, or a motor carrer who has quafed
wth the Interstate Commerce Commsson as a sef-nsurer.
(6) Specay denatured acoho n tank trucks. (1) Transportaton by motor
carrers. Motor carrers, as denned n these reguatons, n order to transport
specay denatured acoho by tank trucks, must procure permts so to do, n
accordance wth these reguatons and fe bond. Form 9, n the pona sum spec-
fed n secton 182.183. Where such permt s obtaned and bond s fed, the
permt w aso authorze transportaton of ta -free acoho or specay denatured
acoho n barres or drums wthout addtona bond requrement.
(2) Transportaton by consgnors or consgnees. consgnor or consgnee, n
order to transport specay denatured acoho n tank trucks controed and
operated by suc consgnor or consgnee, must te appcaton on Form 1 and
procure permt, Form 1 5. authorzng such transportaton and t e consent of
surety, Form 1533. on hs bond Form 1 32- , 1 35, 1 75, or 1 80, e tendng the
terms thereof to be abe for the ta , together wth penates and Interest on a
specay denatured acoho wthdrawn, transported, used, or sod n voaton of
aws or reguatons now or hereafter n force. If the ma mum of the present
bond s not suffcent when computed as set forth n secton 182.183. a new bond
n a suffcent pena sum must be furnshed to cover the addtona abty. These
requrements sha not appy where specay denatured acoho s wthdrawn by
the Unted States or any governmenta agency thereof and s transported n tank
trucks operated by empoyees of the Unted States.
(3) Present permts and bonds. asc permts and bonds now hed by motor
carrers, and by consgnors and consgnees, whch authorze the transportaton
of ta -free acoho and specay denatured acoho, may, on appcaton and the
fng of consents of surety, he modfed to authorze tank truck shpments of
specay denatured acoho and to contan an undertakng to be abe for the
ta , or an amount equa to the ta as provded n subparagraph (2) of paragraph
(6). The consent of surety (or, f preferred, a new bond) must be fed so that the
prncpa and surety w be responsbe to the e tent specfed In secton 182.1S3.
(Sees. 3105, 311 (a), 312 , 3176, I. R. C.)
Sec. 182.183. Pena Sum. The pena sum of the bond must be computed at the
rate of not ess than 1,000 for each vehce (other than a tank truck) to be used
by the permttee, nor more than 10,000 for a such vehces so used. The pena
sum of the bond for the transportaton of specay denatured acoho n tank
trucks sha be n the pena sum of 50,000 for each such tank truck, and not more
than 200,000 for the tota of a trucks used. (Sees. 3105, 311 (a), 312 , 3176,
I. R. C.)
rtce III. asc Permts.
ISSU NC OF ORIGIN L SIC P RMITS.
Sec. 182.229. Lmtatons Under Permt. (g) Permt to transport ta -free
and specay denatured acoho. Form US, The permt w specfy the super-
vsory dstrcts In whch the carrer w be permtted to transport ta -free or
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Regs. 3, 182.6, etc.
230
specay denatured acoho. If the carrer Is a steamshp or barge ne or motor
carrer operatng between certan ponts and over certan courses or routes, such
ponts and courses or routes w be specfed In the permt. If the carrer s other
than a raroad, steamshp, e press company, or motor carrer quafed wth the
Interstate Commerce Commsson as a sef-Insurer, or has fed bond n ess
than the ma mum pena sum, specfed n secton 182.183, the permt sha specfy
the number of vehces to be used by the permttee n transportng ta -free or
specay denatured acoho In vehces other than tank trucks and In case of
tank trucks the permt sha specfy the number of tank trucks to be used n the
transportaton of specfcay denatured acoho and the sera number and capacty
of each. (Sees. 3105, 311 , 312 , 3176,1. R. C.)
rtce I. Opebaton of Industra coho Pants.
COLL CTION ND MO L OF FU8 L OIL.
Sec. 182.371. Remova. (a) Contaners. Removabe fuse o may be drawn
off nto barres, drums, or smar packages, or nto tank cars or tank trucks.
Packages contanng such fuse o sha be marked by the propretor wth hs
name, pant number, ocaton (cty or town and State), the words Fuse O,
and the date of remova n dstnct and egbe etters. When remova s made
n tank cars or tank trucks, the propretor w aff to the route board of each
tank car or tank truck a abe contanng such data. (Sees. 3105, 312 , 3176,
L R. C.)
PRODUCTION ND R MO L OF UTYL LCO OL.
Sec. 182.377. Remova. (a) Contaners. Removabe buty acoho may be
drawn off nto barres, drums, or smar packages, or Into tank cars or tank
trucks. Packages contanng such buty acoho sha be marked by the pro-
pretor wth hs name, pant number, ocaton (cty or town and State), and the
words uty coho, and the date of remova n dstnct and egbe etters.
When remova s made In tank cars or tank trucks, the propretor w aff to
the route board of each tank car or tank truck a abe contanng such data.
(Sees. 3105, 312 , 3176, I. .C.)
PRODUCTION ND R MO L OF C TON .
Sec. 182.383. Remova. (a) Contaners. Removabe acetone may be drawn
off nto barres, drums, or smar packages, or nto tank cars or tank trucks.
Packages contanng such acetone sha be marked by the propretor wth hs
name, pant number, ocaton (cty or town and State), the word cetone, and
the date of remova n dstnct and egbe etters. When remova s made In
tank cars or tank trucks, the propretor w aff to the route board of each tank
car or tank truck a abe contanng such data. (Sees. 3105, 312 , 3176, I. R. C.)
PRODUCTION ND R MO L OF T R.
Sec. 182.380. Remova. (a) Contaners. Removabe ether may be drawn off
Into barres, drums, or smar packages, or nto tank cars or tank trucks. Pack-
ages contanng such ether sha be marked by the propretor wth hs name, pant
.umber, ocaton (cty or town and State), the word ther, and the date of
remova n dstnct and egbe etters. When remova s made In tank cars or
tank trucks, the propretor w aff to the route board of each tank car or tank
truck a abe contanng such data. (Sees. 3105,312 , 3170,1. R. C.)
rtce II. Operaton of Industra coho onded Warehouses.
PPRO D CONT IN RS.
Sec. 182.51 . Tank Wagons and Tank Trucks Prohbted. The transporta-
ton of undenatured ethy acoho n tank wagons or tank trucks w not be
permtted. (Sees. 3101,3105, 312 , 3170.1. R. C.)
rtce . Operaton of Industra coho Denaturng Pants.
denaturng materas.
Sec. 182.706. Sampe for Chemst. The storekeeper-gauger sha take a 1-pnt
sampe of each ot of each denaturant receved at the denaturng pant, and
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231
Regs. 3, 182.6, etc.
forward or dever the sampe to the authorzed chemst. Where a ot of any
denaturant s receved n a tank car, tank truck, or n packages and s paced n
two or more storage tanks, or s receved In a number of packages and retaned
theren pendng anayss and approva of the denaturant, the storekeeper-gauger
w take a proportonate sampe from each tank or package, as the case may be,
and thoroughy mnge the sampes together. From ths m ture the offcer w
fake a 1-pnt sampe and forward or dever t to the authorzed chemst. The
storekeeper-gauger sha then ock the tanks wth a Government ock or securey
cose and sea the packages and none of the contents of the tanks or packages may
be used unt the sampe has been offcay tested and approved and a report of
such test s receved by the storekeeper-gauger n charge of the denaturng pant.
sampes submtted for anayss must be paced In heavy gass bottes or other
sutabe contaners, to be provded by the denaturer, and must be securey cosed
and seaed wth a wa sea furnshed for ths purpose or a paper sea sgned by
the storekeeper-gauger takng the sampe.
(a) Labes on sampes. ach sampe sha have a abe, Form 1 69, Labe for
Denaturng Matera, aff ed thereto showng the name of the denaturer, pant
number, sera number of the tank, or the number and knd of the package from
whch the sampe was taken, the knd and quantty of the denaturant represented
by the sampe, the date taken, and the name of the offcer takng the sampe.
(Sees. 3070, 3102, 3105, 312 , 3176, I. R C.)
PPRO D CONT IN RS.
Sec. 182.728. RaU Oad Tank Cabs ob Tank Trucks. Denatured acoho may
be shpped n raroad tank cars ony where the premses of both the denaturer
and the consgnee are equpped wth sutabe raroad sdng factes. De-
natured acoho may be transported by tank trucks ony where sutabe storage
tanks are provded on the consgnee s premses. The manhoe covers, outet
vaves, and a other openngs on a raroad tank cars or tank trucks used for
shppng denatured acoho sha be equpped wth factes for seang so that
the contents can not be removed wthout showng evdence of tamperng. Ra-
road or other approprate seas, dssmar n markng from cap seas used by
the ureau of Interna Revenue, for securng manhoe covers, outet vaves,
and a other openngs n tank ears or tank trucks contanng denatured acoho
sha be furnshed and aff ed by the carrer or the propretor: Provded, That
seray numbered cap seas for use on tank trucks for the transportaton of
specay denatured acoho shpped from denaturng pants sha be furnshed
by the Government and aff ed by the storekeeper-gauger. Immedatey after
fng, the tank car or tank truck sha be seaed n such a manner as w secure
a openngs affordng access to the content s of the tank.
(a) Shpments of competey denatured acoho. (1) To denaturcrs and ther
agents. Competey denatured acoho may be shpped In tank cars or tank
trucks to other denaturng pants, as authorzed n secton 182.7 3. Competey
denatured acoho may aso be shpped In tank cars or tank trucks by the de-
naturer to a person or concern actng as hs agent, where the tte does not pass
from the denaturer, for transfer to packages for sae to others, and such pack-
ages sha be furnshed by the denaturer. When competey denatured acoho
s thus shpped, the packages fed by the agent must be marked the same as f
fed In the denaturng pant of the denaturer (e cept that the regstry number
of such pant w be omtted), and must aso bear the embossed symbo and
sera number, as requred n secton 182.727. Competey denatured acoho may
aso be shpped In tank cars or tank trucks by the denaturer to hmsef at other
premses for dsposton In the same manner as n the case of competey de-
natured acoho dsposed of drecty from the denaturng pant of the producer,
or It may be so shpped by the denaturer to other producers of competey de-
natured acoho at ponts not on the denaturng pant premses of such other pro-
ducers, where the product w be fed Into propery marked and embossed
packages of the person to whom the shpment s made.
(2) To users. Upon approva of the dstrct supervsor, competey denatured
acoho may be shpped n tank cars or tank tracks to manufacturers for ther
own e cusve use and not for resae: Provded, That the competey denatured
acoho s run drecty from the tank car or tank truck nto sutabe storage tanks
on the manufacturer s premses. Manufacturers desrng to procure competey
denatured acoho n tank cars or tank trucks sha fe appcaton therefor wth
the dstrct supervsor of ther dstrct. If the competey denatured acoho Is
to be procured from a denaturer ocated In the same dstrct, the appcaton sha
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egs. 3, 182.6, etc.
232
be fed In trpcate, and If the competey denatured acoho Is to be procured
from another dstrct, the appcaton sha be fed In quadrupcate. The app-
caton sha gve the name and address of the denaturer from whom It Is desred
to procure the competey denatured acoho, and sha specfy the quantty to
be receved, the reasons for desrng to receve the competey denatured acoho
n tank cars or tank trucks and whether the appcant s premses are equpped
wth raroad sdng factes. Where t s desred to receve competey de-
natured acoho n tank cars or tank trucks reguary, the appcaton may be
made for that purpose. If the dstrct supervsor approves the appcaton he
w note hs approva on a copes thereof, retan one copy, return one copy to
the appcant, and forward one copy to the denaturer, and, where shpment s to
be made from another dstrct, one copy to the dstrct supervsor of such ds-
trct. (Sees. 2808,- 3070, 3105, 3108(a), 3109, 312 , 3176, I. R. C.)
Seo. 182.731. Tank Trucks. Tank trucks may be used for transportng com-
petey denatured acoho or specay denatured acoho sub|ect to the prov-
sons of these reguatons. very tank truck used to transport denatured acoho
must conform to the foowng requrements: The tank sha be securey and
permanenty attached to the frame or chasss of the truck or traer and sha be
securey constructed. Interor bukheads or stffeners must have proper dran-
age cut-outs. Manhoe covers, outet vaves, vents or pressure reef vaves, and
a other openngs sha be equpped for seang so as to prevent unauthorzed
access to the contents of the tank. Outets of each compartment must be so
arranged that devery of any compartment w not afford access to the contents
of any other compartment. Parta devery, by meter or otherwse, w not be
permtted. There sha be but one consgnor per oad and not ess than the entre
contents of any one compartment sha be devered to any one consgnee.
Cabrated charts, prepared or certfed by competent and recognzed authortes
or engneers, showng the capacty of each compartment In wne gaons for each
Inch of depth sha be carred n each truck. ach tank truck sha aso be
equpped wth a route board, at east 10 by 12 Inches, constructed of substanta
matera and permanenty attached thereto by roundheaded or carrage bots,
nutted and rveted, battered or weded. Provson w aso be made for protec-
ton, aganst the weather, of the permt and abe by the use of ceuod or
equay substanta matera. copy of the basc permt under whch trans-
portaton s authorzed (as requred by secton 182.230) and the prescrbed abe
w be aff ed to such route board. Tanks sha be so constructed that they w
competey dran the contents of each compartment, even when the ground s not
perfecty eve. Sutabe adders and cat waks, permanenty attached, must be
provded n order to permt ready e amnaton of manhoes and other openngs.
Provson sha be made for the proper groundng of tank trucks when fng or
emptyng. Pror to fng, the storekeeper-ganger, or the propretor where no
storekepper-gauger s assgned, sha determne whether the tank truck Is author-
zed to bo used by comparng the sera number and the capacty of the tank as
marked thereon, wth the copy of the basc permt, and w nspect a openngs
to the tank truck to determne whether they may be effectvey seaed. If the
tank does not meet such requrements, Its use for the transportaton of denatured
acoho w not be permtted. fter fng, the storekeeper-gauger or the pro-
pretor, as the case may be, sha sea the tank truck In such a manner as w
secure a openngs affordng access to the contents of the tank. (Sees. 3070, 3105,
3108(a), 3109, 312 , 3176, I. R. C.)
M R S ND R NDS.
Sec. 182.788. Tank Cabs and Tank Trucks. (a) Tank cars. very raroad
tank car used to transport denatured acoho must have permanenty and egby
marked or panted thereon ts number, capacty In wne gaons, and the name
or symbos of the owner. If the tank car conssts of two or more compartments,
each compartment must be dentfed by a etter of the aphabet, such as
, etc., and the capacty n wne gaons of the compartment must be marked
thereon. The denaturer sha securey attach to the route board of each such
tank car a abe showng the name, regstry number, and ocaton (cty or town
and State) of the denaturng pant, and the name, address, and permt number
(f any) of the person to whom the denatured acoho Is shpped, foowed by
the date of shpment
(6) Tank trucks. very tank truck used to transport denatured acoho must
have permanenty and egby marked or panted thereon ts number, capacty
n wne gaons, and the name of the owner n etters at east four nches n
heght. If the tank truck conssts of two or more compartments, each compart-
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233
Regs. 3, 182.6, etc.
ment must be dentfed by a etter of the aphabet, such as , , etc., and
the capacty In wne gaons of each compartment must be marked thereon.
The consgnor sha securey attach to the route board of each tank truck a abe
showng the name, regstry number, and ocaton (cty or town and State) of
the shppng pant or premses; the name, address, and permt number (f any)
of the person to whom the denatured acoho s shpped, foowed by the date
of shpment; the quantty n wne gaons; and the formua number of denatured
acoho contaned n each compartment. Such abes sha be destroyed upon
emptyng the tank truck. (Sees. 2808, 3105, 312 , 31T6, t R. C.)
TR N OF D N TUR D LCO OL TW N D N TURINO PL NTS.
Sec. 182.750. Recept of Denatured coho ; Genera. Upon recept of the
Forms 1 C7 and 1 7. , the storekeeper-gauger n charge of the recevng denatur-
ng pant w make a memorandum record of the shpment and dever the
forms to the propretor. When the denatured acoho s receved at the de-
naturng pant, the propretor and the storekeeper-gauger w e amne the
shpmeut and where packages bear evdence of havng sustaned osses n transt,
or raroad tank cars or tank trucks bear evdence of havng sustaned a oss,
the osses w be determned and a report of such osses and of the e amnaton
of the shpment w be made to the dstrct supervsor. (Sees. 3105, 312 ,
3170, L R. C.)
Sec. 182.752. Method of Depost. (6) Denatured acoho receved n tank
cars or tank trucks. Denatured acoho receved n tank cars or tank trucks
sha be weghed or measured and transferred mmedatey to storage tanks.
If It s desred to receve denatured acoho n raroad tank cars, proper raroad
sdng factes must be provded at the denaturng pant. When denatured
acoho s receved n tank cars or tank trucks, the seas must not be broken
or any denatured acoho removed, e cept n the presence of the storekeeper-
gauger assgned to the recevng denaturng pant. (Sees. 3105, 312 , 3176,
I. R C.)
WIT DR W L, OF D N TUR D LCO OL.
Sec. 182.75 . Specay Denatured coho. Specay denatured acoho
may be procured under approprate permt by manufacturers usng specay
denatured acoho, deaers n specay denatured acoho, and the Unted States
or governmenta agency thereof. Prospectve permttees or manufacturers may
procure sampes of specay denatured acoho, as provded n secton 182.826.
Specay denatured acoho must be removed from denaturng pants In approved
contaners, Incudng tank cars and tank trucks provded the consgnee s prem-
ses are equpped wth sutabe storage tanks. The e act contents of each
package must be determned and the package marked n accordance wth these
reguatons. The detas of such packages sha be entered on the approprate
forms as herenafter provded. Specay denatured acoho removed from
denaturng pants must be transported n accordance wth secton 182.677. The
denaturer sha present the permt, Form 1 77, 1 85, 1 86, or 1512, authorzng
shpment to the storekeeper-gauger pror to wthdrawa. (Sees. 3070, 3105,
3108(a), 3109, 311 (a), 312 , 3176, I. R. C.)
R CORDS ND R PORTS OF PROPRI TOR.
Sec 1S2.785. Form 1 53- . When specay denatured acoho s shpped to
the Unted States or a governmenta agency thereof, the propretor w prepare
one copy of Form 1 53- , e cept n the case of tank truck shpments when two
copes w be prepared, and dever them to the storekeeper-gauger who w
check the forms wth the records and permt, and, f found to agree therewth,
he w nta a copes of the form and n the case of tank truck shpments,
encose one copy n a seaed enveope addressed to the Government offcer to
whom the specay denatured acoho s consgned, and gve the same to the drver
of the tank truck for devery to such offcer. Upon recept of the specay de-
natured acoho, the recevng Government offcer w e ecute the certfcate of
recept on the form, after notng thereon any defcency n the quantty receved,
and forward t to the dstrct supervsor specfed at the bottom of the form.
The other copy of Form 1 53- w be forwarded by the storekeeper-gauger at
the tme of shpment to the dstrct supervsor of the dstrct n whfch the con-
sgnor s premses are ocated. The data requred by secton 182.786 to be entered
77338 18 18
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Regs. 3, 182.6, etc.
23
on Form 1 73 coverng tank truck shpments w be entered on Form 1 53- for
such transactons. The provsons of secton 182.786(d) w be foowed by
dstrct supervsors n verfyng such shpments of specay denatured acoho.
(Sees. 3070, 3105, 312 , 3176, I. R. C.)
Sec. 182.786. Form 1 73. When specay denatured acoho Is shpped from
the denaturng pant, the propretor w prepare Form 1 73 reportng the shp-
ment. One copy of the form w be made for ntradstrct shpments, and two
copes for nterdstrct shpments. n addtona copy of the form w be pre-
pared n the case of tank truck shpments. Where the proof of the acoho used
n producng specay denatured acoho s other than 190 degrees of proof, the
proof must be shown on Form 1 73. Where shpments are made n tank cars,
tank trucks, or consst of barres or drums n caroad ots, the name of the car-
rer and number of the car or tank truck, together wth the routng (n the
case of raroad tank cars or bo cars), sha be entered on the form. The
consgnor sha not change the routng wthout gvng prompt notce of such
acton to the dstrct supervsor of hs dstrct, and f shpment s made to another
dstrct, to the dstrct supervsor of such dstrct. In addton, the sera num-
bers of the seas used, and n the case of tank trucks, the State cense number,
the drver s fu name, and the drver s permt number, and State ssung the
same, sha be accorded on a copes of Form 1 73.
(a) Dsposton of forms. t the.tme of shpment, the propretor w dever
a copes of Form 1 73 to the storekeeper-gauger, who w check the forms
wth the records and permts (In the case of specay denatured acoho), and
f found to agree therewth, he w nta the forms. In the case of tank
truck shpments, he w encose one copy n a seaed enveope addressed to the
consgnee, and gve the same to the drver of the tank truck for devery to the
consgnee. On recept at the consgnee s premses, the storekeeper-gauger or the
consgnee w recept for the shpment, verfy the nformaton on the form, and
note thereon any dscrepances reatve to the shpment. The Form 1 73 w
be forwarded by the storekeeper-gauger or the consgnee Immedatey to the
dstrct supervsor of the dstrct n whch the consgnor s ocated. In add-
ton, on the day shpments are made, the storekeeper-gauger w forward one
copy of the form to the dstrct supervsor of the dstrct n whch the consgnor
s ocated, and, f shpments are made to another dstrct, one copy to the dstrct
supervsor of such dstrct. The same procedure w be foowed where shp-
ments n tank trucks are made of competey denatured acoho, e cept Forms
1 73 w be modfed to read competey nstead of specay denatured
acoho.
(6) Intradstrct shpments. Where shpment Is made to a consgnee ocated
n the same dstrct as the denaturng pant, the dstrct supervsor w check
Form 1 73 wth the monthy reports of the consgnor and the consgnee, and,
f recept of the shpment s duy reported by the consgnee and the form agrees
wth the consgnor s monthy report, the dstrct supervsor w nta Part II
of the form.
(c) Interdstrct shpments. Where shpment s made to another dstrct, the
dstrct supervsor of the consgnee s dstrct w check Form 1 73 wth the
consgnee s monthy report, and, f recept of the shpment s duy reported, he
w e ecute Part III of the form and forward t to the dstrct supervsor of
the dstrct from whch the acoho was shpped, who w check the recepted
form wth the consgnor s monthy report, and, f found to agree therewth, he
w nta Part II of the form.
( f) Nonrcccpt of shpment. When specay denatured acoho Is not receved
wthn a reasonabe tme after shpment, or where any matera or une paned
dfference e sts between the knd and quantty shpped and that receved, or
where there s reasonabe ground to suspect that the specay denatured acoho
has been or w be used for purposes other than those authorzed by the con-
sgnee s permt and by the aw and reguatons, the dstrct supervsor sha
Investgate each case and take approprate acton n respect thereto. In addton,
the dstrct supervsor w cheek day, on recept, the Form 1 73 coverng tank
truck shpments, and make any nqury whch he deems necessary wth respect
to any dscrepancy. In the event of faure to receve a form from the store-
keeper-gauger at the consgnee s premses or from the consgnee, as the case
may be, wthn the tme normay requred for the truck to make the shpment
and the form to be sent by ma, the dstrct supervsor w make approprate
nvestgaton. (Sees. 3070, 3105. 312 , 3176,1. R. C.)
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235
Regs. 3, 182.G, etc.
rtce I. Sae and Use of Competey Denatured coho.
PROPRI T RY NTIFR Z SOLUTIONS.
Sm 182.798. Manufacture of Propretary ntfreeze Souton a Propretary
antfreeze soutons may be made wth competey denatured acoho for sae
under trade names: Provded, That materas such as dye, rust nhbtor, petro-
eum dstates, etc., satsfactory to the Commssoner are added to the com-
petey denatured acoho n suffcent quanttes to materay change the com-
poston and character of the competey denatured acoho. Such soutons are
not cassfed as competey denatured acoho and may not be marked, branded,
or sod as competey denatured acoho. Competey denatured acoho may not
be obtaned n tank cars or tank trucks for use n manufacturng propretary
autreeze soutons e cept by producers of denatured acoho. (Sees, suo,
3105, 3109, 3111, 312 , 3176,1. . C.)
S c. 182.802. Prohbted Contaners. Propretary antfreeze soutons may not
be shpped n tank cars, tank trucks, tank wagons, or packages e ceedng 55 wne
gaons n capacty, e cept when shpped n tank cars or tank trucks by manu-
acturers to themseves at another ocaton for packagng thereat n accordance
wth these reguatons. (Sees. 3070, 3105, 312 , 3170, 1. R. C.)
r TcL II. Operatons by Deaers n Specay Denatured coho.
recept of specay denatured acoho.
Sec. 182.811. Raroad Tank Cars or Tank Trucks. If the bonded deaer
receves specay denatured acoho n raroad tank cars, raroad sdng fac-
tes for the recept of such tank cars must be provded at the bonded ueaer s
premses. The denatured acoho receved n tank cars or tank trucks must be
mmedatey deposted n storage tanks constructed n conformty wth the pro-
vsons of secton 182.102. When so deposted, the formua of the denatured
acoho sha be pany marked on the storage tank. (Sees. 3070, 3105, 312 ,
31 6, I. R. C.)
fng of packages by bonded deaers.
Sec. 182.812. When Permssbe. onded deaers who receve specay de-
natured acoho n tank cars or tank trucks and transfer the same to storage
tanks n ther storerooms, as provded n secton 182.811, may packages of
such specay denatured acoho. onded deaers may aso t packages of
specay denatured acoho from denaturers orgna packages where such
orgna packages have been so damaged n transt as to necesstate repackagng,
or where, upon recept of approved Form 1 77, Form 1 85, Form I 86, or Form
1512, t s necessary to f smaer packages for sae to authorzed permttees n
quanttes ess than the contents of the denaturer s orgna package, and
specay denatured acoho of the formua desred s not avaabe n storage
tanks for the fng of such packages. (Sees. 2808, 2806, 3010, 3105, 312 , 3176,
I. R. C.)
Sec. 182.813. Sae. Specay denatured acoho may be sod by bonded
deaers hodng basc permt, Form 1 76, to manufacturers usng specay de-
natured acoho, and to other bonded deaers n specay denatured acoho,
pursuant to wthdrawa permt, Form 1 85 or Form 1 77, as the case may be,
onded deaers may aso furnsh sampes of specay denatured acouo to
manufacturers, other bonded deaers, and to prospectve permttees pursuant
to sampe permt, Form 1512: Provded, That n the case of sampes, where the
quaty nvoved n any case does not e ceed 8 fud ounces, permt, Form 1512,
w not be requred, yaes of specay denatured acoho may aso be made to
the Unted States or governmenta agences thereof pursuant to permt, Form
1 08. The provsons of secton 1S2.75 , respectng saes of specay denatured
acoho by denaturers, are hereby made appcabe to saes of specay denatured
acoho by bonded deaers. Specay denatured acoho sod by bonded deaers
must be transported n accordance wth secton 182.677. Record and report of
such transactons sha be reported on Form 1 78, as provded n secton 182.822.
Tank trucks used for the transportaton of specay denatured acoho by bonded
deaers, after fng, sha be seaed by approprate seas, seray numbered,
furnshed and aff ed by the shpper. The sea sha be dssmar n markng
from the cap seas used by the ureau of Interna Revenue. The sera num-
bers of seas used and the data wth respect to the carrer set forth n secton
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Regs. 3, 182.6, etc.
23G
182.786 w be recorded by the deaer on Form 1 73. One copy of the form w
be forwarded by the deaer to the dstrct supervsor of the dstrct n whch
the deaer Is ocated. One copy of the form w be forwarded to, and verfed
by, the consgnee, and forwarded by hm to the dstrct supervsor of the ds-
trct n whch the consgnor s ocated. (Sees. 3070, 3105, 3109, 311 (a), 312 ,
3176, L R. C.)
LOSS S OF SP CI LLY D N TUR D LCO OL.
Sec. 182.816. Losses n Transt. Losses In transt to bonded deaer s prem-
ses must be ascertaned at the tme the specay denatured acoho s re-
ceved by the bonded deaer. ccordngy, when packages, tank cars, or tank
trucks are receved whch show evdence of havng sustaned a oss n transt
the bonded deaer shoud determne the e tent of the oss at that tme. The
quantty ascertaned to have been ost w be reported on Form 1 78 on the ne
on whch recept of the shpment s reported, and n the coumn provded there-
for. Where the quantty ost from any package, tank car, or tank truck e ceeds
1 per cent of the quantty orgnay contaned theren, cam for aowance of
the entre quantty ost from the package, tank car, or tank truck w be made
by the bouded deaer. If the oss does not e ceed 1 per cent, so cacuated,
cam for aowance w not be requred, provded there are no crcumstances
ndcatng that the specay denatured acoho ost or any part thereof, was
unawfuy used or removed. (Sees. 3105, 3113, 312 , 3176, I. . C.)
rtce II. Carrers.
Sec. 182.908. Restrcted Use of Contaners. (a) Tank tcagons or tank
trucks. Tank wagons or tank trucks sha not be used for the transportaton
of undenatured ethy acoho.
( ) Raroad tank cars. Shpment of acoho or denatured acoho by ra-
road tank cars may be made ony when the premses of the consgnor and con-
sgnee are equpped wth satsfactory raroad sdng factes and the con-
sgnee s oterwse authorzed to receve such shpment. (Sees. 3105, 3111,
311 (a), 312 , 3176, I. R. C.)
rtce L . Importaton of coho fob Industra Purposes.
Sec. 182.99 . Customs Gauge and Ref.ase. Pror to reease from customs
custody, the acoho w be gauged by a customs offcer who w enter the detas
of the gauge on a copes of the Form 1 0. When shpments are made n
tank cars, the detas of the gauge of each tank car w be reported separatey
thereon n accordance wth the coumn headngs on the Form 1 0. The cus-
toms offcer w aso show on each copy of Form 1 0 the country of e portaton
of the acoho. In addton, he w ascertan and state oh each copy of the
Form 1 0 the rate of customs duty pad on the acoho and the rate of customs
duty whch woud have been appcabe had such sprts been mported for
beverage purposes. The customs offcer w forward two copes of Form 1 0
to the storekeeper-gauger at the Industra acoho pant, bonded warehouse, or
denaturng pant desgnated n the appcaton, and retan one copy for cus-
toms pu-poses. The storekeeper-ganger at the pant or warehouse w, on
recept of the two copes of Form 1 0, verfy the shpment, note on both copes
any dscrepances, forward one copy to the dstrct supervsor of the dstrct
n whch the pant or warehouse s ocated, and dever the remanng copy
to the propretor of the pant or warehouse. (Sees. 3105, 312 , 3125(a), 3176,
I. R. C.)
Sec. 182.995. Tank Cars to be Seaed. (a) Where shpments of acoho from
customs custody to the ndustra acoho pant, bonded warehouse, or denatur-
ng pant nre made n tank cars, a openngs affordng access to the tanks
w be seaed by the customs offcer wth customs seas.
(6) Packages. Where shpments of acoho from customs custody are made
n packages, the customs offcer w gauge and reease the acoho pursuant to ap-
proprate permt, Form 1 36 or Form 1 63, and appcaton. Form 1 0, n trp-
cate, n the same manner as acoho shpped n tank cars, e cept that the seang
of the car n whch transported w not be requred. (Sees. 3105, 312 , 3125(a),
3176, I. R. C.)
Sec. 182.997. Gaugng Upon recept of the acoho at the ndustra acoho
pant, bonded warehouse, or denaturng pant from customs custody, t w be
gauged n accordance wth rtces I and and the Gaugng Manua, pro-
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237
egs. 3, 182.619, etc.
vded that where the bonded premses consst of storage tanks ony, the sprts
may be gauged upon recept at such premses by any one of the foowng four
methods, preference to be gven n the order named:
(1) Weghed n scae tanks.
(2) Gauged by voume n accuratey cabrated storage tanks.
(3) Weghed on raroad car scaes ocated on bonded premses by weghng
tank carg before and after fng and emptyng, as the case may be.
( ) Gauged by voume n accuratey cabrated tank cars. (Sees. 3105, 312 ,
3125(a), 3176, I. R. C.)
rtce L I. Wthdrawa of Imported coho Ta Free for Use of the
Unted States.
Sec. 182.1000. of Ladng and Customs Seas. Where the acoho s
transported by common carrer, the person to whom the acoho was devered
for shpment sha furnsh a copy of the b of adng coverng transportaton of
the acoho from the port of entry to fna destnaton to the governmenta agency
of the Unted States to whom the acoho s consgned. If the acoho s shpped
n tank cars, a openngs affordng access to the tanks w be seaed by the cus-
toms offcer wth customs seas. (Sees. 3105, 312 , 3125(b), 3176, I. R. C.)
. Treasury Decson 5121, approved February 26, 19 2 C. .
19-12-1, 330 , and Treasury Decson 516 , approved uy 15, 19 2
C. . 19 2-2, 312 , are hereby revoked.
5. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2808, 2829, 2866, 3070, 3101, 3102, 3105, 3108, 3109, 3111, 3113,
311 ,312 ,3125, and 3176 of the Interna Revenue Code (U. S. C, tte
26, sectons 2808, 2829, 2866, 3070, 3101, 3102, 3105, 3108, 3109, 3111,
3113,311 ,312 ,3125, and 3176).)
oseph D. Nt|nan, r.,
Commssoner.
pproved uy 3, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 12, 19 7.)
Reguatons 3, Sectons 182.619,182.768,182.970, 19 7-2 -12701
182.971,182.972. T. D. 5583
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 182.
INDUSTRI L LCO OL.
mendng Reguatons 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.
(a) Secton 2800(a) ( ) of the Interna Revenue Code s amended by
amendng the headng to read:
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Regs. 3, 182.619, etc.
238
( ) cohoc compounds fbom Puerto Rco and rgn
Isands. ;
and by amendng subparagraph-( ) to read as foows:
( ) rgn Isands. For provsons reatng to ta on
acohoc compounds from the rgn Isands, see secton 3350.
(b) Sectons 33 0, 33 1, and 33 2-of the Interna Revenue Code are
repeaed, effectve uy , 113 0.
2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury de-
cson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
On and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these regu-
atons.
3. Pursuant to the foregong provsons of aw and secton 3176, In-
terna Revenue Code, Reguatons 3 (26 CFR, Part 182) are amended,
effectve as of uy ,19 6, n these respects:
(a) Secton 182.619 s amended by strkng out the Phppne
Isands, and the Code ctaton 33 1(b), .
(b) Secton 182.768 s amended by strkng out the Phppne
Isands, and by strkng out (Sees. 33 1(b), 3361(b), I. R. C,
Supp.) and nsertng n eu thereof (Sec. 3361(b), I. R. C, Supp.).
(c) Sectons 182.970, 182.971, and 182.972 are hereby revoked.
. On and after uy , 19 6, a acoho, denatured acoho, and
products contanng acoho or denatured acoho, mported nto the
Unted States from the Phppne Isands, w be sub|ect to sectons
182.967,182.968, and 182.969 of Reguatons 3 (26 CFR, Part 182).
5. Ths Treasury decson s ssued under the authorty contaned n
secton 3176 of the Interna Revenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.56 a. m.)
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239 Regs. 10, 185.19, etc.
DISTILL D SPIRITS.
INT RN L R NU COD .
Reguatons 10, Sectons 185.19,185.31, tc. 19 7-2 -12699
T. D.5581
TITL 20 INT RN L R NG . C PT R I, SU C PT R C, P RT 185
W R OUSING OP DISTILL D SPIRITS.
mendng Reguatons 10.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. The ct of uy 1 , 19 7 (Pubc Law 187, ghteth Congress
page 337, ths uetn ), amends secton 2801 of the Interna Revenue
Code by addng to subsecton (e) the foowng paragraph:
(5) endng of beverage bbandes. Frut brandes dsted from
the same knd of frut at not more than one hundred and seventy de-
grees proof may, for the soe purpose of perfectng such brandes accord-
ng to commerca standards, be m ed or bended wth each other, or
wth any such m ture or bend, by the dster thereof n any nterna
revenue bonded warehouse operated by hm e cusvey for the storage
of brandy or wne sprts, and the provsons of ths secton nnd of sec-
tons 28( )(a) (5) and 325 (g) reatng to rectfcaton or other nterna
revenue aws of the Unted States sha not be hed to appy to or pro-
hbt such m ng or bendng, and brandes so m ed or bended may be
packaged, stored, transported, transferred In bond, wthdrawn from
bond ta -pad or ta -free, or be otherwse dsposed of, In the same man-
ner as such brandes not so m ed or bended : Provded, That, n addton
to the ta mposed by ths chapter on the producton of dsted sprts,
there sha be pad a ta of 30 cents as to each proof gaon (and a pro-
portonate ta at a ke rate on a fractona parts of such proof gaon)
of brandy so m ed or bended (e cept when wthdrawn ta -free and
accounted for or when ost and aowance s made therefor), such ta
to be pad by rectfed sprts stamps aff ed to the packages at the tme
of wthdrawa. The Commssoner, under rues and reguatons to be
by hm prescrbed wth the approva of the Secretary, upon the presen-
taton of proof to hs satsfacton of the oss by eakage, evaporaton,
theft, or otherwse of frut brandes so bended or m ed, not occurrng
as the resut of any neggence, connvance, couson, or fraud on the
part of the warehouseman or hs agents, Is hereby authorzed to remt
or refund the ta es assessed or pad upon such ost brandes: Provded,
however, That such remsson or refund sha be aowed ony to the e -
tent that the warehouseman s not ndemnfed or recompensed for such
ta , and that osses of frut brandes occurrng pror to any such m ng
or bendng sha be aowabe n accordance wth secton 2901. The
term dster as used heren sha ncude any one or more dst ers
assocated as members of any farm cooperatve, or any one or more
dsters affated wthn the meanng of secton 17(a) (5) of the Fed-
era coho dmnstraton ct, as amended, or any frut dster for
whose account, recorded wth the dstrct supervsor nt the tme of pro-
ducton, the brandy to be bended was produced. The Commssoner
may, wth the approva of the Secretary, make such rues or reguatons
as he may deem necessary to carry these provsons nto effect
2. Notce and pubc procedure under secton (a) of the dmns-
tratve Procedure ct, approved une 11,19 6, are found to be contrary
to the pubc nterest n connecton wth the ssuance of these regua-
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Regs. 10, 185.19, etc.
2 0
tons for the reason that dsters have ndcated a desre to produce
durng the current- vntage season brandy for the account of other
dsters, who ntend to bend brandy n nterna revenue bonded ware-
houses operated by them. Where brandy s produced by one dster
for the account of another dster such brandy, to be egbe for
bendng, must be recorded wth the dstrct supervsor at the tme of
producton as havng been produced for that dster. It s necessary
that reguatons be prescrbed for recordng such producton of brandy.
If requrements for notce and pubc procedure were foowed, regu-
atons coud not be made avaabe to the ndustry unt the end or
near end of the vntage season. For the same reason t s found n
the pubc nterest to make these reguatons mmedatey effectve
upon pubcaton.
3. Pursuant to the foregong provsons of aw and sectons 2806 (e),
2857, 2859, 2868, 2872, 2873, 2875, 2878, 2879, 2882, 2883, 288 , 28S5,
2886, 2888, 2901, 2903, 290 , 2905, 2910, 2915, 3031, 3033, 3170, 3176.
and 3953 of the Interna evenue Code (U. S. C, Tte 26, sectons
2806(e), 2857,2859,2868,2872, 2873,2875,2878, 2879,2882, 2883, 288 ,
2885, 2886, 2888, 2901, 2903, 290 , 2905, 2910, 2915, 3031, 3033, 3170,
3176, and 3953), eguatons 10 (26 CFR, Part 185) are hereby
amended n these respects:
(a) Sectons 185.19, 185.31, 185.39, 185.51, 185.1 2, 185.155, 185.156,
185.157, 185.18 , 185.198, 185.205, 185.258, 185.271, 185.272, 185.273,
185.299, 185.316, 185.3 , 185. 38, 185. 6 , 185. 65, 185. 66, 185. 67,
185. 68, 185. 69, 185. 71, 185. 72, 185. 80, and 185. 81 are amended;
and
(b) Sectons 185.30a, 185.275a, 185.276a, 185. 6 a, and 185.51 to
185.526, ncusve, are added as foows:
Sec. 185.19. Otheb Rooms.

(o) randy-bendng department. Where brandes are to be m ed or bended
n an Interna revenue bonded warehouse, under the provsons of secton 2S01(e)
(5), I. R. C, for the soe purpose of perfectng such brandes accordng to com-
merca standards, a separate room or budng, consttutng a part of the nterna
revenue bonded warehouse, must be provded for that purpose. Such room or
budng sha be known as the brandy-bendng department and must be con-
structed n accordance wth the provsons of sectons 185.5 to 185.16, ncusve.
The brandy-bendng department must be competey separated from contguous
rooms or budngs by sod unbroken parttons and foors of substanta con-
structon. Such parttons sha e tend from the ground to the roof or from the
foor to the ceng, If a room s used, and f the brandy-bendng department s
under the same roof, or n the same budng n whch s ocated a rectfyng pant,
or ta -pad bottng house, the two premses must not have any means of com-
muncaton wth each other wthn the budng. No door, wndow, or other
openng nto another room or budng of the warehouse w be permtted: Pro-
vded, That not more than two doors may be permtted n the wa or partton
separatng the brandy-bendng department from the storage porton of the ware-
house to be used e cusvey for the purpose of transferrng brandy between the
brandy-bendng department and the storage porton of the warehouse. The
communcatng doors must be equpped for ockng wth Government ocks on the
storage sde of the warehouse and must be kept ocked e cept whe brandy s
beng transferred between the brandy-bendng department and the storage por-
ton of the warehouse: Provded, That where brandy-bendng operatons have
been dscontnued and a brandes have been removed from the brandy-bendng
department the ocks on the doors connectng the brandy-bendng department
wth the storage porton of the warehouse may be removed and the brandy-bend-
ng department used for any other authorzed warehouse purpose as provded n
secton 185.515 (6).
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Regs. 10, 185.19, etc.
The brandy-bendng department must be equpped wth a requste number
of sutabe tanks n whch to bend brandes, scaes for weghng packages,
factes for dumpng packages, factes for fng, markng and brandng
packages, and a desk and cabnet for use of the Government offcer. The room
or budng must be we ghted, heated, and of suffcent dmensons to permt
the work of regaugng, dumpng, fng, gaugng, markng, and brandng the
packages effcenty and e pedtousy. Lghtng factes must be permanenty
Instaed and spaced throughout the room or budng to permt supervson of
the entre premses and must be of suffcent power to permt effcent perform-
ance of gaugng dutes wthout the ad of au ary ghts or outsde ght.
sgn, bearng the words randy- endng Department, sha be paced over
the entrance door of the room or budng. (Sees. 2801 (e)(5), 2873, 3176,1. R. C.)
Sec. 185.30a. randy- endng Tanks. randy-bendng tanks sha be con-
structed, nstaed, and equpped n the manner prescrbed In secton 185.30 for
the constructon, Instaaton, and equpment of storage tanks. ach such tank
sha have pany and egby panted thereon, or on a pate securey attached
thereto, the words randy-bendng Tank, foowed by ts sera number and
capacty n wne gaons. (Sees. 2801(e) (5), 2873, 3170,1. R. O.)
Sec. 185.31. Ppe Lnes.

(c) Ppe nes n brandy-bendng department. (1) Connectng dump trough
and brandy-bendng tank. The ppe ne connectng the dump trough to each
brandy-bendng tank must be a f ed meta ppe ne e posed to vew throughout
ts entre ength : Provded, That f a pump s requred to move brandy from the
dump trough to the bendng tank, the ppe ne may be broken and connected
at the net and outet sdes of the pump and secured by Government cap seas:
nd provded further, That where a number of brandy-bendng tanks are
nstaed, the ppe nes to the tanks may be connected at the pump to a manfod
connecton so arranged and equpped wth Government ocked vaves as to permt
the contro of the fow of brandy Into each tank. ose connectons may not be
used. There sha be panted on a board, or smar pate, attached to each
ppe ne e tendng from the manfod to the brandy-bendng tanks a number
correspondng to the sera number of the tank to whch the ppe ne Is con-
nected.
(2) Connectng brandy-bendng tank to package fng manfod. The outet
of one bendng tank may not be connected wth the outet of another bendng
tank: Provded, That where there s more than one tank and a draw-off manfod
Is used for fng packages the outet of each tank may be connected wth the
manfod by means of a permanent meta ppe ne. (Sees. 2883, 3170, I. R. C.)
Seo. 185.39. Descrpton of Pkemses. The appcaton sha contan a com-
pete descrpton of the budng or room consttutng the warehouse, ncudng
the heght, wdth, and ength, the materas of whch constructed, the means of
Ingress and egress, and the manner of securng wndows and doors and other
openngs. If the warehouse conssts of an entre budng, the number of stores
and the heght of each story sha be gven. If the warehouse conssts of a room
or foor of a budng, an e act descrpton of the budng n whch the room or
foor s stuated and ts precse ocaton theren sha be gven. If the warehouse
conssts of separate budngs, the same sha be desgnated aphabetcay, as
udng , udng , etc., and each sha be descrbed separatey and the
capacty, In barres, cases, or tanks, of each gven. ach foor of each budng
sha be descrbed separatey, uness the dmensons and constructon of a foors
are dentca and are used for the same purpose. If a bottng-n-bond room or
a brandy-bendng department s provded, t w be separatey descrbed as to
ocaton, constructon and securty. The desgnated sera number and capacty
of each tank and other apparatus, and the day bottng capacty n wne gaons
sha aso, be stated. If a quck-agng room or gaugng room s provded, a
separate descrpton of each sha be gven. The Government offce sha b sep-
aratey descrbed n the appcaton, the ocaton, constructon, and equpment
thereof beng shown. (Sees. 2801(e) (5), 2873, 3176, I. R. O.)
Sec. 185.51. Transportaton and Warehousng ond, Form 1571. very per-
son desrng the estabshment of an nterna revenue bonded warehouse sha,
upon fng hs appcaton, Form 27-D, e ecute bond on Form 1571, Transporta-
ton and Warehousng ond, n trpcate, n conformty wth the provsons of
sectons 185.57 to 185.76, ncusve, and fe the same wth the dstrct supervsor.
The pena sum of such bond sha be not ess than the amount, of nterna revenue
ta at the rate prescrbed by aw on the quantty of dsted sprts that w be
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Regs. 10, 185.19, etc.
2 2
stored n such warehouse and n transt thereto at any one tme, ncudng ds-
ted sprts botted for e port, pus the amount of addtona ta at the rate of
30 cents a proof gaon attachng to brandy bended under the provsons of secton
2801(e) (5), I. . C, that w be on hand or n transt to the warehouse at any
one tme: Provded, That the ma mum pena sum of such bond sha not e ceed
200,000 for each such warehouse. Propretors of nterna revenue bonded ware-
houses desrng to bend brandes under the provsons of secton 2801(e)(5),
I. . C, and havng on fe Form 1571, Transportaton and Warehousng ond,
revsed December, 19 1, or revsed pror to such tme, sha fe consent of surety
on Form 1533 to cover the bendng of brandes and the addtona ta abty.
(Sees. 2801(e) (5) 2872, 2879(c), 3176, I. . C.)
Sec. 185.1 2. Operatons Requrng Immedate Supervson. The mmedate
supervson of the storekeeper-gauger s requred (1) whenever sprts are entered
nto or wthdrawn from the warehouse; (2) whenever sprts are transferred
from one budng to another ; (3) whenever sprts are botted In bond; ( ) when-
ever sprts are drawn from warehouse storage tanks nto packages; (5) whenever
a change of package s made for e portaton, or to prevent oss by eakage, or for
other authorzed purposes; (6) whenever sampes of sprts are obtaned from
packages; (7) whenever sprts n dster s orgna packages are reduced n
proof after remova from the warehouse and before remova from the warehouse
premses or the ta -free premses of the propretor; (8) whenever brandy-bend-
ng operatons are beng conducted; or (9) whenever sprts n the warehouse
are by reason of other crcumstances so e posed to oss. (Sees. 2801(e)(5),
3176, I. R. C.)
Sec. 185.155. Storekeeper-Gauger to be Informed. Where sprts are receved
for depost from a dstery operated by the propretor of the warehouse on the
same or contguous premses, and the pena sum of the transportaton and ware-
housng bond s ess than the ma mum of 200,000, the dstrct supervsor sha
nform the storekeeper-gauger n charge of the warehouse of the pena sum of
the bond, and the storekeeper-gauger sha see that the quantty of sprts de-
posted n the warehouse s wthn the mts of the bond. Such nformaton sha
aso be furnshed where brandes are bended under the provsons of secton
2801(e) (5), I. R. C. (when the pena sum of the bond s ess than the ma mum),
and the storekeeper-gauger sha see that the pena sum of the bond s suffcent
to cover the addtona ta of 30 cents a proof gaon on a bended brandy on
hand or In transt to the warehouse at any one tme as we as the ta under
secton 2800(a) (1), I. R. C, on a brandy on hand at any one tme. (Sees. 2801
(e) (5), 2879, 3176, I. R. O.)
Sec. 185.156. Storekeeper-Gauger s Copes of Depost Forms. copes of
Forms 236,1520, 1619, and 1620, coverng the depost of sprts n nterna revenue
bonded warehouses, and a copes of Forms 1685 and 1520 coverng the bendng
of brandy and the return thereof to the storage porton of the warehouse, sha
be fed by the storekeeper-gauger as permanent records, n accordance wth the
procedure prescrbed n sectons 185. 65 to 185. 71, ncusve. (Sees. 2801(e) (5),
2883, 2915, 3176, I. R. C.)
Sec. 185.157. Forms 1513, 1621, and 1622. The storekeeper-gauger n charge of
an nterna revenue bonded warehouse sha enter a sprts deposted n the
warehouse, ncudng bended brandes returned from the brandy-bendng depart-
ment, on hs monthy bonded warehouse return, Form 1513, and sha make
approprate entres n hs fes nde , Form 1622, and n hs summary of deposts
and wthdrawas, Form 1621, as provded n sectons 185. 65 to 185. 73, ncusve
(Sees. 2801(e)(5), 2015, 3176, I. R. C.)
Sec. 185.18 . amnaton of Records. Durng une and December of each
year the storekeeper-gauger sha e amne Forms 1621 to determne whether the
8-year perod of storage n bond on any sprts st In the warehouse w e pre
durng the ensung 6-month perod. Where the e amnaton of Forms 1621 shows
that there are such sprts st n the warehouse, the storekeeper-gauger w
ascertan the date of the orgna entry for depost thereof from Form 1520 or
Form 1619 f the sprts are n packages or other buk contaners, or from Form
1620 f the sprts are n cases, and sha determne the date of the e praton
of the 8-year bonded perod of a such sprts. The storekeeper-gauger sha
make a st of a such packages or cases, showng the date of the e praton of
the bonded perod of storage of each. Where sprts of dfferent dates of pro-
ducton n the same dstng season are mnged at the tme of bottng, or
brandes of dfferent dates of producton are bended under the provsons of
secton 2801(e) (5), I. R. C, the bonded perod of storage for such sprts or
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Regs. 10, 185.10, etc.
brandes w begn to run from the date of the orgna entry for depost of the
odest sprts or brandes so mnged. (Sec. 3178, I. R. C.)
Sec. 185.198. quazng. Wantage Pbohbted. cept as provded n sectons
185.171,185.172,185.173, and 185.51 , dsted sprts may not be transferred from
one package to another or consodated by combnng the contents of two -or more
packages durng storage n bond. The propretor of an nterna revenue bonded
warehouse who transfers, or causes to be transferred, sprts from one package to
another for the purpose of equazng wantage, or for any other purpose, e cept as
authorzed by aw or reguatons, w render hmsef abe for mmedate pay-
ment of the ta on a such sprts accordng to the orgna gauge, n addton
to severe penates. The aw provdes that whenever any person evades, or
attempts to evade, the payment of the ta on any dsted sprts n any manner
whatever, he sha forfet and pay doube the amount of the ta so evaded, or
attempted to be evaded. (Sees. 2801 (e) (5), 2806(e), 2868,2901 (a), 3176, L R. C.)
Sec. 185.205. Tank Cass and Storage Tanks. cept as provded n sectons
185.220 to 185.225, ncusve, n the case of brandy and frut sprts Intended for
the fortfcaton of wne and n secton 185.525 n the case of bended brandes,
no aowance can be made for osses of dsted sprts by eakage or evaporaton
from tank cars, or from warehouse storage tanks or packages fed from such
storage tanks: Provded, That where there s a defcency of not over one-haf
of 1 per cent shown on regauge of sprts n a tank car or storage tank n a bonded
warehouse, such defcency w be regarded as due to a varaton In gauge If there
s no evdence to the contrary, and no ta w be coected thereon: nd provded
further. That aowance for osses by eakage and evaporaton w be made n
accordance wth sectons 185.200 to 185.203, Incusve, upon regauge for wth-
drawa of packages of brandy or frut sprts fed from warehouse storage tanks
pror to une 26, 1936, and whch were n warehouse on ugust ,1939, the perod
for such aowance beng cacuated from the date of fng of the package to the
date of regauge for wthdrawa. (Sees. 2901, 3176, I. R. C.)
Sec. 185.258. ff ng and Canceng Stamps. When packages of sprts
are wthdrawn upon ta -payment or for e portaton, the ta -pad or e port
stamp w be aff ed and canceed by the warehouseman, under the supervson
of the storekeeper-gauger, n the manner prescrbed In the Gaugng Manua, be-
fore the package s removed from the warehouse. Lkewse, when a package of
bended brandy s removed ta -pad the cass rectfed sprts stamp requred
to be aff ed to such package under the provsons of secton 2801 (e)(5), I. R. C,
sha be aff ed and canceed n the manner prescrbed n the Gaugng Manua for
the aff ng and canceaton of ta -pad stamps before the package s removed
from the warehouse. (Sees. 2801(e)(5), 288 , 2885(b), 3176, I. R. C.)
Sec. 185.271. Storekeepeb-Gauoer s Records. The storekeeper-gauger at an
nterna revenue bonded warehouse sha enter the date of wthdrawa of a
packages or other contaners, and cases, of sprts removed from the warehouse
n the approprate coumn of Form 1520, Form 1019, or Form 1620, as the case
may be, coverng the depost of the sprts, as provded n sectons 1S. . C5 to
185. 71, ncusve. The storekeeper-gauger sha aso enter the wthdrawa f
a sprts from the warehouse n hs monthy record and return, Form 1513, and
n hs summary of deposts and wthdrawas, Form 1621, as provded n sectons
185. 65 to 185. 73, ncusve. The storekeeper-gauger sha aso enter on the
Form 1513 and Form 1621 the detas of the wthdrawa of brandy for bendng
and the return of the bended brandy to the warehouse. (Sees. 2801 (e)(5),
2915, 3176, I. R. C.)
Sec. 185.272. Fng of Wthdrawa Papers. copes of the wthdrawa
papers, Forms 179, 206, 230, 257, 5 3, 573, 655, 1518, 1519, 1520, and 1619, retaned
by the storekeeper-gauger upon the wthdrawa of dsted sprts from the ware-
house and the copy of Form 1685 retaned by hm upon competon of brandy-
bendng operatons, as herenafter provded, sha be fed by hm n the manner
prescrbed n sectons 185. 65 to 185. 71, ncusve. (Sees. 2801(e)(5), 3176,
I. R. C.)
Sec. 185.273. Dstrct Supervsor s Warehouse ccount. The dstrct super-
vsor sha enter a sprts removed from Interna revenue bonded warehouses
n hs dstrct, Incudng brandes removed to brandy-bendng departments for
bendng, durng each month n the approprate bonded sprts account, Form
151 , as provded n secton 185. 80. (Sees. 2801(e) (5), 3170, 3176, 3G53,1. R C.)
Sec. 185.275a. Gauge and Ta -Payment of ended randy. If the sprts
to be wthdrawn are brandes bended In accordance wth the provsons of sec-
ton 2801(e)(5), I. R. O., the storekeeper-gauger sha compute the addtona
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Regs. 10, 185.19, etc.
2
ta at 30 cents per proof gaon on the quantty of sprts In each package at the
tme of regauge for wthdrawa and sha enter n the approprate coumn of
Form 179 the tota amount of ta due under secton 2801(e) (5), I. . C, n add-
ton to the amount of ta due on the brandy under secton 2800(a) (1), L R G.
(Sees. 2801(e) (5), 2882, 288 , 3176, I. R. C.)
Sec. 185.276a. Issuance op Rectfed Sprts Stamps. Where the Form 179
covers bended brandes ta -pad at 30 cents per proof gaon n addton to the ta
of 9 per proof gaon the coector sha ssue a cass rectfed sprts stamp,
wth proper coupons attached, for each package and sha enter the sera number
of the stamps n the proper coumn of Form 1520 and at the proper ne on Form
179. (Sec. 2801(e) (5), I. R. O.)
Sec. 185.299. Transfeks n Packages. If the sprts to be transferred are n
orgna packages or In packages fed from warehouse storage tanks, or are
bended brandes n packages fed In the brandy-bendng department, the store-
keeper-gauger sha Inspect the packages and supervse the weghng thereof as
provded In the Gaugng Manua and w prepare Form 1619, In quntupcate, n
accordance wth the Instructons on the form. In the case of bended brandes
the storekeeper-gauger sha aso show on Form 1619 the date and sera number
of the Form 1685 coverng the bendng of the brandes, the date of orgna entry
of the odest brandy n the bend, and the date of orgna entry of the youngest
brandy n the bend. Immedatey after packages are weghed for transfer n
bond, the propretor may, f he so desres, take the proof of the sprts, provded
such s done e pedtousy and addtona storekeeper-gaugers w not be re-
qured to supervse the operaton. The takng of average or actua tare sha not
be permtted. If the warehouseman prepares a record of such commerca gauge,
two copes thereof sha be gven to the storekeeper-gauger who sha retan one
copy, and forward the other to the storekeeper-gauger at the recevng warehouse,
as herenafter provded, for reference f cam Is fed for oss by theft, accdent,
or otherwse than by eakage or evaporaton, or where cam s fed under secton
2801(e)(5), I. R C, for oss from packages of bended brandes. Upon wth-
drawa for transfer the packages sha be marked as provded n the Gaugng
Manua. (Sees. 2801(e) (5), 2875, 3176, I. R. C.)
Seo. 185.316. nds or Contaners. Dsted sprts may be removed In bond,
free of ta , as herenafter provded, for e port n (1) dsters orgna packages,
Incudng those the contents of whch have been reduced n proof to not ess than
90 decrees; (2) new packages fed from dsters orgna packages; (3) cases,
when botted n bond for e port under the provsons of the reguatons governng
the bottng of dsted sprts n bond (26 CFR, Tart 188) ; ( ) wooden packages
each contanng two or more metac cans of a capacty of not ess than 5 wne
gaons each; (5) In tank cars, n the case of sprts of not ess than 180 degrees
of proof transferred from the dstery to warehouse storage tanks for that pur-
pose; and (6) n packages contanng brandes bended under the provsons
of these reguatons. (Sees. 2801(e) (5), 2878, 2885, 2888, 2903, 2905, 2910, 3176,
I. R. C.)
Sec. 185.3 . Defcences to be Ta -Pad. cept as provded In secton
185.525, a osses n e cess of the statutory aowance on account of eakage and
evaporaton, as dscosed by the regauge of the dsters orgna packages, and
any addtona oss n transferrng the sprts to the new packages, as shown by
the gauge of such packages, must be ta -pad n accordance wth secton 185.3 8,
uness such oss s attrbutabe to theft, accdent, or other cause than eakage or
evaporaton, and cam for the remsson of the ta thereon s fed. (Sees.
2801(e) (5), 2885, 2886, 2901, 3176, I. R. C.)
Sec. 185. 38. Ta on cess Losses. Where the regauge of packages, other
than stee drums fed from warehouse storage tanks or packages of brandy
bended under the provsons of secton 2801(e)(5), I. R. C, dscoses e cess
osses, the storekeeper-gauger w dever a copes of Form 257, wth Form
1520 attached, to the propretor of the warehouse, who w forward them to the
coector of nterna revenue wth hs remttance to cover the ta due on such
e cess osses. The coector w certfy to the payment of the ta on a copes
of Form 257, retan one copy, and return the other copes to the propretor of the
warehouse, who w dever them to the storekeeper-gauger. Where the regauge
of stee drums fed from warehouse storage tanks dscoses osses, the procedure
prescrbed n sectons 185.220 to 185.225, ncusve, w be foowed. Where the
regauge of packages of bended brandy dscoses osses, the procedure prescrbed
n secton 185.525 w be foowed. (Sees. 2801(e) (5), 2901(a), 3031(a), 3033,
3170, I. R. C.)
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2 5
Regs. 10, 185.10, etc.
Sec. 185. 6 . emptons of Dster. No dster who has gven the requred
bond and who ses ony dsted sprts of hs own producton at the pace of
manufacture, or at the pace of storage In bond, In the orgna packages to
whch the ta -pad stamps are aff ed, sha be requred to pay the speca ta
of a whoesae deaer n quors on account of such saes. Ths provson does
not e empt dsters from the payment of speca ta es for saes of dsted
sprts of ther own producton n bond (by warehouse recept or otherwse),
or n cases or contaners other than the orgna packages, or for e portaton,
fortfcaton of wne, use of the Unted States, etc., wthout attachment of ta -
pad stamps to the orgna packages, nor does It e empt them from abty
for speca ta es where dsted sprts produced by other dsters are sod by
them. Ths e empton does not appy to the sae of brandes bended and pack-
aged by a dster n an nterna revenue bonded warehouse. (Sees. 2801(e) (5),
3176, 3250(a) ( ), I. R. C.)
Sec. 185. 6 a. empton from Speca Ta as a Rectfer. Propretors of
nterna revenue bonded warehouses who bend brandes under the provsons
of secton 2801(e)(5) of the Interna Revenue Code sha not be requred to
pay speca ta as rectfers. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185. 65. Fes Inde , Form 1622. The storekeeper-gauger n charge of
each Interna revenue bonded warehouse where sprts produced by more than
one dster are receved and stored, sha keep an nde on Form 1622 of hs
fes of reports and records, Form 1520, Form 1619, and Form 1620, coverng
a deposts of sprts n the warehouse, ncudng sprts receved from the
bottng department after bottng n bond before ta -payment, packages fed
from storage tanks for depost n the warehouse, and packages fed from brandy-
bendng tanks for depost n the warehouse. separate fes Inde may be
kept of the record, Form 1620, coverng the recept or depost of cases of botted-
n-bond sprts and of report on Form 1520 coverng the depost of packages of
bended brandes. ntres sha be made n the fes nde as ndcated by the
headngs of the coumns and nes on forms and n accordance wth nstructons
ssued by the Commssoner. The st of dsters sha be prepared aphabet-
cay and the sheets coverng the deposts of sprts sha be arranged n the
nde In aphabetca order accordng to the names of the dsters. separate
sheet sha be used for the sprts produced at each dstery and the sprts
deposted sha be entered on the sheet n chronoogca order accordng to the
date of depost. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185. 66. Summary of Deposts and Wthdrawas, Form 1621. The
storekeeper-gauger n charge of each nterna revenue bonded warehouse sha
keep a summary on Form 1621 of the sprts entered nto, wthdrawn from, and
remanng n warehouse. ntres sha be made as ndcated by the headngs
of the coumns and nes on the form and n accordance wth nstructons ssued
by the Commssoner. In the case of packages of bended brandes, the regstry
number of the warehouse where such packages were fed sha be substtuted
for the regstry number of the dstery. The records sha be arranged aphabet-
cay by States, (1) numercay by dsteres accordng to regstry number
wthn each State, and (2) In case of bended brandes, numercay by nterna
revenue bonded warehouses accordng to regstry number wthn each State.
Separate sheets sha be used for each knd of sprts (ncudng bended brandes)
and for each season s producton, and for packages, cases, storage tanks, and
packages of bended brandes. statement of day totas sha be kept on a
separate sheet. Ths record sha aso be used by storekeeper-gaugers n con-
necton wth the preparaton of the statement on Form 1513 of sprts remanng
n warehouse. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185. 07. Fes and Records Coverng Deposts. The storekeeper-gauger s
copy of a Forms 1520, coverng the depost n warehouse of sprts receved from
dsteres; Forms 1619 and 1620, coverng sprts receved from other ware-
houses; Forms 1520, coverng packages fed from storage tanks and retaned
n the warehouse; Forms 1520, coverng packages fed from brandy-bendng
tanks; and Forms 1620, coverng cases of botted n bond sprts returned to the
storage porton of the warehouse, sha be fed as permanent records, n bound
form, n the offce of the storekeeper-gauger. efore fng such forms the store-
keeper-gauger sha make approprate entres coverng the recept of the sprts
n hs fes nde , Form 1622, and n hs summary of deposts and wthdrawas,
Form 1621. The storekeeper-gauger sha enter the date of depost of the sprts
n the warehouse at the bottom of each form. The Forms 1520, 1619, and 1620
sha be fed separatey by form number, the forms n each fe beng grouped
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Regs. 10, 185.19, etc.
2 6
under the name of the producng dster (or warehouseman In the case of
bended brandes) and arranged n chronoogca order accordng to the date of
depost, and n sequence to the sera numbers of the packages or cases where
possbe. Separate fes sha be mantaned for storage tanks and for packages
fed from storage tanks and retaned In the warehouse and for packages fed
from brandy-bendng tanks. Where two or more ots of sprts are deposted n
the same storage tank the Forms 1520 coverng such deposts sha be kept
together and dentfyng notatons sha be made on each form showng that they
coectvey represent the sprts deposted n the tank. Smar notatons sha be
made on Form 1622 n connecton wth the entres of the deposts. When the
ast depost s made n a tank, a recaptuaton of the deposts w be made
on the Form 1520 coverng the ast depost, and wthdrawas w be noted on
such form. The date of depost of the sprts sha be entered at the bottom of
each Form 236, coverng sprts receved n bond from other premses, at the
bottom of each Form 1518 coverng sprts botted n bond and returned to the
warehouse, and at the bottom of each Form 1685 coverng brandy bended In
brandy-bendng tanks and returned to the warehouse and such forms sha
be fed separatey by form number n chronoogca order. (Sees. 2801(e) (5),
3176, I. R. C.)
Sec. 185. 68. Fes and Recokds Covebng Wthdrawas. When sprts are
to be wthdrawn from warehouse, the storekeeper-gauger w secure from hs
fes nde nformaton as to the ocaton of the Form 1520, 1619, or 1620 coverng
the depost of the sprts, ncudng bended brandes returned to the storage por-
ton of the warehouse from the brandy-bendng department, and sha transcrbe
the necessary detas therefrom to the approprate wthdrawa forms. Upon wth-
drawa of the sprts, the storekeeper-gauger sha ndcate by proper red ne
bockng on the entry Form 1520, 1619, or 1620, the packages or cases wthdrawn
and the date and purpose of wthdrawa. The storekeeper-gauger sha aso
make the necessary entres coverng the wthdrawas on Form 1621, and sha
enter the date of wthdrawa at the bottom of the retaned copes of the wth-
drawa forms and appcatons. (Sees. 2801(e) (5), 3176,1. R. C.)
Seo. 185. 69. Retenton of Records. ach Form 1520, 1619, or 1620 coverng
the depost of the sprts sha be retaned In the actve bnder unt a sprts
covered by the form have been wthdrawn, at whch tme such form sha be
removed and fed n the same order n an nactve fe. ach bnder sha be
appropratey marked to show the knd of forms t contans and the perod cov-
ered thereby. The bnders for packages receved from the dstery on the same
or contguous premses, packages fed from storage tanks, packages of bended
brandy fed n the brandy-bendng department, and cases botted at the ware-
house sha aso have shown thereon the sera numbers of the packages or cases.
Where a change n propretorshp of the warehouse occurs, the fes of a de-
post and wthdrawa forms sha be retaned and contnued n connecton wth
the transactons of the successor. (Sees. 2801(e) (5), 3176,1. R. C.)
Sec. 1S5. 71. Fng Wthdrawa Forms and ppcatons. The copes of
the reports of the wthdrawa gauge, Form 1520, or the reports of remova for
transfer In bond, Form 1619, retaned by the storekeeper-gauger sha be fed
separatey n chronoogca order, accordng to the date of wthdrawa noted at
the bottom of the forms. The storekeeper-gauger s copes of wthdrawa appca-
tons, Forms 179, 206, 238, 257, 5 3, 573, 055, 1518, 1519, and 1685, may be fed
together or separatey by form number, n chronoogca order, n the same
manner as the wthdrawa forms. The wthdrawa reports and appcatons for
each month sha be separated n the fe by proper markers, and each fe sha
be appropratey marked to show the knd of forms contaned theren and the
perod covered thereby. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185. 72. Method of eepng Return. The storekeeper-gauger n charge
of every nterna revenue bonded warehouse sha keep a monthy record on
Form 1513 of a dsted sprts deposted n, wthdrawn from, and remanng
In the warehouse. Such depost, wthdrawa, and nventory records, sha n-
cude bended brandes receved nto the storage porton of the warehouse from
the brandy-bendng department, brandes removed from the storage porton of
the warehouse to the brandy-bendng department, and bended brandes reman-
ng n the storage porton of warehouse at the end of the month. s to bended
brandy, the statement of sprts remanng In the warehouse sha be reported
accordng to the season and year of producton of the odest brandy In the bend.
the nformaton ndcated by the headngs of the coumns and nes and the
Instructons prnted on the form sha be entered on the form n the order stated
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2 7
Regs. 10, f 185.19, eta
In such nstructons. The record sha be kept n bound form avaabe for
nspecton by Government offcers. (Sees. 2801(e) (5), 2915, 3176, L R. C.)
Sec. 185. 80. Foem 151 . ach dstrct supervsor sha render a monthy
warehouse account on Form 151 of transactons at Interna revenue bonded
warehouses for each State wthn hs dstrct. Such record sha cover brandes
removed from the storage porton of a warehouse to the brandy-bendng depart-
ment and bended brandy returned to the storage porton of the warehouse from
the brandy-bendng department. The requred data w be obtaned from the
monthy warehouse reports of storekeeper-gaugers on Form 1513, after the
reports have been audted. The entres sha be made as ndcated by the head-
ngs of the coumns and nes, and n accordance wth the nstructons prnted
on the form. Form 151 sha be prepared n dupcate and one copy, wth the
supportng copes of Form 1513, sha be forwarded to the Commssoner not
ater than the ast day of the month succeedng that for whch rendered. The
remanng copy sha be retaned by the dstrct supervsor. (Sees, 2801(e) (5),
3170, 3170, 3U53, I. R. C.)
Sec. 185. 81. Form 332. ach dstrct supervsor sha render an annua report
on Form 332, by knd, seasons, and years of producton, of dsted sprts n
nterna revenue bonded warehouses at the cose of the fsca year ( une 30), for
each State wthn hs dstrct. In the case of bended brandy the season and
year of the odest brandy n the bend sha be consdered the season and year of
the bended brandy. The entres sha be made as ndcated by the headngs of
the coumns and nes and n accordance wth the Instructons prnted on the form.
Form 332 sha be prepared n dupcate and one copy sha be forwarded to the
Commssoner not ater than uy 31 of each year. The remanng copy sha be
retaned by the dstrct supervsor. (Sec. 3176,1. R C.)
rtce L. endng of randes.
Sec. 185.51 . Genera. (a) Lmtatons. Frut brandes dsted from the
same knd of frut at not more than 170 degrees proof may, for the soe purpose
of perfectng such brandes accordng to commerca standards, be m ed or
bended wth each other, or wth any such m ture or bend, by the dster
thereof n any nterna revenue bonded warehouse operated by hm e cusvey
for the storage of brandy or wne sprts. The bendng must Improve (perfect)
the brandy accordng to the approved commerca standard of the bended product.
ny bendng of brandy of standard quaty wth brandy of Inferor quaty for
the purpose of stretchng or ncreasng the voume of the standard quaty brandy
and whch resuts In the manufacture of a product nferor to the standard
quaty brandy before bendng, consttutes rectfcaton and may not be done on
Interna revenue bonded warehouse premses. The term dster as used n
ths secton Incudes any one or more dsters assocated as members of any
farm cooperatve, or any one or more dsters affated wthn the meanng of
secton 17(a) (5) of the Federa coho dmnstraton ct, as amended, or any
frut dster for whose account, recorded wth the dstrct supervsor at the
tme of producton, the brandy to be bended was produced. ccordngy, for
the purpose of determnng egbty for bendng, brandy dsted from the
same knd of frut at not more than 170 degrees proof sha be consdered dsted
by the dster operatng the nterna revenue bonded warehouse (1) where t
was actuay dsted by hm; (2) where It was produced by a dster assocated
wth hm as a member of a farm cooperatve; (3) where t was produced by a
dster affated wth hm, that Is, one of such dsters has contro of the other
or the dsters are sub|ect to common contro, actua or ega, drecty or n-
drecty, whether by stock ownershp or otherwse; or ( ) where It was produced
for hs account, provded such producton was recorded wth the dstrct super-
vsor nt the tme of producton as requred n subsecton (6) of ths secton.
(6) Recordng of producton. When brandy to be bended s produced for the
account of the dster, the foowng procedure sha be observed :
(1) The dster at whose warehouse brandes are to be bended sha fe
wth the dstrct supervsor a certfed copy of the agreement under whch the
brandy Is to be produced for hs account. The agreement sha set forth the
name and regstry number of the producng dster, knd, the appro mate
amount of brandy to be produced, and the appro mate tme of producton, and
shoud ceary show that the producng dster was engaged to produce brandy
for the account of the bendng dster.
(2) Upon recept of the agreement the dstrct supervsor sha e amne t
cosey. To conform to the aw brandy to be bended must actuay be produced
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Regs. 10, 185.19, etc.
2 8
for the account of the bendng dster. If It appears that the agreement Is a
contract to produce brandy for the account of the bendng dster and s not
merey a contract to se producton, the dstrct supervsor sha notfy the
Storekeeper-ganger assgned to the premses of the producng dster of the names
of the dsters nvoved and the knd and quantty of brandy to be produced
for bendng, wth the foowng nstructons:
() Upon competon of the entry gauge and e ecuton of the Dster s
ntry for Depost, the storekeeper-gauger sha e amne the packages n-
voved and, where the dster has aff ed to a package a tag statng Pro-
duced for the account of (name of dster for whom produced) and the
dstrct supervsor has advsed the storekeeper-gauger of the agreement to
produce for the account of that bendng dster, he sha make a notaton
on the reverse sde of a copes of the Form 1520 statng In effect Produced
for the account of (name of dster for whom produced). If ony a porton
of the brandy covered by the Form 1520 was produced for the account of the
frut dster who Intends to bend brandy, the storekeeper-gauger sha show
the sera numbers of the packages and aggregate proof gaons of brandy
so produced. The statement sha be sgned by the storekeeper-gauger. In
the absence of tags on the contaners denotng for whom the brandy was
produced, or n the absence of a statement by the dstrct supervsor reatve
to the agreement under whch the brandy was produced, the storekeeper-
gauger sha not assume that the brandes were produced for the account of
another and sha make no statement reatve thereto.
() Where brandy produced for the account of a frut dster s trans-
ferred n bond, a transcrpt of the storekeeper-ganger s statement sha be
made on each copy of Form 1619. The transcrpt sha be shown on the face
of the Form 1619 or on the reverse. If shown on the reverse, proper reference
thereto shoud be made In the space to the eft of Date receved n ware-
house.
(3) Upon recept of a copy of Form 1520 showng brandy produced for the
account of a bendng dster, the dstrct supervsor sha note on the agreement,
or on a sutabe Inde card, the date of producton, the sera numbers of the
packages, and the aggregate proof gaons covered by the Form 1520. (Sees.
2801(e) (5), 3176, I. It. C.)
Sec. 185.515. Notce Requred. (a) Notce of commencement. fter the
brandy-beudng department has been duy approved by the Commssoner, the
propretor of the warehouse sha, before begnnng bendng operatons, gve
notce, In trpcate, to the dstrct supervsor through the storekeeper-gauger n
charge of the warehouse, of hs ntenton to bend brandes. Upon approva of
the notce by the dstrct supervsor, two copes sha be forwarded to the store-
keeper-gauger n charge and the orgna copy sha be retaned In hs offce. The
storekeeper-gauger sha dever one copy to the propretor, and retan the other
copy n the Government offce.
(6) Notce of dscontnuance. In the event the propretor desres to dscon-
tnue bendng operatons, ether temporary or permanenty, and to use the
space and factes of the bendng department for other duy authorzed ware-
house purposes, he sha gve notce, In trpcate, of dscontnuance to the
dstrct supervsor through the storekeeper-gauger n charge of the warehouse
that a brandes have been removed from the brandy-bendng department and
sha state the purpose or purposes for whch he proposes to use the department
The storekeeper-gauger sha Inspect the brandy-bendng department and f a
brandes have been reported therefrom, he sha certfy to such fact on each
copy of the notce of dscontnuance and forward the three copes to the ds-
trct supervsor. The dstrct supervsor sha e amne the notce and f the
proposed use stated by the warehouseman s n accordance wth aw and regua-
tons he sha endorse hs approva on each copy of the notce. Upon approva
by the dstrct supervsor, two copes of the notce sha be forwarded to the
storekeeper-gauger n charge and the orgna copy sha be retaned n hs
offce. The storekeeper-gauger sha dever one copy to the propretor, and the
other copy sha be retaned by hm In the Government offce. The storekeeper-
gauger sha then remove the ocks from the doors to the brandy-bendng
department. Where brandy-bendng tanks are to be used for other purposes,
such as the storage of fortfyng brandy, the tanks must be temporary marked
to show such use, but the permanent marks on the tanks shoud not be
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2 9
Regs. 10, 185.19, etc.
dsturbed. fter notce of dscontnuance has been approved, and before resum-
ng bendng operatons, a new notce of commencement must be fed and
approved. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185.516. ppcaton- to end and Report of Gauge. (a) ppcaton,
Form 1685. When a dster desres to bend brandes at hs warehouse he
sha fe appcaton on Form 1685, n quadrupcate, fuy descrbng the
brandes to be bended and gvng a the nformaton caed for by the form.
ach form sha be gven a sera number begnnng wth 1 for the 1st day
of anuary of each year and runnng consecutvey thereafter to December 31,
ncusve. The appcaton sha show, as to each knd of brandy not prevousy
bended, the foowng:
(1) The number of packages,
(2) The sera numbers of the packages,
(3) The knd of brandy as marked on the packages,
( ) The date of orgna entry for depost,
(5) Orgna ta gaons,
(6) Proof of dstaton,
(7) The name of the producng dster, regstry number of the dstery
and State In whch the dstery Is ocated, or,
f brandes prevousy bended are to be dumped for bendng wth other bran-
des, the appcaton sha show (n respect to such prevousy bended brandes)
the foowng:
(1) The number of packages,
(2) The sera numbers of the packages,
(3) The knd of brandy as marked on the packages,
( ) Date of orgna entry of odest brandy n bend,
(5) Date of orgna entry of youngest brandy n bend,
(6) Proof gaons marked on the packages,
(7) The name of the bendng dster and regstry number of the
warehouse n whch the bendng was done and State n whch the ware-
house s ocated,
(8) Date and sera number of the Form 1685 coverng each pror bend
and the name of the bendng dster, regstry number of the warehouse
n whch the bendng was done and State n whch the warehouse s
ocated, as shown on each such Form 1685. Where a pror bendng was
effected In a warehouse n another dstrct, a copy of the Form 1685 coverng
such bendng sha be submtted wth the appcaton.
Where two or more types of brandy produced from the same knd of frut (such
as grape ees brandy, grape pomace brandy, grape brandy) are to be bended
together, the appcant sha state the percentage of each type of brandy to be
contaned In the resutant bend. Where any brandy to be bended was pro-
duced at a dstery operated under a name other than the name of the bend-
ng dster, the appcaton sha show whether such dstery was operated
by an assocate or by an affate, or whether the brandy was produced for the
account of the bendng dster. The appcaton sha show the proposed desg-
naton of knd for the brandy after bendng.
(1) vdence of affaton or assocaton. Where brandy produced by an
assocate or an affate of the bendng dster s to be bended, the bendng
dster must fe wth the dstrct supervsor documentary evdence estab-
shng such assocaton or affaton.
() ond coverage. The bendng dster must state, as to the brandy
produced by each dster, whether the producer thereof has fed consent
of surety on Form 1533 stpuatng that hs dster s bond sha contnue to
be abe for the ta mposed by secton 2800(a) (1), I. R. 0., on such brandy
after t has been bended wth other brandy. The consent of surety may
be prepared to cover a specfc ot or ots of brandy, or to cover a brandy
produced by the dster whch s bended wth other brandy.
(6) cton bff dstrct supervsor. copes of Form 1685 sha be submtted
to the dstrct supervsor for hs approva. Upon recept of the appcaton the
dstrct supervsor sha determne whether the proposed desgnaton of knd
for the bended brandy conforms to the provsons of secton 21, cass , of Regu-
atons 5, as amended, reatng to the abeng and advertsng of dsted sprts
77338 8 17
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Reffs. 10, 185.19, etc.
250
under the provsons of the Federa coho dmnstraton ct and sha other-
wse determne that the brandes descrbed on the form are egbe for bendng
pursuant to the provsons of secton 2801(e) (5), L R. C. The dstrct supervsor
sha determne whether, for each dster of brandy to be bended, there s on
fe a consent of surety stpuatng that the dster s bond sha contnue to be
abe for the ta mposed by secton 2800(a)(1), I. R. C, after brandy pro-
duced by such dster has been bended. The dstrct supervsor sha aso
determne whether documentary evdence has been submtted to estabsh (1)
that the brandy was produced by a dster assocated wth the bendng dster
as a member of a bona fde farm cooperatve, or (2) that the brandy was produced
by a dster affated (as defned n secton 185.51 ) wth the bendng dster,
or (3) that the brandy was produced by a dster for the account of the bendng
dster and such producton was recorded (as requred by secton 185.51 ).
Where the appcant has not estabshed that the proposed bendng w be n
accordance wth the provsons of these reguatons, the dstrct supervsor sha
not approve the appcaton and sha return t wth a statement showng the
reason therefor. If the dstrct supervsor s doubtfu whether the proposed
desgnaton of knd s correct, or f he s doubtfu for other reasons that the ap-
pcaton shoud be approved, the matter shoud be submtted to the Commssoner
for advce. If the appcaton s approved a copes of the Form 1685 shoud
be forwarded by the dstrct supervsor to the storekeeper-gauger n charge of
the nterna revenue bonded warehouse.
(c) cton by the storekeeper-gauger. Upon recept of the approved appca-
ton, Form 1685, the storekeeper-gauger sha nspect and gauge the packages
and make detaed report of such gauge on Form 1520, n quadrupcate. Where
brandes covered by the appcaton, Form 1685, were produced by dfferent ds-
ters or at dfferent dsteres, separate report of gauge. Form 1520, sha be
prepared for the product of each dster or dstery. The storekeeper-gauger
sha, n every Instance, note on Forms 1520 the sera number and date of the
appcaton, Form 1685.
(1) erfcaton. Where the quantty of a type or ot of brandy to be bended
wth another type or ot of brandy s mted to a ma mum percentage, the
storekeeper-gauger and the dster shoud e amne the Forms 1520 coverng
the regauge of the brandy whch s mted to a ma mum percentage to deter-
mne (before the report of the storekeeper-gauger on Form 1685 s e ecuted)
that the quantty of such brandy (cacuated on a proof-gaon bass) s not n
e r-ess of the ma mum percentage authorzed by the approved appcaton.
Where the quantty of a type or ot of brandy regauged e ceeds the ma mum
percentage authorzed for bendng, the storekeeper-gauger may, at the dster s
request, deete the packages contanng such quanttes (n no case ess than a
whoe package) from the appcaton and ne out the entres on the regauge
report and permt the return of the packages to the storage porton of the ware-
house. The deeton n the appcaton must be verfed by the dster and
ntaed by hm. Where compance wth the statement of ma mum percentage
can not be obtaned n ths manner, the bendng operaton shoud be suspended
and the matter submtted to the dstrct supervsor for advce.
(2) Dsposton of Forms 1685. Upon competon of the report as to brandy
dumped, bended, and returned to the storage porton of the warehouse, the store-
keeper-gauger sha forward one copy of the form and one copy of Form 1520
to the dstrct supervsor, dever one copy of each form to the propretor of the
warehouse, and fe one copy of each form n hs offce. Where a copy of Form
1685 was not sent to the coector of nterna revenue for the reason that e cess
osses from dsters orgna packages were not dscosed, the e tra copy of
Form 1685 and of Form 1520 sha be destroyed by the storekeeper-gauger.
d) udt by dstrct supervsor. t the tme of audtng Forms 1520 and
1685 coverng the bendng of brandes the dstrct supervsor sha determne
whether the quanttes bended were n a proporton whch woud permt the
desgnaton of knd gven to the resutant bend. (Sees. 2801(e)(5), 3170,
I. R. C.)
Sec. 185.517. cess Losses to be Ta -Pad. Where packages contanng a
bend of brandes are to be dumped for further bendng, osses from such pack-
ages sha be consdered n accordance wth the provsons of secton 185.525.
osses from dsters orgna packages n e cess of the statutory aow-
ance provded In secton 2001(a), I. R. C, as amended, must be ta -pad. If
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251 Regs. 10, 185.19, etc.
the regauge dscoses e cess osses or defcences to be ta -pad, a copes of
the Form 1685, together wth a copy of the report of gauge on Form 1520, sha
be forwarded by the propretor wth remttance for the ta on such e cess
osses or defcences to the coector for the dstrct n whch the bonded ware-
house s ocated. The coector sha e ecute a certfcate as to the payment of
ta on a copes of Form 1685, retan one copy thereof and the copy of Form
1520 and forward the other copes to the storekeeper-gauger n charge of the
warehouse. Where no e cess oss s dscosed by the regauge, the Forms 1685
and 1520 sha not be sent to the coector. (Sees. 2801(e)(5), 3176, L R. C.)
Sec. 185.518. endng Pror to Payment of Ta on Losses. Packages of
brandes for bendng may be dumped nto the brandy-bendng tank mmedatey
after they are gauged. The storekeeper-gauger may permt brandes to be drawn
from brandy-bendng tanks before payment of the ta on e cess osses from
packages dumped. owever, Forms 1685 and 1520, together wth remttance,
must be transmtted to the coector Immedatey, and when such s done the
bendng and drawng off of such brandes nto packages and the return thereof
to the storage porton of the warehouse may be permtted pror to the return of
Forms 1685 to the storekeeper-gauger by the coector: Provded, That n such
cases an e tra copy of Form 1685 coverng the packages dumped shoud be fur-
nshed the offcer at the brandy-bendng department n order that he may make
proper report of brandy-bendng operatons. Upon return of the recepted Forms
1685 from the coector, the storekeeper-gauger sha compare the amounts, and
f found to be In agreement, the e tra copy sha be destroyed. (Sees. 2801 (e) (5),
3176,1. R. C.)
Sec. 185.519. Transfer of randes to endng Tank. efore brandes are
transferred to the brandy-bendng tank, the storekeeper-gauger sha ock the
outet to the tank, and after a brandes have been transferred to the brandy-
bendng tank the storekeeper-gauger sha ock the net to the tank. The con-
tents of the tank must be thoroughy agtated, the proof determned, and the
contents of the tank gauged. The proof so determned sha be consdered the
proof of the brandy drawn nto packages from the tank. (Sees. 2801(e)(5),
3176, I. R. C.)
Sec. 185.520. Dsposton of mpty Packages. Immedatey upon beng emp-
ted, the packages from whch brandes were dumped for bendng sha be
e amned by the storekeeper-gauger for the purpose of determnng that a
brandes were removed therefrom; sha have a the marks and brands obter-
ated ; and be removed from the warehouse: Provded, That In the event such
packages are to be used as contaners for the bended brandes, so many as are
requred to contan the bended brandes may be retaned n the brandy-bendng
department for that purpose. Such empty packages sha be segregated from any
fed packages In the brandy-bendng department. (Sees. 2801(e)(5), 3176,
I. R. C.)
Sec. 185.521. Drawng Off randes. randes must be drawn from the
brandy-bendng tank nto packages on or before the thrd day foowng the
depost of the same theren. When brandes are to be drawn from the tank the
storekeeper-gauger sha see that a vaves and openngs other than the necessary
outet vave are cosed and ocked before the brandes are drawn from the tank.
The storekeeper-gauger sha open and cose the ocks, but t sha be the duty of
the warehouseman to manpuate the stopcocks or vaves controng the fow of
the sprts. The storekeeper-gauger assgned to the brandy-bendng department
Is requred to be present and personay supervse the drawng off of a brandy
n the tank, the markng and brandng of a packages fed therefrom. e sha
aso see that a mechanca dutes connected wth such operatons are propery
performed as provded heren and In the Gaugng Manua. (Sees. 2801(e)(5),
3176, I. R C.)
Sec. 185.522. Gaugng of ended randy. brandes drawn from brandy-
bendng tanks sha be gauged by the storekeeper-gauger and reported on Form
1520. Informaton ndcated by the headngs of the varous coumns and nes
and nstructons prnted on the form sha be furnshed. The storekeeper-gauger
sha, n every nstance, note on Form 1520 the sera number of the appcaton,
Form 1685, under whch the brandes were bended and the dates of orgna
entry of (1) the odest brandy and (2) the youngest brandy contaned n the
bend. randes drawn nto packages sha he gauged accordng to the rues
prescrbed n the Gaugng Manua. (Sees. 2801(e) (5), 3176, I. R. C.)
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Regs. 10, 185.19, etc.
252
Sec. 185.523. Numberng of Packages. packages fed from brandy-Wend-
ng tanks sha be seray numbered, separatey from packages fed at the ds-
tery or from storage tanks In the bonded warehouse, begnnng wth number
1, preceded by the etters L, as L-1, L-2, etc. The symbo L
sha be consdered a part of the sera number and must be shown as part of
the sera number on a offca forms or records. (Sees. 2801(e)(5), 2825,
2878, 2883, 3176, I. R. C.)
Sec. 183.52 . Maskng of Packages. Immedatey upon the fng of the pack-
ages, or pror to fng, the bendng dster sha mark upon the head of the
package by brandng or stencng the foowng nformaton:
1. The knd of brandy as shown on the Form 1685.
2. The words - ended by.
3. The name of the bendng dster.
. The regstered number of the warehouse, and the State n whch the
warehouse s ocated.
5. The sera number of the package.
6. The date of fng of the package.
7. The date of orgna entry of the odest brandy n the m ture.
8. The date of orgna entry of the youngest brandy n the m ture.
9. Proof of bended brandy.
10. Tare of contaner.
11. Proof gaon content.
12. y whom nspected.
The foowng s an ustraton of the markng of packages:
GR P R NDY
ended by
ohn Doe Dstng Co.
I. R. . W. No. 217, Caf.
S. N.- L 10907
Fed 7-29- 7
Org. nt. O. . 6-19- 5
Org. nt. Y. . 6-19- 6
Inspected
(Space
reserved for wthdrawa
marks and stamps)
Such marks and brands sha be paced upon the packages n etters and fgures
not ess than three-fourths nch n heght or one-haf nch In the case of haf-
barres. The head of the package bearng these marks sha be known as the
Government head. No marks other than those requred by these reguatons
and the appcabe provsons of the Gaugng Manua sha be paced upon the
Government head of such package. (Sees. 2801(e)(5), 3176, I. R. C.)
Sec. 185.525. Losses of -ended randt. (a) Genera. The ta es (mposed
by sectons 2800(a)(1) and 2801(e)(5), I. R. C.) on bended brandy ost by
eakage, evaporaton, theft, or otherwse, not occurrng as the resut of any neg-
gence, connvance, couson, or fraud on the part of the warehouseman or hs
agents may be remtted or refunded to the e tent that the warehouseman s not
ndemnfed or recompensed for such oss.
(6) Losses from brandy-bendng tank. The quantty (proof gaons) of
brandy whch s ost from the brandy-bendng tank sha be determned each
tme the tank s empted. The e tent of the oss sha be estabshed by com-
parson of the quantty (proof gaons) dumped from packages nto the tank
wth the tota quantty (proof gaons) drawn nto packages therefrom, as shown
by the gauge Form 1520, and the Form 1685. Where the oss of brandy does not
e ceed 1 per cent of the actua quantty deposted n the tank, cam for aow-
ance of the oss w not be requred, provded there are no crcumstances nd-
P. 127
T. 101
P. G. 61.30
ames Roe
U. S. S. G.
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253
Regs. 10, 185.19, etc.
eatng that the brandy or any porton thereof was ost as the resut of neggence,
connvance, couson or fraud on the part of the warehouseman or hs agents.
(c) Loss from packages. The quantty (proof gaons) of bended brandy
whch Is ost from packages sha be determned by regauge pror to dumpng for
further bendng and upon the wthdrawa of packages from the warehouse ta -
pad or for any ta -free purpose. The quantty found to be so ost sha be
entered by the storekeeper-gauger n the proper coumn of Form 1320. Cam for
aowance of the oss w not be requred, provded there are no crcumstances
ndcatng that the brandy, or any part thereof, was ost as the resut of neg-
gence, connvance, couson, or fraud on the part of the warehouseman or hs
agents.
(d) Losses ndcatng tamperng. Where the gauge of packages fed from
brandy-bendng tanks or the regauge of such packages upon wthdrawa ndcates
that the contents of the tanks or packages have been tampered wth, as where a
matera defcency s found and there s no evdence of oss by eakage, evapora-
ton, or casuaty, or where deteroraton n proof not accountabe for by varaton
n gauge s dscosed the offcer sha mmedatey notfy the dstrct supervsor
of a the facts n the case and sha not permt the tank to be empted or the
packages to be removed pendng recept of nstructons from the dstrct super-
vsor.
(e) Cam for osses from brandy-bendng tank. owance w not e made
for osses of bended brandy from a brandy-bendng tank where there are cr-
cumstances ndcatng that the osses were the resut of neggence, connvance,
couson, or fraud on the part of the warehouseman or hs agents, or where the
osses are n e cess of 1 per cent of the quantty (proof gaons) deposted n
the tank, uness the cause of each oss s satsfactory e paned n a cam for
remsson of the ta . The cam shoud be prepared and fed n accordance wth
the appcabe provsons of sectons 185.210 to 185.212, ncusve.
(f) Cam for osses on storage or n transt. owance w not be made for
osses of bended brandy sustaned whe on storage n, or n transt to, a bonded
warehouse where there are crcumstances ndcatng that the osses were the
resut of neggence, connvance, couson, or fraud on the part of the warehouse-
man or hs agents, uness the cause of each oss s satsfactory e paned n a
cam for remsson or refund of the ta . The cam shoud be prepared and fed
n accordance wth the appcabe provsons of sectons 185.210 to 185.212, ncu-
sve. (Sees. 2801(e) (5), 3176, I. R. C.)
Sec. 185.526. Wthdrawa of ended randes. randes m ed or bended
n accordance wth the provsons of these reguatons may be stored, transported,
transferred n bond, wthdrawn from bond ta -pad or ta -free, or be otherwse
dsposed of, n the same manner as such brandes not so m ed or bended. The
foregong shoud not be construed as meanng that such bended brandes are
egbe for bottng n bond. (Sees. 2801 (e) (5), 3176, I. R. C.)
. Ths Treasury decson sha be effectve upon pubcaton n the
Federa Regster. (Sectons 2801(e) (5), 2800(e), 2857, 2859, 2868,
2872, 2873, 2875, 2878, 2879, 2882, 2883, 288 , 2885, 2886, 2888, 2901,
2903, 290 , 2905, 2910, 2915, 3031, 3033, 3170, 3176, and 3953 of the
Interna Revenue Code (U. S. C, Tte 26, sectons 2801(e)(5),
2806(e), 2857,2859,2868,2872,2873, 2875, 2878, 2879, 2882, 2883,288 ,
2885, 2886. 2888, 2901, 2903, 290 , 2905, 2910, 2915, 3031, 3033, 3170,
3176, and 3953.)
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved November 13, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 20, 19 7.)
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Regs. 10, 185. 09, etc.
25
Reguatons 10, Sectons 185. 09, 185. 12, 19 7-2 -12703
185. 13. T. D. 5585
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 185.
W R OUSING OF DISTILL D SPIRITS.
mendng Reguatons 10.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0, 33 , and 33 2 of the Interna Revenue Code are
repeaed, effectve uy , 19 6.

2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or sub-
|ect to the effectve date mtaton of secton (c) of sad ct. On
and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these
reguatons.
3. Pursuant to the foregong provsons of aw and secton 3176,
Interna Revenue Code, Reguatons 10 (26 CFR, Part 185) are
amended, effectve uy ,19 6, n these respects:
(a) Secton 185. 09 s amended by strkng out the Phppne
Isands, and the Code ctaton 33 1 (b), .
(b) Secton 185. 12 s amended to read as foows:
ny manufacturer who manufactures medcnes, preparatons, compostons,
perfumeres, cosmetcs, and cordas and other quors, for e port, at a duy
consttuted manufacturng bonded warehouse estabshed n accordance wth
aw, may wthdraw dsted sprts n dsters orgna packages from any
nterna revenue bonded warehouse, free of ta , for use n the manufacture of
such products. The aw provdes that dsted sprts may be removed from
nterna revenue bonded warehouses wthout payment of ta and transported to
bonded manufacturng warehouses, cass 6, to be rectfed, or reduced In proof
and botted, and e ported or shpped to Puerto Rco. ( ; Sees. 2S91, 3177, 317S,
I. R. C.; Sec. 6, 32 Stat, 55, 19 U. S. C, 152(a).)
(c) Secton 185. 13 s amended to read as foows:
When any manufacturer, who s the propretor of a customs manufacturng
bonded warehouse, desres to remove dsters orgna packages of dsted
sprts to such warehouse from an nterna revenue bonded warehouse, free of ta ,
for use n the manufacture of medcnes, preparatons, compostons, perfumeres,
cosmetcs, and cordas and other quors, for e port, or, n the case of sprts
rectfed or reduced n proof and botted, for e port or shpment to Puerto Rco,
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255
Regs. 15 (19 0).
he sha e ecute appcaton, Form 200, In trpcate, ndcatng thereon that the
sprts are to be wthdrawn for transfer to a customs manufacturng warehouse.
The propretor of the nterna revenue bonded warehouse from whch the sprts
are to be removed sha e ecute request on Form 200 for regauge of the packages
covered by the appcaton. The provsons of rtce III, reatng to the
gaugng, ta payment of e cess osses, stampng, and remova of dsters orgna
packages for e portaton, sha so far as appcabe appy to packages to be
removed to customs manufacturng warehouses. ( ; Sec. 2891(a), I, R. C.)
. Ths Treasury decson s ssued under the authorty contaned n
secton 3176, Interna Revenue Code.
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.56 a. m.)
Reguatons 15 (19 0). 19 7-16-12613
T. D.5573
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 190.
R CTIFIC TION OP SPIRITS ND WIN S.
mendng Reguatons 15 (19 0).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Dstrct Supervsors and Others Concerned:
1. On pr 5,19 7, notce of proposed rue makng regardng rect-
fcaton o sprts and wne was pubshed n the Federa Regster
(12 F. R., 2290).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, the foowng added
secton 190.9a and amendments to sectons 190. 2, 190.153, 190.203,
190.279, 190.280, 190.281, 190. 1 , and 190. 16 of Reguatons 15, ap-
proved May 20,19 0 (26 CFR, Part 190), are hereby adopted.
3. These amendments are desgned to reguate the use by rectfers
of acohoc favorng matera sub|ect to drawback under secton
3250(1), I. R. C, to provde for more practcabe operaton of rec-
tfyng pants by emnatng unnecessary requrements reatve to
constructon and operaton, to provde a more effcent method of
determnng proof of sweetened sprts and wnes, and to permt the
gaugng by weght of rectfed products contanng sods.
. Reguatons 15, approved May 20, 19 0 (26 CFR, Part 190),
as amended, are hereby amended as foows:
Sec. 190.9a. Use of cohoc Favorng Materas. (a) Lmtaton. The
use of acohoc favors or favorng e tracts manufactured on premses other
than a rectfyng pant must be mted by the rectfer, so that the quantty of
acoho (proof gaons) contaned theren w not represent more than 2 |
per cent of the quantty of-acoho (proof gaons) contaned n the fnshed
product, e cept as provded In subsecton (6) of ths secton. For e ampe, 100
gaons of a fnshed corda, 50 degrees of proof, contan 50 proof gaons. s
2 per cent of 50 equas 1.25, the corda coud contan not more than 1.25
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Regs. 15 (19 0).
256
proof gaons of acoho derved from such favors or favorng e tracts used n
ts manufacture.
(6) cepton to mtaton. In any case where the use of favors or favorng
e tracts n quanttes n e cess of the 2 per cent mtaton prescrbed n
subsecton (a) of ths secton s requred, such mtaton sha not appy to the
use of any favors or favorng e tracts n e cess thereof f the favorng matera
used Is purchased drecty from the manufacturer and, as to each ot of purchased
favors or favorng e tracts contanng acoho, the rectfer has avaabe for
e amnaton by the storekeeper-gauger an affdavt of the manufacturer showng:
(1) the quantty; (2) the date of manufacture; (3) the knd and brand of each
favor or favorng e tract; and ( ) that drawback under secton 3250(1), L R. C,
has not been nor w be camed on any acoho or dsted sprts contaned n
the favor or favorng e tract
(c) New formuas requred. The manufacture of rectfed products n whch
are used acohoc favors or favorng e tracts to an e tent not consstent wth
the provsons of ths secton and secton 190.153, as amended, sha be dscon-
tnued wthn 90 days after the effectve date of ths reguaton. New formuas,
submtted for the purpose of showng the use of acohoc favors or favorng
e tracts n the manufacture of rectfed products, must furnsh the nformaton
requred by secton 190.153, as amended. (Sees. 2801(e)(1), 3176, 3250(1),
I. R. C.)
Se ;. 190. 2. Sts. - sts n the rectfyng pant sha be ocated n the
rectfyng room and sha be of substanta constructon and must have a cear
space of not ess than one foot around them. very st must have pany and
egby panted thereon words ndcatng ts use, or uses, as Gn St, Corda
St, Water St, etc., foowed by ts sera number and capacty n wne
gaons. sts, e cept water sts and corda sts of not more than 250
wne-gaon capacty, sha be connected wth the recevng tanks by contnuous
permanent ppe nes: Provded, That, where such recevng tank s mounted
on scaes, the ppe ne may be connected wth the tank by means of fe be
connectons wth the ends permanenty attached and secured by means of Gov-
ernment cap seas, or by brazng or wedng, to the net of the tank and to the
ppe ne. If the gn st s equpped wth a ppe ne to bypass the berry
basket, such ppe ne must be equpped wth a vave for ockng wth a Govern-
ment ock. (Sees. 2801(e) (1), 3176, I. R. C.)
Sec. 190.153. Descrpton of Formua. .

(a) Favorng matera. Formuas provdng for the use of acohoc favors
or favorng e tracts under the provsons of secton 190.9a, In addton to show-
ng the knd of and percentage (by voume) of such matera used, must specfy
the percentage of acoho (by voume) contaned theren. ny formua requrng
the use of favorng materas n e cess of the 2 per cent mtaton provded
n secton 190.9a(a) sha show the quantty of acoho n the fnshed product
derved from (1) favors or favorng e tracts sub|ect to drawback under secton
3250(1), I. R. C, and (2) favors or favorng e tracts on whch drawback has
not been nor w be camed, and, as to the atter, sha show whether such
matera s manufactured on rectfyng pant premses or obtaned from a
manufacturer, and f obtaned from a manufacturer, whether there w be on
fe at the rectfyng pant a sworn statement by the manufacturer that draw-
back under secton 3250(1), I. R. C, has not been nor w be camed on such
matera. (Sees. 2801(e) (1), 3176, I. R. C.)
Sec. 190.203. Producton. Gn may be produced e empt from the rectfyng
ta by the redstaton of a pure sprt over |unper berres and other aromates.
Gn so produced must be run nto a recevng tank from whch t must be
prompty (a) drawn nto packages, gauged, stamped, and removed to the
fnshed products room, or (6) transferred to a bottng tank, gauged, and (1)
botted and removed to the fnshed products room or (2) conveyed by ppe ne
to a contguous ta -pad bottng house or rectfyng pant for bottng. (See
sees. 190.313 to 190.339.) (Sees. 2800(a)(5), 2801(e) (1), 3176, I. R. C.)
Sec. 190.279. Determnng Proof of Sweetened Spets, Wnes, tc. The aco-
hoc content (a) of bended whskes contanng more than 0.6 gram or 600 m-
grams of sods per 100 mters derved from bendng materas such as sherry
wne, prune |uce, carame, gycerne, etc., and (6) of wnes, cordas, queurs, and
other rectfed products contanng saccharne or other sod matter w be deter-
mned by the use of an approved ebuometer or a sma aboratory st provded
by the rectfer n accordance wth sectons 190.313 to 190.331, ncusve. When
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257
Regs. 15 (19 0).
usng such Instruments rectfers must foow cosey the nstructons furnshed
therewth n order that accurate determnatons may be made. Instructons
reatve to the use of sma aboratory sts (or wne sets) and the foowng
ebuometers: rnado-Saa (wth shed), raun, uerst, Lefco, L buometer
Levesque (wth shed), Magand (wth shed), Saeron Du|ardn. T G
(wth shed), and . . Torno (wth shed), are aso set forth n the ppend
to Reguatons 7, Wne 19 5 (26 CFR, Part 178). The acohoc content of
bended sprts contanng not more than 0.0 gram or 600 mgrams of sods
per 100 mters derved from bendng materas w be determned by the
use of a standard hydrometer or a sma st. If determned by a standard
hydrometer an obscuraton correcton factor may be added to the apparent proof
n order to obtan the true proof of the bended sprts. perence has shown
that 0.1 gram or 100 mgrams of sods per 100 mters w obscure the true
proof 0. of 1 of proof. For e ampe, f a bended whsky contans 0.25 gram
or 250 mgrams of sods per 100 mters and the apparent proof corrected
to 60 Fahrenhet s found to be 89 proof by a standard hydrometer, a correcton
factor of 1 of proof (2.5 tmes 0. ) due to the sods may be added to the ap-
parent proof, hence the true proof woud be 90 . The sods n bended sprts
due to bendng materas w be determned by evaporatng 25 mters of the
bended sprts n a weghed dsh on a steam bath and then heatng for 30 mnutes
at the temperature of bong water n a dryng oven. The sods thus deter-
mned, mutped by , w gve the sods n 100 mters of bended sprts.
The correcton factor to be used then w be determned on the bass that every
100 mgramss of sods w obscure the proof 0. of 1 of proof. The ebuom-
eter shoud not be used In determnng the acohoc content of bended sprts
contanng not more than 0.6 gram or 600 mgrams of sods per 100 mters.
(Sees. 2801(e) (1), 2801, 3176, I. R. C.)
Sec. 190.280. Determnng Contents by Weght. Rectfed sprts contanng
not more than 0.6 gram or 600 mgrams of saccharne or other sod matter
per 100 mters whch are transferred to portabe packages or to a bottng tank
mounted on scaes may be gauged by weght n accordance wth the offca
Gaugng Manua. To ths end accurate scaes must be provded. Government
offcers w frequenty test, by means of the test weghts provded n accordance
wth secton 190.32, the accuracy of the scaes used for weghng packages. Scaes
used for weghng sprts n ots of not over 500 gaons n bottng tanks w be
tested from tme to tme under the supervson of the storekeeper-gauger by means
of the test weghts provded n accordance wth secton 190.32. Such scaes w
be tested by pacng the prescrbed test weghts upon the scaes and checkng the
weght regstered on the beam of the scaes. The test weghts w then be removed
wthout dsturbng the beam and the bottng tank fed wth sprts or water to
the same weght, whereupon the test weghts w agan be paced upon the scaes,
the sprts or water beng retaned n the tank, and the weght regstered on the
beam checked. Ths operaton w then be contnued unt the scaes have been
checked n 500-pound notches at a weghts for whch the scaes are used.
Rectfers w have scaes used for weghng sprts In arger ots tested and ther
accuracy certfed by State, county, or cty departments of weghts and measures
at ntervas of not more than s months. The storekeeper-gauger w not permt
the use of any scaes not so tested or whch upon testng are found to be n-
accurate. (Sees. 2801(e) (1), 2801, 3176, I. R. C.)
Sec. 190.281. Determnng Contents by Measure. Rectfed sprts trans-
ferred to a bottng tank not mounted on scaes, and sprts, wnes, cordas,
queurs, and other rectfed products contanng saccharne and other sod mat-
ter w be gauged by measure to determne the wne-gaon content (corrected
to voume n accordance wth tabe 7 of the Gaugng Manua) ; the proof-gaon
content w then be determned by mutpyng the wne-gaon content by the
proof (ponted off n two decma paces) of the sprts. If the sprts, wnes,
cordas, queurs, and other rectfed products contanng saccharne or other
sod matter are transferred to packages, the capacty of each package must be
ascertaned before the quors are paced theren, or the quantty to be paced
n each package must frst be ascertaned by actua measure n another vesse
provded for that purpose: Provded, however That the quantty n wne gaons
of any quor paced n packages may be determned by weght f the specfc
gravty of the quor s ascertaned and used n cacuatng the voume. (Sees.
2801(e) (1), 2861, 3176, I. R. C.)
Sec. 190. 1 . Packages of Dsted Sprts. In addton to the sera num-
ber, there sha be pany and duraby burned, cut, Imprnted, or stenced on
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Regs. 21, 191.1.
258
the Government head of each barre or smar contaner of dsted sprts (o)
the knd of sprts; (6) the wne-gaon content; (c) the proof of the sprts;
(d) the proof-gaon content; (e) the tare of the contaner; (/) the date of
fng; (g) the number of the approved formua under whch rectfed; (ft)
the name (or trade name or stye) of the rectfer; (t) the ocaton (cty or town,
and State) of the rectfyng pant; and (/) the number of the rectfer s basc
permt Issued under the Federa coho dmnstraton ct: Provded. That f
the sprts were rectfed by such rectfer, or f the sprts are unrectfed sprts
whch were produced by such rectfer at a dstery, he may use n connecton
wth hs name the desgnaton Rectfer or Dster, respectvey. (Sees,
2801(e) (1), 28(51, 3176, I. R. C.)
Sec. 190. 16. Packaqes anh Cases of Wne. The rectfer sha pace marks
upon packages and cases of wne smar to the marks requred by sectons 190. 1
and 190. 15 to be paced upon packages and cases of dsted sprts, e cept: The
tare need not be marked on the packages; the acohoc content of the wne w
be shown n percentage by voume n eu of the proof; and, n the case of un-
rectfed wne, the proof gaons may be omtted. (Sees. 2801(e) (1), 30 0, 3176,
I. R. C.)
5. Ths Treasury Decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Sectons 2800(a) (5), 2801(e) (1), 28G1, 30 0, 3176, and 3250(1) of
the Interna Revenue Code (26 U. S. C. ., 2800, 2801,2861, 30 0, 3176,
and 3250).) Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved uy 16,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 23, 19 7.)
Reguatons 21, Secton 191.1. 19 7-2 -12705
T. D.5587
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 191.
IMPORT TION OF DISTILL D SPIRITS ND WIN S.
mendng Reguatons 21.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0, 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy , 19 0.

2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury de-
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259 Regs. 23, 181.9, etc.
cson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or sub-
|ect to the effectve date mtaton of secton (c) of sad ct. On
and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these
reguatons.
3. Pursuant to the foregong provsons of aw and secton 3176,
Interna Revenue Code, Reguatons 21 (26 CFR, Part 191) are
amended n ths respect:
(a) ffectve as of uy ,19 6, secton 191.1 s amended by strkng
out , Phppne Isands, .
. Ths Treasury decson s ssued under the authorty contaned n
secton 3176, Interna Revenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foet, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8. 7 a. m.)
Reguatons 23, Sectons 181.9, 181.10, tc. 19 7-2 -12700
T. D. 5582
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 181.
STILLS ND DISTILLING PP R TUS.
mendng Reguatons 23.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. On ugust 7, 19 7, notce of proposed rue makng regardng
sts and dstng apparatus was pubshed n the Federa Regster
(12 F. R., 5367).
2. fter consderaton of such reevant matter as was presented by
nterested persons, the foowng added subsecton 181.13(g); amend-
ments of subsectons 181.13(a), 181.1 (a), and 181.15(c); and amend-
ments of sectons 181.9,181.10, and 181.19 of Reguatons 23, approved
March 30, 19 0 (26 CFR, Part 181), are hereby adopted.
3. These amendments are desgned to permt the ta -free e portaton
of dstng apparatus not ntended for use n dstng; to provde
fu contro of the remova and use of dstng apparatus; to permt
ready dentfcaton of dstng apparatus; and to prevent oss or
destructon of speca (commodty) ta stamps aff ed to dstng
apparatus.
Sec. 181.9. Name Pate of Manufacturer of St. ach st and worm or
condenser must be Identfed as foows:
(1) Name of manufacturer.
(2) ddress of manufacturer.
(3) Manufacturer s sera uubar for the artce.
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Regs. 23, 181.9, etc.
260
Such dentfcaton sha be shown by tho manufacturer on a pate, securey
attached to the apparatus by rvetng or brazng, or be cut, by the manufacturer,
by sutabe de egby and duraby In the matera of whch the apparatus s made.
The dentfcaton marks may not be covered by nsuatng or other matera,
or otherwse obscured or conceaed. Such marks on sts and worms or con-
densers w be dscosed by the manufacturer or vendor n the notce to the
coector, and n the affdavts requred by sectons 181.13 and 181.1 . (Sec.
37 )1, I. R. C.)
Sec. 181.10. Payment of Ta . (a) Speca ta return. Speca (occupatona )
ta es mposed on manufacturers of sts and worms or condensers and the speca
(commodty) ta es on such artces w be pad by the manufacturer pursuant
to the fng of a speca ta return, Form 11, showng the nformaton requred
by the form. Such returns sha be sworn to before a notary pubc or other
offca duy authorzed to admnster oaths.
(b) Speca (occupatona) ta . The speca (occupatona) ta as manufac-
turer of sts s due on the 1st day of uy n each year, or on commencng such
trade or busness. In the former case, the ta sha be reckoned for one year, and
n the atter, t sha be reckoned proportonatey from the 1st day of the month
n whch the abty to the speca ta commenced, to and ncudng the 30th
day of une foowng. It sha be the duty of the speca-ta payers to render
ther returns wth requred remttances to the coector at such tmes wthn
the caendar month n whch the speca ta abty commenced as sha enabe
hm to receve such returns, duy sgned and verfed, together wth the remt-
tances, not ater than the ast day of the month, e cept n cases of sckness or
absence, as provded by secton 303 , I. . C.
(1) Poutng of stamp. The speca (occupatona) ta stamp must be con-
spcuousy posted n the estabshment or pace of busness of the manufacturer
of sts.
(c) Speca (commodty) ta . The speca (commodty) ta on each st or
worm or condenser ntended for dstng s due when the manufacture thereof
s competed and must be pad at the tme such artce s removed from the
pace of manufacture or at the tme of beng set up, f manufactured on the
premses where ntended to be used, by aff ng to the artce the speca (com-
modty) ta stamp provded by the Commssoner. t the tme of aff ng such
stamp t must be canceed by the manufacturer by wrtng across the face
thereof, n permanent nk, the word canceed foowed by the name of the
manufacturer, the manufacturer s sera number of the artce, and the date
of canceaton.
(1) Method of aff ng stump. fter canceaton of the stamp has been com-
peted, the stamp sha be encosed n a mosture proof case havng a transparent
face. The case, wth stamp encosed, must be secured to the artce by means of
screws, bots, or rvets, or by brazng. (Sees. 3270, 3271, 3272, 3273, 303 , 3791,
I. R. C.)
Sec. 181.13. Ta abe Status of Sts. (a) vdence of use. ny st or
worm or condenser (as defned by secton 181.3), wth the e cepton ony of retorts
for the producton of wood acoho, sod to a user by the manufacturer or otherwse
dsposed of or used by the manufacturer, w be presumed to be Intended for use
n dstng, as defned by secton 181.12, uness, as to each st or worm or
condenser, satsfactory evdence sha be fed, as herenafter provded, showng
that the same w not be used for dstng. Uness such evdence s fed, speca
(occupatona) ta as manufacturer of sts w be ncurred by the manufacturer
and speca (commodty) ta on each st or worm or condenser must be pad by
the manufacturer at the tme of ts remova from the pace of manufacture or, f
manufactured on the premses where ntended to be used, at the tme of beng
set up.

(g) portaton. Sts or worms or condensers ntended for purposes other
than dstng as defned n secton 181.12 may be removed for e port by the
manufacturer, or deaer, sub|ect to the appcaton and permt prescrbed by
secton 181.1 (a) wthout payment of the commodty ta thereon. The coector
w note on the permt ssued n such case the foowng: To be removed for
e port to (nsertng the name and address of the consgnee and the foregn port to
whch the artce s to be e ported) No commodty ta due. Such sts or
dstng apparatus w have branded or stamped thereon, n a conspcuous pace,
the words For port, foowed by the sera number of the artce and the
manufacturer s name. When such artces are manufactured from meta pates,
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261
Regs. 23, 181.9, etc.
the words For port wth the sera number of the artce and the manufac-
turer s name drecty thereunder, w be stamped (n etters and fgures whch
must, n no case, be ess than one-haf nch n heght) thereon wth a sutabe de,
or otherwse permanenty aff ed to each artce. Where the artce s constructed
of or encased n wood, the words For port, the sera number of the artce
and the manufacturer s name w be branded thereon. (Sec. 3791,1. R. C.)
Sec. 181.1 . Procedure for Remova and Use. (a) ppcaton and permt for
remova. No st, boer (douber or pot st), worm, condenser, or other dst-
ng apparatus, sha be removed from the premses of the manufacturer, or deaer,
as the case may be, for devery to a user, or for hs own use, or for e port wthout
payment of ta , unt the coector of the dstrct n whch the manufacturer or
vendor s ocated has receved from the manufacturer or vendor an appcaton on
Form 110, n trpcate, for permsson to remove the dstng apparatus, and
permt on such form has been receved from such coector to remove the same.
Such appcaton sha dscose the name and address of the manufacturer or
vendor, the appro mate date the apparatus s to be removed, the name and
address of the person by whom the apparatus s to be used or the name and address
of the person to whom the apparatus s to be e ported, the purpose for whch t s
to be Used; the type and knd of apparatus, ts capacty, the manufacturer s sera
number of the apparatus, and, f the apparatus s ta abe, the sera number of the
manufacturer s speca (occupatona) ta stamp and the sera number of the
speca (commodty )ta stamp for the apparatus. The coector ssung the
remova permt sha furnsh a copy of such permt ether (1) to the dstrct super-
vsor n whose dstrct the apparatus s to be set up, regstered and used, or (2) n
the case of remova for e port, to the coector of customs at the port of e portaton
who upon e portaton sha endorse thereon a certfcate that the artce descrbed
n the body of the appcaton has been e ported and return the Form 110 to the
coector of nterna revenue. No dstng apparatus may be set up or used for
dstng as defned by secton 181.12 wthout appcaton to and permt from the
dstrct supervsor n whose dstrct the apparatus s to be used as provded, n
secton 181.1 (6). (See sectons 181.17 to 181.27, ncusve, reatve to e portaton
of sts wth beneft of drawback.)

Sec. 181.15(c). Change n Locaton or Ownershp of Dstng pparatus.
In the event a user desres to remove any dstng apparatus to another ocaton
after the same has been regstered, no permt therefor w be requred. The user
must, however, pror to remova, fe Form 20 to regster the apparatus not for
use and to dscose the ocaton to whch the remova s to be made and the
appro mate date of such remova. fter remova, no such dstng apparatus
ntended for use n dstng, as defned n secton 181.12, may be agan set up
wthout appcaton to and permt from the dstrct supervsor n whose dstrct
the apparatus s to be used, as provded n secton 181.1 (6). Lkewse, when a
user ses or otherwse dsposes of any dstng apparatus, no permt for remova,
sae, or dsposton thereof w be requred. The user must, however, pror to
dsposa of such apparatus, fe Form 26 wth the dstrct supervsor to regster
the apparatus not for use and to dscose the method of dsposton (sae,
destructon, or otherwse), the name and address of the person to whom dsposed
of, the appro mate date the apparatus s to be removed and the purpose for
whch t s ntended to be used. fter remova, no such dstng apparatus
ntended for use n dstng, as defned n secton 181.12, may be agan set up
wthout appcaton to and permt from the dstrct supervsor n whose dstrct
the apparatus s to be used, as provded n secton 181.1 (6). Where there has
been a change n ownershp, custodanshp, contro, or a remova to other premses,
of any st or dstng apparatus, the person n whose possesson, custody, or
under whose contro the st or dstng apparatus s set up must mmedatey
regster the same wth the dstrct supervsor. (Sees. 2810, 2818, 3170, 3791,
I. R. C.)
Sec. 181.19. Drawback of Ta . Under the aw the aowance of drawback
s restrcted to the ta pad on sts manufactured for e port and actuay
e ported. No drawback can be aowed on worms or condensers e ported.
Where commodty ta has been pad on sts ntended for e port and drawback
s desred, the manufacturer sha brand such artces, make appcaton for
aowance of drawback, and dever such artces nto custom s custody as pro-
vded n sectons 181.20, 181.21, 181.22, and 181.23. (Sec. 32.|0(|) (3), I. R. C.)
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Regs. 23, 181.18.1
262
. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts. pubcaton n the Federa Regster. (Sectons
2810, 2818, 3170, 3176, 3250(|), 3270, 3271, 3272, 3273, 363 , and 3791
of the Interna Revenue Code (26 U. S. C. ., 2810, 2818, 3170, 3176,
3250 (|), 3270, 3271, 3272, 3273, 363 , and 3791).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 20, 10 7.)
Reguatons 23, Secton 181.18: Puerto Rco 19 7-2 -12706
and Phppne Isands. T. D. 5588
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 181.
STILLS ND DISTILLING PP R TUS.
mendng Reguatons 23.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0, 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy , 19 6.

2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct. On
and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these
reguatons.
3. Pursuant to the foregong provsons of aw and secton 3176,
Interna Revenue Code, Reguatons 23 (26 CFR, Part 181) are
amended n these respects:
(a) ffectve as of uy , 19 6, secton 181.18 s amended by strk-
ng out the words and Phppne Isands n the tte thereof, the
words or to the Phppne Isands n the secton and the Code
ctaton 33 1(c), .
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263 Regs. 2 , 180.1, etc.
. Ths Treasury decson s ssued under the authorty contaned
n secton 3176, Interna evenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.57 a. m.)
Reguatons 2 , Sectons 180.1, 180.2, 180.1 6- 19 7-2 -12707
180.179. T. D. 5589
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 180.
LI UORS ND RTICL S FROM PU RTO RIC , IRGIN ISL NDS, ND P ILIP-
PIN ISL NDS.
mendng Reguatons 2 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 506, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 508. T RMIN TION OF P YM NTS INTO P ILIPPIN
TR SURY.

(b) Sectons 33 3 of the Interna Revenue Code are re-
peaed, effectve uy , 19 6.
2. Secton 507, Tte , of the sad Phppne Trade ct of 19 6
reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.
(a) Secton 2800(a) ( ) of the Interna Revenue Code s amended by
amendng the headng to read:
( ) acohoc compounds from puebto rco and vbgn
Isands. ;
and by amendng subparagraph ( ) to read as foows:
( ) bon Isands. For provsons reatng to ta on
acohoc compounds from the rgn Isands, see secton 3350.
(b) Sectons 33 0, 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy , 19 6.

3. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury de-
cson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
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Regs. 28, 176.5, etc. 26
sub|ect to the effectve date mtaton of secton (c) of sad ct. On
and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these
reguatons.
. Pursuant to the foregong provsons of aw and secton 3176,
Interna evenue Code, Reguatons 2 (26 CFR, Part 180) are
amended, effectve uy ,19 6, n these respects:
(a) Secton 180.1 s amended to read as foows:
cohoc Products Comng Into the Unted States From Puerto Rco and
the GN Isands. These reguatons are prescrbed pursuant to the provsons
of aw governng the coecton of nterna revenue ta es on acohoc products
comng nto the Unted States from Puerto Rco and the rgn Isands. (Sees.
3350, 3300, 0 1, I. R. C.)
(b) Secton 180.2 s amended to read as foows:
These reguatons sha supersede a pror reguatons reatng to acohoc
products conng nto the Unted States from Puerto Rco and the rgn Isands
to the e tent that such pror reguatons are nconsstent herewth. pror
reguatons whch are Inconsstent herewth sha reman n force and effect for
the assessment and coecton of a such ta es and penates, for the mposton
of a penates, cv and crmna, and for the enforcement of a forfetures
whch have accrued thereunder. (Sees. 3350, 3360, 0 1, I. R. C.)
(c) Sectons 180.1 6 to 180.179, ncusve (Subpart III), reatng
to products comng nto the Unted States from the Phppne Isands
are hereby revoked.
5. On and after uy ,19 6, a dsted sprts and wnes mported
nto the Unted States from the Phppne Isands w be governed
by Reguatons 21 (26 CFR, Part 191).
6. Ths Treasury decson s ssued under the authorty contaned
n secton 3176, Interna Revenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.57 a. m.)
Reguatons 28, Sectons 176.5, 176.69. 19 7-2 -12708
T. D.5590
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 176.
DR W C ON DISTILL D SPIRITS ND WIN .
mendng Reguatons 28.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pub-
c Law 371, Seventy-nnth Congress), approved pr 30,19 6 C. 13.
19 6-1, 33 , reads n part as foows:
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265 Regs. 29, 197.2, etc
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0, 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy ,10 6.

2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 1916, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
On and after uy , 19 G, the Phppnes w be treated as a foregn
country nstead of a possesson or the Unted States under these
reguatons.
3. Pursuant to the foregong provsons of aw and sectons 2887,
as amended, and 3176, Interna Revenue Code, and secton 313() of
the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1313()),
Reguatons 28 (26 CFR, Part 176) are amended n these respects:
(a) ffectve as of uy ,19 6, secton 176.5 s amended by strkng
ng out the Phppne Isands, and the Code ctaton 33 1(c), as
amended, .
(b) ffectve as of uy ,19 6, secton 176.69 s amended by strk-
ng out the Phppne Isands, and the Code ctaton 33 1 (c), as
amended, .
. Ths Treasury decson s ssued under the authorty contaned n
sectons 2887, as amended, and 3176, Interna Revenue Code, and
secton 313() of the Tarff ct of 1930, as amended.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.55 a. m.)
Reguatons 29, Sectons 197.2, etc. 19 7-16-12612
T. D. 5572
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 107.
DR W C OF T ON DISTILL D SPIRITS US D IN T M NUF CTUR
OF NON R G PRODUCTS.
mendng Reguatons 20.
Treasury Department,
Offce of Commssoner of Interna Revenue,
_ Washngton -25,D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. On pr 23, 19 7, notce of proposed rue makng regardng
drawback of ta on dsted sprts used n the manufacture of non-
77338 8 18
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Regs. 29, 197.2, etc.
26G
beverage products was pubshed n the Federa Regster (12 F. R.,
2610).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, sectons 197.8,
197.2 (c) (2), 197.26, 197.33, and 197.3 of Reguatons 29, approved
November 30,19 (26 CFR, Cum. Sup., Part 197), are hereby revoked
and the foowng amendments to sectons 197.2, 197.3, 197.5, 197.17,
197.18, 197.21, 197.22,197.23(d), 197.2 (d), 197.2 (e), 197.25, and
197.28 of Reguatons 29, approved November 30,19 (26 CFR, Cum.
Sup., Part 197), are hereby adopted.
3. These amendments are desgned to emnate obsoete provsons
of the reguatons, to provde a more effcent procedure for the fng
of cams, and to provde accountng procedure pursuant to the prov-
sons of secton 309 of the Revenue ct of 19 3 amendng secton
3250(1), Interna Revenue Code.
. Reguatons 29, approved November 30, 19 (26 CFR, Cum.
Sup., Part 197), as amended, are hereby amended as foows:
Sec. 197.2. Defntons. s used In the reguatons, In ths part, the foow-
ng terms sha have the meanng as defned heren:
- (a) Domestc dsted sprts and Dsted sprts sha mean that
substance known as ethy acoho produced at ndustra acoho pants operated
under Reguatons 3 (26 CFR.Cum. Sup., Part 182), and those substances known
as whsky, brandy, rum, or other sprts, produced at regstered dsteres or
frut dsteres operated under Reguatons (26 CFR, Cum. Sup., Part 183)
and 5 (26 CFR, Cum. Sup., Part 18 ).
(6) Year sha mean the perod whch begns uy 1 and ends on the fo-
owng une 30.
(c) Intermedate products sha mean products contanng dsted sprts
whch are not sub|ect to drawback unt used n a nonbeverage product egbe
for drawback.
Sec. 197.3. Terms Used n the Statute.

(c) Tme. The tme at whch dsted sprts sha be deemed to have
been used s when the product contans the ngredents caed for by an approved
formua, or formuas prescrbed by the Unted States Pharmacopoea, the Na-
tona Formuary, or the mercan Insttute of omeopathy, as the case may be.
(Sec. 3250(1), I. R. C.)
(d) Fed. cam for drawback sha be deemed to have been fed
when t s devered to the offce of the proper dstrct supervsor, coho Ta
Unt, and by that offce receved.
(e) Tota annua wthdrawas. The term tota annua wthdrawas
sha mean the tota quantty of dsted sprts (proof gaons) whch are used
In the manufacture or producton of nonbeverage products durng a year.
Sec. 197.5. Payment and Rates of Speca Ta . ach person who uses
dsted sprts n the manufacture or producton of medcnes, medcna prep-
aratons, food products, favors, or favorng e tracts whch are unft for beverage
purposes, n order to be egbe to cam the drawback on the dsted sprts
so used, must pay speca ta at the rate of 25 per annum for tota annua
wthdrawas not e ceedng 25 proof gaons of dsted sprts; 50 per annum
for tota annua wthdrawas not e ceedng 50 proof gaons; or 100 per annum
for tota annua wthdrawas of more than 50 proof gaons. Where a cam
s fed n the frst quarter of a year, coverng dsted sprts used durng the
ast quarter of the precedng year, and speca ta has not been pad for the
precedng year, speca ta for such precedng year must be pad n the appro-
prate amount pror to or at the tme of fng the cam. Speca ta , based
upon estmated wthdrawas, may be pad n advance of actua wthdrawas.
d|ustments of the speca ta where mpropery pad w be made n accordance
wth secton 197.17. The manufacturer s not requred to pay the speca ta
If he does not cam drawback on the dsted sprts used by hm. (Sees.
3250(1) and 0 1(a), I. R C.)
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267
Regs. 29, 197.2, etc.
Sec. 197.17. Change to gher ob Lower Rate of Speca Ta . (a) Change
to hgher rate. manufacturer of nonbeverage products who pays speca ta
of 25 per annum and has fed or ntends to fe a cam or cams for drawback
coverng dsted sprts n e cess of 25 proof gaons used durng the year for
whch the speca ta was pad must pay speca ta of 50 or 100, as the case
may be, and obtan a stamp therefor. The manufacturer may thereupon submt
the speca ta stamp of 25 to the coector of nterna revenue to whom the
speca ta was pad wth a cam on Form 8 3 for refund of the vaue thereof.
Smar procedure w govern n the case of a manufacturer of nonbeverage
products who pays speca ta of 50 and has fed or ntends to fe cam for
drawback coverng dsted sprts used n e cess of 50 proof gaons.
(6) Change to ower rate. manufacturer of nonbeverage products who
pays speca ta of 100 or 50 per annum, as the case may be, and, durng the
year for whch the speca ta was pad, fes cam or cams for drawback
coverng the use of not more than 50 or 25 proof gaons of dsted sprts, as
the case may be, may fe a cam on Form 8 3 for refund of the dfference between
the speca ta pad and the speca ta due. The speca ta stamp sha be
attached to the cam. (Sees. 3250(1), 330 , 3770, and 0 1(a), I. R. C.)
Sec. 197.18. Refund of Speca Ta . Refund of speca ta may be made f
t s estabshed that the ta payer dd not fe a cam for drawback for the
perod covered by the speca ta stamp. Where cam for drawback was fed,
refund of s eca ta may be made f t s estabshed that no drawback was
aowed or pad for the perod covered by the stamp. (Sees. 3250(1) and 3770,
I. R. C.)
Sec. 197.21. Cams. The cam for drawback sha be fed on Form 8 3,
Cam, n dupcate, wth the dstrct supervsor, coho Ta Unt, for the
dstrct n whch the pace of manufacture s ocated, and sha pertan ony to
dsted sprts used n the manufacture or producton of nonbeverage products
durng any one quarter of the year, and ony one cam may be fed for each
quarter. (Sec. 3250(1), I. R. C.)
Sec 197.22. Date of Fng Cam. The cam for drawback must be fed
wth the dstrct supervsor, coho Ta Unt, wthn the three months ne t
succeedng the quarter n whch the dsted sprts covered by the cam were
used n the manufacture of nonbeverage products. (Sec. 3250(1), I. R. C.)
Sec. 197.23. Informaton to be Shown by the Cam.

(d) That the nonbeverage products were manufactured n compance wth
(1) quanttatve formuas fed wth the Commssoner on Form 1678 pror
to or at the tme of manufacture, or (2) formuas prescrbed by the Unted
State Pharmacopoea, the Natona Formuary, or the mercan Insttute of
omeopathy.
Sec. 197.2 . Supportng Data. ach cam w be accompaned by statements
of supportng data whch sha be prepared In dupcate. One copy sha be at-
tached to the orgna and one copy sha be attached to the dupcate of the cam.

(d) Summares. (1) Summary of dsted sprts. statement showng n
proof gaons the quantty of a dsted sprts on hand at the begnnng of the
quarter, quantty In process begnnng of the quarter, quantty receved durng
the quarter, quantty used durng the quarter n the manufacture of nonbeverage
products sub|ect to drawback, quantty used n the manufacture of ntermedate
products, quantty otherwse used not sub|ect to drawback, quantty n process at
the end of the quarter, nnd the quantty remanng on hand at the end of the
quarter. Dsted sprts In process w ncude dsted sprts represented n
unfnshed nonbeverage products, m tures, menstruums, etc. ny dscrepancy
between the amount of dsted sprts on hand at the end of the quarter as ds-
cosed by actua nventory and the amount shown by the manufacturer s records
must be reported n the summary wth an e panaton of the cause thereof.
(2) Summary of dsted sprts recovered from the dreys or marc of percoa-
ton, or e tracton of products egbe for drawback under secton 3250(1), In-
terna Revenue Code. statement showng n proof gaons the quantty of a
recovered dsted sprts on hand at the begnnng of the quarter, quantty n
process begnnng of the quarter, quantty recovered durng the quarter, quantty
used not sub|ect to drawback, quantty n process at the end of the quarter, and
the quantty remanng on hand at the end of the quarter. ny dscrepancy
between the amount of recovered dsted sprts on hand at the end of the quarter
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Regs. 29, 197.2, etc.
268
as dscosed by actua Inventory and the amount shown by the manufacturer s
records must be reported n the summary wth an e panaton of the cause thereof.
Dsted sprts recovered from dregs or marc of percoaton, or e tracton, of
products egbe for drawback may be reused n the manufacture of medcnes or
favorng e tracts of the knd n whch orgnay used. Such recovered dsted
sprts are not egbe for drawback and may be reused ony n the manufacture
of nonbeverage products. They may not be used n the manufacture of nter-
medate products. (Sec. 190. (f), Reguatons 15.)
(3) Summary of dsted sprts recovered front the dregs or marc of percoa-
ton, or e tracton, of ntermedate products. statement showng n proof ga-
ons the quantty of a recovered dsted sprts on hand at the begnnng of the
quarter, quantty n process begnnng of the quarter, quantty recovered durng
the quarter, quantty used durng the quarter n the manufacture of nonbeverage
products sub|ect to drawback, quantty otherwse used, and the quantty reman-
ng on hand at the end of the quarter. ny dscrepancy between the amount of
recovered dsted sprts on hand at the end of the quarter as dscosed by actua
nventory and the amount shown by the manufacturer s records must be reported
n the summary wth an e panaton of the cause thereof. ny dsted sprts
recovered from the dregs or marc of percoaton, or e tracton, of ntermedate
products us defned n the reguatons n ths part are egbe for drawback of
ta ony when used n the manufacture of a nonbeverage product.
(e) Statement of ntermedate products.- statement showng the quantty
n wne gaons of each ntermedate product and the quantty of dsted sprts
(proof gaons) used theren: (1) on hand at the begnnng of the quarter,
(2) produced durng the quarter, and (3) on hand at the end of the quarter,
and showng the quantty n wne gaons of each ntermedate product and the
quantty of the dsted sprts contaned theren (proof gaons) : (1) used dur-
ng the quarter n egbe products, (2) used durng the quarter n other Inter-
medate products, and (3) otherwse dsposed of durng the quarter. ny ds-
crepancy between the amount of ntermedate products on hand at the end of
the quarter as dscosed by actua nventory and the amount shown by the manu-
facturer s records must be reported n the statement wth an e panaton of the
cause thereof. Ony the dsted sprts remanng n an ntermedate product
at the tme of ts use n the manufacture of an approved nonbeverage product
are egbe for drawback.
Sec. 197.25. andng ok Cams. The dstrct supervsor. coho Ta Unt,
w date-stamp each copy of the cam on Form 8 3, and, after recordng, w
e amne the cam for the purpose of determnng whether t s propery e ecuted
and that a supportng data have been submtted and w conduct such nqures
and nvestgatons as may be necessary to verfy that drawback s aowabe on
the dsted sprts covered by the cam. fter competon of such verfcaton
he w forward the orgna copes of the cam and supportng data, and a copy
of the report of nvestgaton, wth hs recommendaton as to the mert of the
cam to the Commssoner. (Sec. 0 1(a), I. R. C.)
Sec. 197.28. Statement op Process. The Commssoner, at hs dscreton,
may at any tme requre any person camng drawback under the reguatons n
ths part to fe a statement of process n addton to that requred by Form 167S
and such other data as he may deem necessary for consderaton of such person s
cam for drawback. When such addtona data are requred, the statement of
process shoud be submtted n trpcate wth copes of the commerca abes
used on the fnshed products. (Sec. 3250(1), I. R. C.)
5. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Sectons 3250 and 0 1 of the nterna Revenue Code (26 U. S. C. .,
3250 and 0 1).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved uy 16, 19 7.
oseph . O Conne ,, r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 23, 19 7.)
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269
Regs. 18, 192.192.
F RM NT D M LT LI UORS.
Reguatons 18, Secton 192.192. 19 7-2 -1270
T. D.5586
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 192.
F RM NT D M LT LI UORS.
mendng Reguatons 18.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0. 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy ,19 6.

2. For the reason that the aw repeas the provsons of the Interna
Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11,19 6, or sub-
|ect to the effectve date mtaton of secton (c) of sad ct. On
and after uy , 19 6, the Phppnes w be treated as a foregn
country nstead of a possesson of the Unted States under these regu-
atons.
3. Pursuant to the foregong provsons of aw and secton 3176,
Interna Revenue Code, Reguatons 18 (26 CFR, Part 192) are
amended n ths respect:
(a) ffectve as of uy ,19 6, secton 192.192 s amended by strk-
ng out the Phppne Isands, .
. Ths Treasury decson s ssued under the authorty contaned
n secton 3176, Interna Revenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 20, 19 7, 8.57 a. m.)
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Regs. 7, 178.283.
270
WIN .
Reguatons 7, Secton 178.283. 19 7-2 -12702
T. D. 558
TITL 2ft INT RN L R NU . C PT R I, SU C PT R C, P RT 178.
WIN .
mendng Reguatons 7.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 507, Tte , of the Phppne Trade ct of 19 6 (Pubc
Law 371, Seventy-nnth Congress), approved pr 30, 19 6 C. .
19 6-1, 33 , reads n part as foows:
S C. 507. SP CI L CIS PRO ISIONS R L TING TO T
P ILIPPIN S R P L D.

(b) Sectons 33 0, 33 1, and 33 2 of the Interna Revenue Code are
repeaed, effectve uy , 19 6.

2. For the reason that the aw repeas the provsons of the Inter-
na Revenue Code pursuant to whch the orgna reguatons or parts
thereof are prescrbed, and because these reguatons are desgned
merey to revoke the provsons of the reguatons whch are not now
appcabe, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
On and after uy , 19 6, the Phppnes w be treated as a for-
egn country nstead of a possesson of the Unted States under these
reguatons.
3. Pursuant to the foregong provsons of aw and secton 3176,
Interna Revenue Code, Reguatons 7 (26 CFR, Part 178) are
amended n these respects:
(a) ffectve as of uy , 19 6 secton 178.283 s amended by
strkng out Phppne Isands, n the tte thereof, the Php-
pne Isands, n the secton, and the Code ctaton 33 1(b) .
. Ths Treasury decson s ssued under the authorty contaned
n secton 3176, Interna Revenue Code.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved November 13,19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster, November 20, 19 7, 8.56 a. m.)
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271
Msc.
OL OM RG RIN .
19 7-15-1260
MS. 312
Schedue of oeomargarne produced and matera wed durng the month of
May, 19 7, as compared wth May, 19 6.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta-pad
Ingredent schedue of uncoored oeomargarne:
utter cuture
utter favor
Ctrc acd
Coconut o1 -
Corn o -
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety - -
stearne
Lecthn --
Mk. -----
Monostcarne
Neutra ard
Oeo o
Oeo stearn -
Oeo stock
Peanut o
Sat.
Soda (benoatc of)
Soya bean o
Taow.
tamn concentrate
Tota..
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o -.
Coor
Corn o -
Cottonseed fakes
Cottonseed o -
Dervatve of gycerne
Dacety
stearne
Lecthn
Mk.
Monostcarne
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Peanut o
Sat
Soda (benzoateof)
Soya bean o -
tamn concentrate
Tota
May, 19 7.
Pounds.
32, 87 , 7
35, 010, 592
12,
3
67

18 , 675
62. 975
6,583
601.965
51,309
62
2, 3
767. 319
5,566
165, 737
172,536
263. 538
26,505
511,211
000.9 8
2 ,612
339, 281
,9 7
33, 581,286
.855. 76
1, 82, 793
, 378, 107
2,520
1,796
0
79,067
10,662
27
,066
812, 370
I, 376
9,978
10,098
17
8, 00
31, 130
1 1,082
2.9 6
98 , 525
85
, 879, 133
May, 19 6.
Pounds.
39, 819, 778
39, 9 7. 281
530
283
18
85. 879
15. 629, ttfO
06,026
97
8,265
51, 1
8, 673. 319
31, 955
1 9, 13
1 3, 791
139.83
16.980
866. 305
1,225, 0 5
28.551
15,006, 159
2,700
7, 73
0, 533, 31
2. 1 8, 700
1, 5S3, 138
70
1, 576
177
1, 150
513,986
2. 1
30
178
1,5 6
360. 66
1,26
2 , 571
12,885
1, 050
1 , 219
7 ,06
1,27
1,151, 1
281
2. 162, 675
fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
Of the amount produced, 1,0 6 pounds wero reworked.
1 1,2 2,307 pounds of ths o used In oeomargarne manufactured for e port by, or from, the Unted States,
and 1,320, 75 pounds used n producton of the product for domestc consumpton.
3 Of the amount produced, 22,158 pounds were reworked.
Of the amount produced, 32 pounds were reworked.
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272
19 7-17-12626
MS. 313
Schedue of oeomargarne produced and materas used durng the month of
une, 19 7, as compared wth une, 19 6.
une, 19 7.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta-pad
38,585, M
37,872. 97
Ingredent schedue of uncoored oeomargarne:
utter cuture..
utter favor
Ctrc add
Coconut o1
Corn o
Cottonseed fakes
Cottonseed o - -
Dervatve of gycerne
Dacety
stearne
Lecthn
Mk
Monostearne
Neutra ard -
Oeoo
Oeo stearne
Oeo stock
Peanut o
at
Soda (bcnzoate of)
Soya bean o
Taow
tamn concentrate.
156
12
20 ,677
607,609
1,660
15,7 5,337
61,356
66
8,325
6.505.526
8, 00
1 2,317
122,203
269,307
31,2 5
1,319.682
1,195,356
29,003
II ML M
Tota
39,228.6 1
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad.
2,81 . 2 2
1,776.793
Ingredent schedue of coored oeomargarne:
utter favor -
Coconut o1
Coor -
Corn o
Cottonseed fakes -
Cottonseed o..
Dervatve of gycerne
Dacety
stearne
Lecthn -
Mk -
Monostearne - - -
Neutra ard
Oeoo
Oeo stock. -
I eanut o
Sat
Soda (bcnzoate of)
Soya hean o -
Soya bean fakes
tamn concentrate -
92. 02
1,837
11
,753
1
2,357
73. OW
1,266
2,900
12.500
n, 600
2.706
93,326
1, 6
,0 ,686
359
Tota
2,8 6, 73
Of the amount produced, 32, 50 pounds were reworked.
1 Of the amount produced, 59 pounds were reworked.
309,536 pounds of ths o used In oeomargarne manufactured for e port by, or from, the Unted States,
and 387.5 3 pounds used n producton of the product for domestc consumpton.
1 Of the amount produced, 288 pounds were reworked.
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273
Msc.
19 7-19-12G 3
MS. 31
Schedue of oeomargarne produced and matera used durng the month of
uy, 19 7, as compared wth uy, 19 6.
Tota producton of uneoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue ot uncoored oeomargarne:
utter cuture -
utter favor
Ctrc add
Coconut o1 , _ -
Com o
Cottonseed fakes
Cottonseed o -
Dervatve of gycerne
D(acety
stearnc
Lecthn
Mk.
Monostearne..
Neutra ard..
Oeo c
o.
Oeo steartne.
Oeo stock
Peanut o
Sat.
Soda (benroate of)
Soya bean o
tamn concentrate-
Tota.
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue, of coored oeomargarne:
utter favor _
Coconut o
Coor
Com o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
stenrno
Lecthn-
Mk.
Monostearne
Neutra ard
Oeo o
Oeo stock -
Peanut o
Sat
Soda (henzonte of)
Soya bean fakes
oya beau o
tamn concentrate
Tota.
uy, 1W7.
Pound .
, 555. 553
5,3 8,6 9
160
21
129.310
33.808
300
19,052,298
89,777

53.029
7,506.616
57, 69
188, 501
177.136
895, 7 1
31,010
2,188. 09
1,383.952
3 ,735
13,873,069
6.5S6
5, 82, 202
,3 1,888
2,099,300
63
706,39
. 5
5,130
600
953,851
8,251
16
,707
761,166
1,826
5,032
,76
2,919
3,299
1 2.098
3,175
1, 789, 50
82
, 37, 735
1 Of the amount produced, 5,38 pounds were reworked.
Of the amount produced, 3,162 pounds were reworked.
1 327,273 pounds of thp o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 508. 31 pounds used n producton of the. product for domestc consumpton.
1 Of the amount produced, 2 pounds were reworked.
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Msc.
27
19 7-21-12665
MS. 315
Schedue of oeomargarne produced and materas used durng the month of
ugust, 19 7, as compared wth ugust, 19 6.
ugust, 19 7.
ugust, 19 6.
Pounds.
1 5.822,289
Pound:
38.233.715
Ingredent schedue of uncoored oeomargarne:
5, 271, 353
39.679.711
179
11
220
285
252
Corn o
178.8 0
789.009
19, 218, 96
2
365.5 9
16,068.765
78, 52
135
61,731
106
6,676
8,765
6, 81. 3
31,127
85.61
106.360
199. 757
17.705
1,36 , 37-
1,213.095
26. 58
9,380
12,758. 10
6,632
Mk
56.368
7, 762.99
55,235
188.288
183.387
257,566
37,287
1,821,271
1, 13.005
3 .613
Oeo o
Sat
Sova bean fakes.
1 , 22,39
6. 37
tamn concentrate.-
Tota
6, 502, 37
38.852,810
,219,158
5,167.856
Ingredent schedue of coored oeomargarne:
1, 979,860
1,101.660
69
16
U 197.062
Coor
3,963
3. 9
50
896, 359
5.997
18
3. 21
91
3.135
32.683
, 38
06
86
3.91
838,699
2,377
13,55
6,783
Corn o
Cottonseed fakes
Dervatve of gycerne
3.962
737.103
1.970
20,27
17.170
7.552
5,0 5
139.527
2,735
1,268,129
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
15,866
166,555
2.871
3.685,259
5,620
736
Sat
Soya bean o
82
Tota
,351,816
5,186, 510
1 Of the amount produced, 16,252 pounds were reworked.
1 OI the amount produced, 31,1 0 pounds were reworked.
3 8.502 pounds of ths o used In oeomargarne manufactured for e port by, or from, the Unted States,
and 1.027, 00 pounds used n producton of the product for domestc consumpton.
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19 7-2 -12696
MS. 316
Schedue of oeomargarne produced and materas used durng the month of
September, 19 7, as compared wth September, 19 6.
Sept ember,
19 7.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter cuture -
utter favor
Ctrc acd -
Coconut o
Corn o
Cottonseed fakes
Cottonseed o -
Cottonseed stearne
Dervatve of gycerne
Dacety -
Lecthn
Mk...
Monostearne -
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Peanut o -
Sat
Soda (benzoate of)
Soya bean o
tamn concentrate
Tota...
Tota producton of coored oeomargarne.
Tota wthdrawn ta .pad..
Ingredent schedue of coored oeomargarne:
utter favor _
Coconut o
Coor
Corn o _
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard..
Oeo o..
Oeo stock..
I eanut o-
Sat.
Soda (benzoate of)
Soya bean o
Soya bean s
tamn concentrate
Tota
Pounds.
1 02.300, 51
6 .852.636
239
21
307, 520
1,182, 757
1,085
26, 93, 135
27
101,693
193
73,793
10, 82, 667
73,69
3 7,0 1
3)7.033
309, 261
75, 69
2,160, 6
1,938,018
5,180
19,387,382
12, 58
63,399,112
5,121,915
2,917,9 9
8
772,728
6,218
16,388
2,272
1,397,70
9,235
20
5, 87
890,230
3.015
22,198
18,831
00
27,18
167.890
2,697
1,870,701
10.690
6 0
5,22 , 76
Of the amount produced, 7,337 pounds were reworked.
Of the amount produced, 2, 11 pounds were reworked.
2 6,3 8 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 833,900 pounds used n producton of the product for domestc consumpton.
Of the amount produced, 320 pounds were reworked.
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19 7-26-12720
MS. 317
8chedue of oeomargarne produced and materas used durng the month of
October, 19 7, as compared cth October, 19 6.
October,
19 7.
October.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter cuture -
utter favor
Ctrc acd
Coconut o1 ---
Cora o
Cottonseed fakes
Cottonseed o
Cottonseed stcarne
Dervatve of gycerne
nacety
Lecthn
Mk
Monostearne
Neutra ard
Oeoo
Oeo stearne
Oeo stock -
Peanut o
Sat
oda (benoate of)
Soya bean o -
Soya bean stcarne
tamn concentrate
Tota-
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o1 -
Coor
Corn o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeoo-
Oeo stock.
I eanut o...
Sat
Soda (benzo) te of)
Soya bean o
Soya bean stearne -
tamn concentrate
Tota.
80,661.638
79.197, 00
S0.619.SW
310
1
no, M
885, 183
-IS I
O , NO
27
128.1 2
225
9 .732
55 ,373
89.68
38 , 205
35 .056
22, 52
103.800
815, 937
530. 120
59, 219
7 7,612
12,352
637. 80
a, mm
81,931, 185
6, 3 3, 107
3,696, 750
66
1, 520, 95
3,66
20,278
3,300
2,038,102
7.3 8
0
5,557
1,090,18
3,955
18.617
22, 60
13.000
, 2
202, 107
2,732
1,50 ,988
711
6, 62,0
n
61. 822
8,515,911
, ..
102.36W
11 ,630
117,552
S2.35
809. M
1,61 ,7 5
3S. -
m
12.200
8,6 2
61. 3Z m
9,651. 350
1.530,123
6.187,7 9
,508
2.
528,376
9,69
173
m
LS8S.196
3, 11
19,108
9,55
1.
316,292
3. M
1.1 3,527
2, 00
1.318
1 Of the amount produced, 3,873 pounds were reworked.
207,780 pounds of ths o used In oeomargarne manufactured for e port by, or from, the Unted States,
and 1, 53.015 pounds used n producton of the product for domestc consumpton.
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CIG RS, TO CCO, ND CIG R TT S.
19 7-15-12601
T. D.5570
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 2.
T -FR WIT DR W LS O CIG RS FROM CUSTOMS OND D W R OUS S,
CL SS 6.
mendment of reguatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On pr 2 , 19 7, notce of proposed rue makng regardng the
ta -free wthdrawa of cgars from customs bonded warehouses,
cass 6, was pubshed n the Federa Regster (12 F. R., 2635). No
ob|ecton to the rues proposed havng been receved, the foowng
amendments to Treasury Decson 5 38 C. . 19 5, 509 26 CFR,
Part 1 2 are hereby adopted. These amendments are desgned to
emnate provsons reatve to the ta -free wthdrawa from such
bonded warehouses of cgars for use of the mtary or nava forces
of the Unted States n Unted States Terrtores, whch ta -free
wthdrawas were permssbe ony unt the date on whch the Pres-
dent procamed that hosttes n the present war have termnated.
The Presdent havng procamed the termnaton of hosttes, the
provsons of Treasury Decson 5 38, for wthdrawa ta -free from
customs bonded warehouses, of cgars for use of the mtary or nava
forces of the Unted States n Unted States Terrtores, were
rendered obsoete and, accordngy, they are emnated by the amend-
ments hereby made. The amendments are aso desgned to adopt
procedure consonant wth customs procedure and estabsh the great-
est practcabe degree of coordnaton of the Interna Revenue and
Customs ureaus, n respect of the wthdrawas of cgars wthout
payment of nterna revenue ta from the customs warehouses
ndcated.
Treasury Decson 5 38, approved February 7, 19 5 26 CFR, Part
1 2 , s amended as foows:
( ) y nsertng mmedatey foowng the headng Tabe of
Contents an addtona center headng as foows:
Subpart .
( ) y changng the frst ne of the tabe of contents readng
1 2.0. Scope of reguatons to read 1 2.0. Scope of Subpart .
(C) y nsertng mmedatey foowng the tabe of contents the
foowng:
SU P RT .
1 2.20. Scope of Subpart .
1 2.21. Defntons.
1 2.22. Shpment restrcted.
1 2.23. ond.
1 2.2 . Packng, markng, or brandng.
1 2.25. Shppng contaners.
1 2.26. ppcaton for wthdrawa.
1 2.27. Inspecton and verfcaton of shpment.
1 2.28. Report of nspectng offcer.
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1 2.29. Deay n wthdrawa of shpment; canceaton of shpment.
1 2.30. Change In consgnee.
1 2.31. Wthdrawa of shpment and dsposton of orgna of appcaton, Form
550.
1 2.32. Return of shpment to warehouse.
1 2.33. Ta abty.
1 2.3 . Credt for shpment.
1 2.35. Penates.
(D) y nsertng mmedatey precedng secton 1 2.0 a center
headng as foows: Subpart .
( ) y substtutng for the words these reguatons wherever
occurrng n sectons 1 2.0 to 1 2.15, ncusve, the words the regua-
tons n ths subpart.
(F) y changng the headng of secton 1 2.0 Scope of regua-
tons to read Scope of Subpart .
(G) y nsertng n the frst sentence of secton 1 2.0 mmedatey
fo owng the word wthdrawa the foowng: pror to the
effectve date of Treasury Decson 5570, .
( ) y nsertng mmedatey foowng secton 1 2.15 the fo-
owng :
SU P RT .
Secton 1 2.20. Scope of Subpart . Ths subpart comprsng sectons 1 2.20
to 1 2.35, ncusve, reates to the wthdrawa, on and after the effectve date
of Treasury Decson 5570, wthout payment of ta from customs bonded manu-
facturng warehouses, cass 6, for e port to foregn countres or shpment to
possessons of the Unted States, of cgars produced In such warehouses of
mported tobacco on whch the dutes have been pad. Dutes pad on tobacco
used n the manufacture of cgars wthdrawn under ths subpart may not be
recovered. owever, ths subpart s e cusve ony wth respect to the wth-
drawa of cgars for shpment to a foregn country or possesson of the Unted
States where the customs reguatons are not appcabe to such shpment. Ths
subpart does not reate to any wthdrawa of cgars made of mported tobacco
on whch the customs dutes have not been pad, whch wthdrawas must aways
be made In accordance wth customs reguatons and procedure.
Sec. 1 2.21. Defntons. s used n ths subpart:
(a) The term coector means the coector of nterna revenue for the
dstrct n whch s ocated the customs bonded manufacturng warehouse, cass
6, from whch wthdrawa of cgars under ths subpart Is made or ntended to
be made.
(6) The term manufacturer means the propretor of a customs bonded
manufacturng warehouse, cass 6.
(c) The term warehouse means a customs bonded manufacturng ware-
house, cass 6, where cgars wthdrawn, or Intended to be wthdrawn, under ths
subpart, are made.
( f) The term Commssoner means the Commssoner of Interna Revenua
S C. 2135 INT RN L R NU COD . MPTION FROM
T ( S M ND D Y CT PPRO D M RC 23, 19 3,
57 ST T 2).
(a) Shpment to Foregn Countres and Possessons of the Unted
States.
(1) Manufactures. Manufactured tobacco, snuff, cgars or
cgarettes may be removed for e port to a foregn country or for
shpment to a possesson of the Unted States (or, unt the date
on whch the Presdent procams that hosttes n the present
war have termnated, to a terrtory of the Unted States for the use
of members of the mtary or nava forces of the Unted States)
wthout payment of ta under such rues and reguatons and the
makng of such entres, and the fng of such bonds and bs of adng
as the Commssoner, wth the approva of the Secretary, sha
prescrbe.
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PROCL M TION.

I, arry S. Truman, Presdent of the Unted States of
merca, do hereby procam the cessaton of hosttes of Word
War II, effectve tweve o cock noon, December 31, 1 6.

Sec. 1 2.22. Shpment Restbcted. The wthdrawa of cgars under ths
subpart, wthout payment of ta , may be made ony for e port to foregn countres
or possessons of the Unted States where the Unted States nterna revenue aws
are not n effect.
Sec. 1 2.23. ond. efore or at the tme of fng hs frst appcaton ,a manu-
facturer who desres to wthdraw cgars from hs warehouse wthout payment of
ta under ths subpart sha furnsh to the coector a bond, n dupcate, n such
form as the Commssoner sha prescrbe, wth surety satsfactory to the co-
ector. The pena sum of the bond sha be suffcent to cover the estmated
amount of ta whch sha at any tme consttute a charge aganst the bond, and
n no case ess than 5,000. When the bond, n dupcate, s receved by the
coector, he sha, f the bond meets wth hs approva, make endorsement to that
effect on both the orgna and dupcate of the bond and forward the dupcate
to the Commssoner. The abty under such bond sha be a contnung one,
and w be sub|ect to ncrease or decrease as wthdrawas are made and com-
peted. When the mt of abty under such bond has been reached, further
wthdrawas may not be made thereunder. Instead, a new bond, n, dupcate,
must be fed by the manufacturer, under whch subsequent wthdrawas sha
be made.
Sec. 1 2.2 . Packtno, Markng or randno. Cgars wthdrawn under ths
subpart may be put up n packages of any szes desred. ach package of
cgars sha have securey aff ed n pace of the nterna revenue stamp a
abe, whch abe sha be ready dstngushabe from an nterna revenue
stamp and on whch sha be prnted the foowng egend:
Free of ta . For use ony outsde the |ursdcton of the nterna
revenue aws of the Unted States.
Sec. 1 2.25. Shppno Contaners. ach shppng contaner n whch cgars
are to be wthdrawn under ths subpart sha be pany numbered by the
manufacturer, the number to be a consecutve one of a seres begnnng wth
No. 1, and begn agan wth No. 1 on uy 1 of each subsequent year.
Shppng contaners sha not be cosed and fastened unt ther contents
have been nspected and verfed by a customs offcer at the warehouse, as
herenafter prescrbed.
Sec. 1 2.2(3. ppcaton for Wthdrawa. n appcaton on Interna
Revenue Form 550, appropratey modfed, sha be e ecuted and fed by the
manufacturer wth the coector for each shpment ntended to be wthdrawn
under ths subpart. Such appcaton sha be fed n trpcate for each
parce post shpment, and n quadrupcate for each shpment otherwse than
by parce post. ach appcaton sha bear a sera number, such number to
be a consecutve one of a seres begnnng wth No. 1 to cover the frst shp-
ment, and commencng agan wth No. 1 on uy 1 of each year thereafter.
Copes of each appcaton sha bear the same sera number as the orgna.
ach appcaton sha be competey and egby modfed and fed n. The
cgars descrbed n the appcaton sha not be wthdrawn from the warehouse
unt after nspecton and verfcaton by the customs offcer as herenafter
requred.
Upon recept of each appcaton, propery e ecuted, the coector sha, f
the ta abty on the partcuar shpment does not ncrease the outstandng
abty n e cess of the pena sum of the bond under whch the wthdrawa
s to be made, mmedatey after sgnng the orgna and each copy of the
appcaton, forward the orgna and the two or three copes of the appca-
ton to the customs offcer n charge of the warehouse from whch the shp-
ment s to be wthdrawn, n order that the customs offcer can make proper
nspecton and verfcaton of the cgars descrbed n the appcaton.
Sec. 1 2.27. Inspecton and erfcaton of Shpment. It sha be the duty
of the customs offcer n charge of the warehouse from whch the shpment of
cgars s to e wthdrawn under ths subpart to nspect the shpment and de-
termne defntey that the shpment contans the e act cass and quantty of
cgars specfed n the appcaton, and that the bo es or packages of such cgars
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meet the requrements of ths subpart. The packng of the shppng contaners
sha be under the supervson of the customs offcer who w see that the
number requred by ths subpart Is propery nscrbed on each shppng
contaner.
Cgars wthdrawn under ths subpart may be stored wthn the ursdcton of
the nterna revenue aws of the Unted States ony under Government contro
and supervson, or wth the approva of the Commssoner. Cgars wthdrawn
and otherwse hed n such |ursdcton are sub|ect to sezure by and forfeture
to the Unted States.
Sec. 1 2.28. Report of Inspectng Offces. fter nspecton and verfcaton
of the shpment have been competed and the shppng contaners have been made
ready for wthdrawa and the customs offcer has fed n and sgned hs report
on the orgna and each copy of the appcaton, the shpment sha be reeased
for wthdrawa by the manufacturer. One copy of the appcaton s to be re-
taned for customs purposes, one copy forwarded mmedatey to the coector,
and the orgna and the remanng copy devered to the manufacturer to go
forward wth the shpment and be dsposed of as herenafter prescrbed.
Sec. 1 2.29. Deay n Wthdrawa of Shpment ; Canceaton of Shp-
ment. In ease a shpment s not wthdrawn from the warehouse wthn 10 days
after nspecton and verfcaton as provded n ths subpart, the manufacturer
must advse the coector as to the probabe date of wthdrawa. If the order for
the shpment has been canceed, the manufacturer shoud so advse the coector
and request permsson to return the shpment to stock n the warehouse under the
supervsqn of the customs offcer n charge of the warehouse.
Sec 1 2.30. Change n Consgnee. If, after nspecton and verfcaton, but
before wthdrawa of the shpment, the manufacturer for good and suffcent
reasons desres to change the consgnee or the address of the orgna consgnee
shown by the appcaton, the manufacturer sha forward to the coector for
correcton and endorsement the orgna and copy of the appcaton devered to
hm by the nspectng offcer wth a etter settng forth hs reasons for the change.
The coector, after makng correcton and endorsement of the change, sha
forward the orgna and copy of the appcaton to the customs offcer n charge
of the warehouse wth a etter nstructng the customs offcer to make smar
change n the copy of the appcaton whch he retaned after nspecton and
verfcaton of the shpment, and to dever the orgna and copy of the appcaton
to the manufacturer.
Sb 3. 1 2.31. Wthdrawa of Shpment and Dsposton of Orgna of pp-
caton, Form 550. (a) Genera. fter the shpment has been reeased for
wthdrawa, the manufacturer sha enter on the orgna and copy of the
appcaton the actua date of wthdrawa of the shpment from the warehouse,
after whch the shpment may go forward to the consgnee. The orgna and
copy of the appcaton sha then be dsposed of by the manufacturer as heren-
after prescrbed.
(6) Shpment other than by parce post. (1) If the warehouse s ocated at
the port of e portaton, the manufacturer sha fe wth the coector of customs
at the port, at east s hours pror to adng of the shpment, the orgna and
one copy of the appcaton on Form 550 returned to hm by the customs offcer
who nspected the shpment at the warehouse.
(2) If the warehouse s ocated esewhere than at the port of e portaton,
the manufacturer sha forward the orgna and one copy of the appcaton
on Form 550 to the coector of customs at the port or to the agent of the
manufacturer at the port so that these forms may reach or be fed wth the
coector of customs at east s hours pror to adng of the shpment. Where
the orgna and one copy of the Form 550 are forwarded by the manufacturer
to hs agent at the port, the agent may f n the name of the carrer or e portng
vesse and gve the ocaton of the per where the shpment w be aden.
(3) In case of e portaton to a foregn contguous terrtory by ra through
a border port the manufacturer w forward the orgna and one copy of the
appcaton on Form 550 to the coector of customs at the border port through
whch the shpment w be routed for e portaton.
( / fter the shpment has been nspected and aden on the e portng vesse
or carrer or where the shpment has been nspected at the border port of e t
wth respect to shpment to a foregn contguous terrtory the customs nspector
who supervsed the nspecton and adng of the shpment w e ecute the
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281
Msc.
certfcate of Inspecton and adng on the reverse sde of both the orgna and
copy of the Form 500 and return these forms to hs coector of customs. fter
the vesse or carrer has ceared from the port of e portaton or e t, the coector
of customs w e ecute the certfcate of e portaton on both the orgna and
copy of the Form 550, retan the copy for hs fe and forward the competed
orgna to the coector of Interna revenue of the dstrct from whch the shp-
ment orgnated as ndcated on the back of the form.
(c) Shpment by parce post. If the shpment s to be made by parce post,
the manufacturer sha e ecute on each shppng contaner or parce a waver
of hs rght to wthdraw the contaner or parce from the mas, and then at
the tme of mang present the orgna Form 550 coverng the shpment to the
postmaster or hs agent for e ecuton of the certfcate of mang provded on
the back of the form. The orgna Form 550 so e ecuted sha be fed prompty
thereafter by the manufacturer wth the coector.
Sec. 1 2.32. Retubn of Shpment to Wabehouse. If, after wthdrawa, the
manufacturer desres to return a shpment to the warehouse, he must make app-
caton to the Commssoner for permsson to do so. The manufacturer must
Identfy the shpment, and show where t has been snce t eft the factory, where
hed and n whose custody t s at the tme of makng appcaton, and the reasons
for returnng the shpment. fter recept of such appcaton, the Commssoner
w ssue approprate nstructons. The return of cgars to the warehouse w
operate ony to reeve the manufacturer of abty to nterna revenue ta .
Cgars so returned may not thereafter be wthdrawn wth beneft of refund of
dutes on the tobacco of whch the cgars were uade. (Secton 558, Tarff ct
of 1930, as amended (19 U. S. C, 1558).)
Sec. 1 2.33. Ta Labty. The responsbty for the devery to the consgnee
of cgars wthdrawn under ths subpart sha rest upon the manufacturer makng
the wthdrawa, who w be abe for the nterna revenue ta on any cgars
wthdrawn or devered otherwse than n accordance wth ths subpart
Sec. 1 2.3 . Cbedt fob Shpment. Upon recept of the orgna of the app-
caton on Form 550 wth the Certfcate of Inspecton and Ladng and the
Certfcate of portaton e ecuted by the approprate customs offcers or the
Certfcate of Mang by Parce Post e ecuted by the approprate posta offcer
wth no shortage reported, the coector sha enter the proper credt In the account,
Form 9 , whch he sha keep wth the bond under whch the shpment was made.
In case a shortage Is reported, the coector sha enter credt for the cgars actuay
devered and requre the manufacturer to pay the amount of ta due on the
shortage.
Sec. 1 2.35. Penates. arous sectons of the Interna Revenue Code mpose
severe penates for the unawfu wthdrawa of cgars from the pace of manu-
facture and for the possesson, use, or devery wthn the Unted States (n-
cudng ts Terrtores) of manufactured cgars upon whch the ta has not been
pad. These sectons appy to cgars wthdrawn wthout the payment of ta
under ths subpart, and, accordngy, any person wthdrawng, possessng, usng,
or deverng any such cgars otherwse than as authorzed by ths subpart may
be sub|ect to the penates prescrbed by these sectons of the Code.
Ths Treasury decson sha be effectve on the thrty-frst cay after
the date of ts pubcaton n the Federa Regster.
Ths Treasury decson s ssued under the authorty contaned n
secton 2135 of the Interna Revenue Code (53 Stat., 23 ; sec. 3,
Stat., 1382; sec. 556, 6 Stat., 7 3 (26 U. S. C, 2135; 5 U. S. C, 281b;
19 U.S. C, 1556)).
oseph D. Nunan, r.,
pproved uy 8,19 7.
oseph . O Con e , r.,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 12, 19 7.)
77338 18 19
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Msc.)
282
TO CCO.-
19 7-1 -12586
T. 1S3
Statement of manufactured tobacco produced, by casses, durng the month of
pr, 19 7, as compared wth pr, 19 6.
pr, 19 7.
pr, 1
Pug
Twst
Fne-cut chewng,.
Scran chewng
Smokng
Rnuf
C Pound .
3.761.603
38,361
330,88
3,302,372
8, 7U9,116
3,2 6,227
Pounds,
.172. 18
68. t
289.8 3
3.6 7.3
7,808.
3,333, k:
Tota,.
19,88 ,
19 7-16-1261
T. 190
Statement of manufactured tobacco produced, by casses, durng the month of
May, 19 7, as compared wth May, 19 6.
May, 19 7.
Pug...
Twst.
Fne-cut chewng-
Scran chewng
8nuf
Pound .
1,978.6 7
3 , 93
205.32
3.0S0.876
7,875,9 8
3,197, 728
Pound:
, 81,071
528.731
333,8ft
2,737.523
10,051. 95
3.339,233
Tota,.
16, 73,016
21. 71.9
19 7-19-126
T. 192
Statement of manufactured tobacco produced, by casses, durng the month of
une, 19 7, as compared wth une, 19 6.
Pug
Twst
Fne-cut chewng..
Scrap chewng
Smokng
Snuf
Tota.
une, 19 7.
Pound.
3.000,687
311, 7 5
326,209
3,211,332
8, 99, 932
8,008,677
18.356,582
une, 19 6
Pound.
.279. s 1
58.21
301,69
3,635.25
9.39 .685
3,021,966
21.091.631
fgures arc sub|ect to revson unt pubshed n the Commssoner s annua report
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283
(Msc
19 7-20-12653
T. 19
Statement of manufactured tobacco produced, by casses, durng the month of
uy, 19 7, as compared wth uy, 19 6.
uy, 19 7.
uy. 19 0.
Pug
Twst
Fne-cut chewng.
) chewng
ng ..
t
Tota
Pounds.
,756,288
27,088
8 5.881
2, 912. MS
0,3 ft, 137
2, 068, 211
21,266, 227
Pounds.
, 656. 517
97,0 1
326.2 0
3, 96S, 333
8,808,806
2,721,097
21,078,08
19 7-23-12688
T. 196
Revsed statement of manufactured tobacco produced, by casses, durng the
month of uy, 19 7, as compared tcth uy, 19 6.
uy, 19 7.
uy, 19 6.
Pug
Twst
Fne-cut chewng..
Scrap chewng
Smokng ......
Snutt.
Tota...
Pounds.
,756,288
27,085
302,788
3, 66,7 0
9,3 5,137
2,968,211
21,266,227
Pounds.
,656, 517
97,0 1
326, 2 0
3,968.333
8, 908, 806
2,721,097
21,078,03
19 7-23-12689
T. 197
Statement of manufactured tobacco produced, by casses, durng the month
of ugust, 19 7, as compared tcth ugust, 19 6.
ugust, 19 7.
ugust, 19 6
Pug
Pounds.
6,002,017
39,729
305.617
3,660,66
9,880, 718
3,3 0, 7 7
Pounds.
.631,117
610.600
373,820
, 37, 32
9, 85,833
8, 29,135
Twst
Smokng ..............
nuf ... ...
Tota. .
22,629, 92
22,887,937
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28
19 7-25-12713
T. 199
Statement of manufactured tobacco produced, by casses, durng the month of
September, 19 7, as compared tcth September, 19 6.
September.
19 7.
September,
19 6.
Poundt.
.892, 07
65,899
332,253
3, 97 , 5
10, 8 8, 98
8,719,176
Pounds.
Pug
.361, 32
61.179
311, 85
.(,85 ,65f
9, 617,652
3,060,591
Fne-cut chewng
nuf
Tota.
2 , 233, 262
21,671.99.1
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285 I Msc.
CIG R TT S.
19 7-1 -12587
T. 189
Premnary statement of sma cgarettes removed for consumpton durng the
month of May, 19 7, as compared wth removas for the same month of 19 6.
Removas.
May. 19 7
May, 19 6.
Number.
25. 759. 29 ,775
2, 965,030.7 6
Number.
29,601,963,167
3,018, 500, 392
28, 72 . 925, 521
32, 620, 68, 559
19 7-16-12615
T. 191
Premnary statement of sma cgarettes removed for consumpton durng the month
of une, 19 7, as compared wth removas for the same month of 19 6
Removas
uno. 19 7
une, 19 9.
Number.
28, 5 0, 383,823
2, 268, 787,855
Number.
.6. 631. 765.3
2, , 29,8 1
Tota
30,809,171,678
29,076.195, 185
19 7-19-126 5
T. 193
Premnary statement of sma cgarettes removed for consumpton durng the
month of uy, 19 7, as compared wth removas for the same month of 19 6.
Removas.
uy, 19 7.
uy, 19 6.
Number.
29,371, 50,330
2,332,787, 267
Number.
25, 519. 155. 150
2, 86,877,611
31, 70 , 237. 597
28,006.032,761
19 7-20-1265
T. 195
Premnary statement of sma cgarettes removed for consumpton durng the
month of ugust, 19 7, as compared toth removas for the same month of 19 6.
Removas.
ugust, 19 7.
ugust, 19 6
Number.
28, 9 3, 58, 733
2, 528, 3 . 11
Number.
28.530,389,273
2,665.073,1517
Tota .
31, 71.892.8 7
31,195, 62. SSM
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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Msc.
286
19 7-23-12690
T. 198
Premnary statement of sma cgarettes removed for consumpton durng the
month of September, 19 7, as compared wth removas for the same month of
me.
Removas.
September, 1M7.
September, 19 6
Number.
29, 00, 695, 795
2,705,572,810
Number.
7,303. 293, 935
1.9 . 205,
Tota -
32,106,208,605
29, 2 7. SU. 6
19 7-25-1271
T. 200
Premnary statement of sma cgarettes removed for consumpton durng the
month of October, 19 7, as compared u th removas for the same month of
19 6.
Removas.
October, 19 7.
October, 19 6
Tat-rof ._. .
Number.
33,1 0.675,250
3,528,928,600
Numfer.
32,090. 29. 8M
2.561.010,193
Tota..
36,667,603.850
35.251, 0,076
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2S7
Msc.
MISC LL N OUS.
19 7-23-1268
Mm. 6197
Cards enttng attorneys or agents to practce before the Treas-
ury Department.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, October 16,19 7.
Offcers and mpoyees of the ureau of Interna Revenue and Others
Concerned:
1. (a) Instructons contaned n Mmeograph 317, dated pr 3,
1935 (C. . I -1, 5 (1935)), and other ke nstructons on the
sub|ect heretofore ssued by both the Commttee on Practce and by
the ureau, are hereby modfed to accord wth nstructons contaned
n a communcaton dated September 2,19 7, from the Charman of the
Commttee on Practce, Treasury Department, announcng the pocy
of that Commttee wth respect to the recognton to be accorded
permanent enroment cards ssued to attorneys or agents by the Com-
mttee on Practce or by ts predecessor, the Commttee on nroment
and Dsbarment of the Treasury Department.
(b) The nstructons referrea to are as foows:
(1) permanent enroment card, ssued by the Commttee
on Practce, sha be consdered vad unt canceed by reason of
the resgnaton of the enroee; or as a resut of dsbarment pro-
ceedngs; or unt paced on the nactve st by order of the Com-
mttee.
(2) Whte permanent enroment cards shoud be recognzed
by the varous offcers of the Treasury Department but the hoders
of such cards shoud be requested to forward same for the ssuance
of a new card n order that ther names may be taken from the
not heard from fe and paced on the actve st.
2. ccordngy, offcas and empoyees of the ureau hereafter w
be governed by the nstructons contaned n the above-quoted com-
muncaton reatng to permanent enroment cards ssued by the
Commttee on Practce or by ts predecessor, the Commttee on n-
roment and Dsbarment. Whte temporary enroment cards are
effectve for a perod of s months from the date of ssuance.
3. Correspondence wth respect to the nstructons contaned n
ths mmeograph shoud be addressed to the Commssoner of Interna
Revenue, attenton Com: PR.
Geo. . Schoeneman,
Commssoner.
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2S8
COMMITT ON PR CTIC .
19 7-18-12G32
D. C. 230 (Rev.)
L WS ND R GUL TIONS GO RNING T R COGNITION OP G NTS.
TTORN YS, ND OT R P RSONS R PR S NTING CL IM NTS -
FOR T TR SURY D P RTM NT ND OFFIC S T R OF.
Department Cbcuab No. 230 (as Revsed to May 29, 19 7).
P T 10 PR CTIC OF TTORN YS ND d NTS FOR T TR SURY D P RTM NT.
Sectons 10.1 to 10.13, ncusve, are Part 10 as pubshed n the orgna edton
of the Code of Federa Reguatons and as amended from tme to tme thereafter,
ncudng mnor carfyng and technca amendments now made.
Secton.
10.1. Commttee estabshed.
10.2. Rues and reguatons reatng to practce.
10.3. uafcatons for enroment.
10. . ppcaton for enroment.
10.5. Customhouse brokers.
10.0. Roster of enroees; enroment cards.
10.7. Proceedngs for dsbarment, suspenson, and renstatement.
10.8. uthorty to prosecute cams.
10.9. Substtuton of attorneys or agents; revocaton of authorty.
10.10. Dsreputabe conduct
10.11. Strkng names from ro.
10.12. ppcaton and effectve date of reguatons.
10.13. Wthdrawa or amendment of reguatons.
uthorty: Sectons 10.1 to 10.13, Incusve, Issued under secton 3, 23 Stat,
258; Pubc Law 0 , Seventy-nnth Congress, 60 Stat., 237 ; 5 U. S. C, 261.
Secton 10.1. Commttee stabshed. (a) Commttee on Practce. Com-
mttee on Practce s hereby created consstng of such number of members as
sha be apponted by the Secretary of the Treasury. The Secretary sha desg-
nate a charman of the Commttee. The Secretary n hs dscreton may appont a
part-tme member or members of the Commttee, and, whenever n hs udgment
such acton s necessary, the Secretary may appont some person to serve tem-
porary as a substtute for a reguar member of the Commttee. The Commttee
sha have such powers to prescrbe rues for ts own government and procedure
as are set forth esewhere In the reguatons In ths part. The Commttee sha
meet at such tmes as t may desgnate or at the ca of the charman. Two
members of the Commttee sha consttute a quorum.
(b) Dutes of the Commttee. The Commttee sha receve and act upon app-
catons to be recognzed as attorneys or agents before the Treasury Department;
receve and act upon appcatons for reenroment from attorneys or agents who
have been dsbarred; conduct hearngs; make Inqures; and perform other dutes
as prescrbed heren.
(c) Secretary of the Commttee. The Secretary of the Treasury may appont a
person to act as secretary of the Commttee or desgnate a member of the Com-
mttee to act as secretary. The secretary of the Commttee sha keep and man-
tan ts records, sha have custody of a ts papers, records, ros, and fes, and
sha perform such other dutes reasonaby Incdent to hs offce as the Com-
mttee sha drect. If no secretary Is apponted or desgnated, the dutes heren
enumerated sha devove upon the charman of the Commttee, or upon such
person or persons as he may desgnate.
(d) ttorney for the Government. The Secretary of the Treasury sha
appont an attorney not a member of the Commttee as attorney for the Govern-
ment to prepare and present a forma statements of charges aganst enroed
attorneys or agents, to supervse the gatherng of evdence n support of such
1 ffectve October 1, 1036. Ths crcuar supersedes Treasury Department Crcuar No
230, dated. October 1, 193 , and the amendments thereof and suppements thereto.
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charges, Incudng the takng of depostons, to represent the Government In a
proceedngs before the Commttee, to represent the Government In a proceedngs
pursuant to secton 10.7, and to perform other dutes Incdent to hs poston.
Sec. 10.2. Rues and Reguatons Reatng to Practce. (a) gbty to
practce. (1) No attorney or agent sha be egbe to practce before the
Treasury Department uness such attorney or agent s enroed n accordance
wth the reguatons In ths part or pror reguatons, e cept that any ndvdua
may appear, wthout enroment, on hs own behaf or In behaf of a member of
hs mmedate famy If such appearance Is wthout compensaton; and a member
of a partnershp, an offcer of a corporaton, or an authorzed reguar empoyee
of an ndvdua, partnershp, corporaton, or estate, may kewse appear, wthout
enroment, In any matter reatng to such Indvdua, partnershp, corporaton,
or estate pendng before the Treasury Department f he presents adequate
dentfcaton to the offcas of the Department. nroment s not requred for
appearances by trustees, recevers, guardans, admnstrators, and e ecutors on
behaf of trusts, recevershps, guardanshps, or estates of whch suc persons
are the trustees, recevers, guardans, admnstrators, or e ecutors, If adequate
Identfcaton s presented to the offcas of the Department. Ths rue aso
appes to an Indvdua, a partnershp, an estate or trust, or a corporaton wth
respect to the abty of the Indvdua, partnershp, estate or trust, or corpora-
ton as a transferee of property of a ta payer and to a fducary wth respect
to the abty of the fducary under secton 518(a), 8 Stat, 760 ; 31 U. S. C, 192.
No enroed person or other person authorzed to appear before the Treasury
Department wthout enroment sha represent a camant before the Treasury
Department n any matter to whch the enroee, as offcer or empoyee of the
Unted States, gave persona consderaton or as to the facts of whch he ganed
knowedge whe n the Government servce.
(2) No former offcer, cerk, or empoyee of the Treasury Department sha
act as attorney or agent, or as the empoyee of an attorney or agent wthn two
years after the termnaton of such Treasury empoyment, In any matter pend-
ng n such Department durng the perod of hs empoyment theren, uness he
sha frst obtan the wrtten consent thereto of the Secretary of the Treasury
or hs duy authorzed representatve. Ths consent w not be granted uness
t appears (1) that the appcant was not, durng the perod of two years mme-
datey precedng the date of appcaton, empoyed n the partcuar departmenta
or fed secton In whch was pendng the matter, to hande whch consent Is sought,
provded that ths requrement sha not appy to persons empoyed n an admn-
stratve capacty such as head of a unt, dvson, or secton, or empoyed as
a revewer or conferee or n an advsory capacty; and () that empoyment
as an agent or attorney s not prohbted by secton 5, 17 Stat., 202; 5 T . S. C,
99, or other aw, or by the reguatons of the Treasury Department. Such app-
cant sha be requred to fe a decaraton to the effect that he gave no persona
consderaton to such matter and had no knowedge of the facts nvoved n such
matter whe he was empoyed In the Department and that he s not now asso-
cated wth, and w not be assocated wth, any former empoyee who has
ganed knowedge of the case whe empoyed by the Treasury Department, and
that hs empoyment s not prohbted by aw, or by the reguatons of the
Treasury Department. The statements contaned In such decaraton sha not
be suffcent f dsproved by an e amnaton of the fes and records pertanng
to the case. ppcatons for consent shoud be drected to the Commttee on
Practce on Form 901 and shoud state the former connecton wth the Depart-
ment of the appcant and Identfy the matter In whch the appcant desres to
appear. The appcant sha be prompty advsed as to hs prvege to appear
n the partcuar matter, and ths notce sha be fed by hm n the record of
the case.
(3) Nor sha any enroed person knowngy (I) assst a person who has
been empoyed by a cent to represent hm before the Treasury Department In
connecton wth any matter to whch such person gave persona consderaton or
as to the facts of whch such person ganed persona knowedge whe In the
Government servce, or (11) accept assstance from any such person In connecton
wth any such matter, or (111) share fees wth any such person n connecton
wth any such matter.
(6) Scope of practce before the Department. Practce before the Treasury
Department sha be deemed to comprehend a matters connected wth the
presentaton of a cent s Interests to the Trensury Department, ncudng the
preparaton and fng of necessary wrtten documents, and correspondence wth
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290
the Treasury Department reatve to such Interests. Uness otherwse stated the
term Treasury Department as used In ths paragraph and esewhere In ths
part Incudes any dvson, branch, bureau, offce, or unt of the Treasury De-
partment, whether n Washngton or n the fed, and any offcer or empoyee ot
any such dvson, branch, bureau, offce, or unt.
(c) nowedge of cent s omsson. ach enroed attorney or agent who
knows that a cent has not comped wth the aw or has made an error In, or
an omsson from, any return, document, affdavt, or other paper, whch the
aw requres such cent to e ecute, sha advse hs cent prompty of the fact
of such noncompance, error, or omsson.
( Z) Duty of enroees concernng voatons. It sha be the duty of an en-
roed attorney or agent, when requested by the Commttee or the attorney for
the Government, to gve the Commttee or the sad attorney any nformaton
whch he may have concernng voatons of the reguatons n ths part or of the
occurrence of any acts or omssons whch woud be grounds for suspenson or
dsbarment, uness sad nformaton s prveged.
(e) Use of fcttous names. very enroed attorney or agent practcng as an
ndvdua sha use hs ega name In the conduct of hs ega, accountng, or other
professona practce. The term company, assocates, accountants,
audtors, engneers, or other pura forms suggestng a partnershp, or
anguage of smar mport, used n connecton wth a name or tte, or any
fcttous tte, or trade name, sha be used ony by a bona fde partnershp con-
sstng of two or more members, and a statonery, stngs, advertsements, and
announcements of enroed persons sha conform to the prncpes heren stated.
(f) Rghts and dutes of agents. n agent enroed before the Treasury De-
partment sha have the same rghts, powers, and prveges and be sub|ect to
the same dutes as an enroed attorney: Provded, That an enroed agent sha
not have the prvege of draftng or preparng any wrtten Instrument by whch
tte to rea or persona property may be conveyed or transferred for the purpose
of affectng Federa ta es, nor sha such enroed agent advse a cent as to
the ega suffcency of such an Instrument or ts ega effect upon the Federa
ta es of such cent: nd provded further, That nothng n the reguatons n
ths part sha be construed as authorzng persons not members of the bar to
practce aw.
(g) Certfcaton of documents. very cam, affdavt, wrtten argument,
bref, or statement of fact, prepared or fed by an enroed attorney or agent In
any matter pendng before the Treasury Department, sha have aff ed thereto
a statement sgned by such attorney or agent showng whether he prepared
such document and whether or not he knows of hs own knowedge that the
statements of fact contaned theren are trua
h) (Revoked.)
( ) nroees as notares. No enroed attorney or agent as notary pubc sha
take acknowedgments, admnster oaths, certfy papers, or perform any offca
act n connecton wth matters In whch he s empoyed as counse, attorney, or
agent, or n whch he may be n any way Interested before the Treasury Depart-
ment. Under the provsons of ths paragraph an enroed person who s a
notary pubc s prohbted from takng any acknowedgment, oath, or certfca-
ton as a notary pubc In connecton wth any ta return, protest, or other docu-
ment whch he has prepared or n the preparaton of whch be has asssted. (28
Op. tty. Gen., 236.)
(/) Unmpared status requred. It sha be ncumbent upon each enroed
person (1) who s authorzed to practce as a certfed pubc accountant or as
a pubc accountant to mantan unmpared hs rght to practce as a certfed
pubc accountant or pubc accountant; (2) who s admtted to practce before
any court to mantan unmpared hs rght to practce before such court; and
(3) who s enroed or admtted to practce before another department or agency
of the Government to mantan unmpared hs standng before such department
or agency.
(k) Certan partnershps prohbted. No enroed person sha mantan a
partnershp for the practce of aw, accountancy, or other reated professona
servce wth a person who s under dsbarment from practcng before the Treas-
ury Department or any other Government department or agency, or wth an
unenroed person who s nether an attorney egay practcng aw nor a cert-
fed pubc accountant or a pubc accountant egay practcng accountancy.
(/) Practce by corporatons prohbted. No enroed person sha be con-
nected wth an accountng corporaton ether as offcer, empoyee, or stockhoder;
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nor sha any enroed person, whe empoyed as an offcer, empoyee, attorney,
or agent of any corporaton, practce before the Treasury Department on behaf
of such corporaton as the representatve of the offcers, empoyees, drectors,
stockhoders or members, customers or cents, of such corporaton, e cept as
permtted by secton 10.5. The term corporaton as used In ths paragraph
and esewhere In ths part sha be deemed to ncude assocatons, |ont stock
companes, and Insurance companes. Nothng contaned heren sha prevent an
enroed person from beng empoyed by agrcutura cooperatve assocatons,
on a nonproft bass and not sub|ect to Federa ncome ta es, to represent before
the Treasury Department the groups or unts consttutng membershp of such
assocatons: Provded, That ndvduas may not be so represented.
(m) Cents of unenroed persons. No enroed person sha represent before
the Treasury Department cents of an unenroed person who Is nether an at-
torney nor an accountant reguary engaged n the practce of accountancy nor a
customhouse broker, or who to the knowedge of the enroed person socts bus-
ness, obtans cents, or otherwse conducts hs practce n a manner forbdden
under the reguatons n ths part to enroed persons.
(n) ssstance from unenroed persons. No enroed person sha n any
Treasury Department matter knowngy and drecty or ndrecty:
(1) mpoy or accept assstance from any unenroed person whose app-
caton for enroment sha at any tme have been dened for a cause n-
vovng mora turptude, or from a person who has been dsbarred from prac-
tce before any department or agency of the Government or before any court
of record, or who Is under suspenson from practce before any such depart-
ment, agency, or court, or who has been deprved of hs certfcate as a cert-
fed pubc accountant or pubc accountant, or whose name after the effec-
tve date hereof has been strcken from the ro of attorneys and agents au-
thorzed to represent camants before the Treasury Department n the
course of dsbarment proceedngs aganst hm, or
(2) ccept empoyment as assocate, correspondent, or subagent, from, or
share fees wth, any such person, or any person who s not an attorney or a
pubc accountant reguary engaged In the practce of accountancy, or who
Is not a censed customhouse broker.
(o) Preparaton of fnanca statements. ach enroed person sha e er-
cse due dgence n preparng fnanca statements for cents and n certfyng
to the correctness of the same.
(p) Dgence as to accuracy. ach enroed person sha e ercse due d-
gence to ascertan the correctness of any Informaton whch he Imparts to a cent
wth reference to any Treasury Department matter, and no enroed person sha
wthhod nformaton reatve to any such matter from a cent who s entted to
the Informaton.
q) Moneys receved n trust. ach enroed person sha prompty pay over
to the Government when due a sums receved for the payment of any duty,
ta , or other debt or obgaton owng to the Government, and sha prompty
account to cents for funds receved for them from the Government, or receved
from a cent n e cess of the charges propery payabe In respect of the cent s
busness.
(r) ndorsement of cent s checks. No enroed person sha wthout author-
ty of hs cent endorse or accept any Government draft, check, or warrant
drawn to the order of such cent.
(8) se of nfuence forbdden. No enroed person sha attempt to n-
fuence the acton of any offca or empoyee of the Treasury Department In any
Treasury Department matter by the use of threats, fase accusatons, duress,
or by the offer of any speca Inducement or promse of advantage, or by the be-
stowng of any gft or favor or other thng of vaue.
(t) Producton of records. No enroed person sha negect or refuse to pro-
duce records or evdence n any matter before the Treasury Department upon
proper and awfu demand by a duy authorzed agent of the Department, uness
the attorney or agent has reasonabe grounds to beeve and does beeve that
the sad demand Is of doubtfu egaty; or sha otherwse nterfere, or attempt
to Interfere, wth any proper and awfu efforts by such Department or agent to
procure such nformaton.
( ) ttemptng to obtan nformaton. No enroed person sha procure, or
attempt to procure, drecty or ndrecty, from Government records or other
Government sources Informaton of any knd whch s not made avaabe by
proper authorty.
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(v) Soctaton and advertsng, drect or ndrect, prohbted. No enroed
attorney or agent sha n any manner whatsoever soct, drecty or ndrecty,
or by mpcaton, empoyment from persons not cents or frends n matters be-
fore the Treasury Department or n matters reated thereto. mong other thngs
the foowng sha be deemed to be prohbted by ths paragraph:
(1) The pubcaton of artces or the devery of addresses on Federa
ta questons by an enroed person over the rado or esewhere In connec-
ton wth whch the name of the frm of whch he s a member, assocate, or
empoyee, or the address of the wrter or speaker s gven ether by the
wrter, speaker, announcer, or pubsher, provded that nothng heren sha
be construed to prohbt the pubcaton, by perodcas admtted to second-
cass mang prveges, of such nformaton concernng contrbutors of
artces as s usuay pubshed n such perodcas.
(2) The mang of crcuars, etters, pamphets, or other prnted or wrt-
ten matter to persons not cents or frends of such enroed person whch
contan no drect soctaton of empoyment but whch do ncude the name
and a descrpton of the practce and address of such enroed person.
(3) dvertsng n one or more of the foowng forms: () Sgns, prnt-
ng, or other advertsng matter, ndcatng prevous connecton wth the
Treasury Department; () representaton, oray, n wrtng, or n any other
manner, of speca nfuence wth the offcas or empoyees of the Treasury
Department through acquantance or otherwse; () the use of any tte
or other descrpton of the attorney or agent or hs practce whch tends to
suggest some connecton wth the Treasury Department of the Unted States,
and any tte or descrpton contanng the words Unted States sha be
presumed to carry such suggeston, e cept that there s no ob|ecton to the
use of the words nroed to practce before the Unted States Treasury
Department ; (Iv) dstrbuton of buetns, crcuars, pamphets, or so-
caed ta servces, to persons who are not cents or frends of the at-
torney or agent contanng decsons or rungs of the Treasury Department,
The Ta Court of the Unted States, or courts on Federa ta matters, or
comment thereon by the attorney or agent; (v) dstrbuton to persons not
cents or frends of the practtoner of crcuars or pamphets advertsng
any busness, educatona, or soca nsttuton, or organzaton, whch crcu-
ar or pamphet contans a card or advertsement of the practce of such at-
torney or agent
( ) The foowng knds of advertsng w not be deemed to consttute a
voaton of ths parngraph:
() Letterheads, professona cards, and the customary professona n-
sertons n professona, teephone, and cty drectores, or n newspapers,
trade or professona |ournas, or other pubcatons admtted to second-cass
mang prveges, provded they set forth ony the name and address of the
attorney or agent or the name of the frm of whch he s a member or wth
whch he s assocated, a bref descrpton of the nature of hs practce, to
wt, whether he practces as an attorney or accountant, and, f desred, any
fed of practce or servce n whch such attorney or agent may specaze;
() The dstrbuton by former offcers or empoyees of the Government
of cards brefy statng the fact of ther former offca status and announcng
ther new assocaton : Provded, The cards are addressed ony to persona or
busness acquantances: nd provded further. That such cards are ds-
trbuted ony once and wthn a reasonabe tme after severance of offca
connecton wth the Government and wthn 80 days after the formaton of a
new assocaton.
(10) Preparaton of documents by enroees. ach enroed person sha e er-
cse due dgence n preparng or assstng n the preparaton of, approvng, and
fng returns, documents, affdavts, and other papers reatng to Treasury De-
partment matters, and n otherwse representng cents before the Treasury
Department; and no enroed person sha unreasonaby deay the prompt dspo-
ston of matters before the Treasury Department by negectng to answer
correspondence, by unreasonaby deayng the fng of cosng agreements, by
fng frvoous cams for refunds, or otherwse.
( ) Duty to request name to be strcken upon acceptng empoyment wth the
Unted States. It sha be the duty of every enroed person who becomes a |udge
of any court of record or an offcer or empoyee (1) of the Unted States, (2) of
any corporaton- owned whoy by the Unted States, (3) of the Dstrct of Co-
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293
(Msc
umba, or ( ) of any State or subdvson thereof whose dutes dscose facts or
Informaton appcabe to Federa ta matters, to request the Commttee on
Practce to pace hs name on the Inactve st of Treasury Department pract-
toners durng the perod of such Incumbency. ny person who on becomng an
offcer or empoyee of the Treasury Department requested that hs name be
strcken from the ro and surrendered hs enroment card to the Commttee for
canceaton and whose empoyment wth the Department has been or sha be
termnated n good standng sha be entted upon hs wrtten request to have hs
name restored to the ro and hs enroment card returned to hm.
(y) Fees; agreements. (1) No enroed person sha e act from hs cents
a manfesty unreasonabe fee, whether contngent or otherwse, In any matter
before the Treasury Department. The reasonabeness of a fee n any case s
wthn the mts a matter of |udgment and depends upon a the facts and cr-
cumstances thereof, ncudng the compe ty and dffcuty of the case, the
amount of tme and abor requred for ts proper preparaton and presentaton,
the amount nvoved, and the professona standng and e perence of the
attorney or agent
(2) whoy contngent fee agreement sha not be entered nto wth a cent
by an enroed person uness the fnanca status of the cent s such that he
woud otherwse be unabe to obtan the servces of an attorney or agent. Par-
tay contngent fee agreements are permssbe where provson Is made for the
payment of a mnmum fee, substanta In reaton to the possbe ma mum fee,
whch mnmum fee s to be pad and retaned Irrespectve of the outcome of
the proceedng. Such mnmum fee need not be pad n advance, f provson for
ts payment s made rrespectve of the outcome of the case. The payment of or
agreement to pay a nomna mnmum fee w not satsfy the requrements of
ths subparagraph.
(3) Whenever an enroed attorney or agent sha enter nto a contract to
represent a cent before the Treasury Department on a whoy or partay
contngent bass, he sha fe wth the Commttee a sgned statement to that
effect, contanng the terms of the contract as they reate to compensaton.
( ) When a power of attorney s fed wth the Treasury Department t sha
be the duty of the attorney or agent fng the same to fe therewth a statement
as foows:
(Pace)
(Date)
(have )
Ths s to certfy that I (have not) entered Into a contngent or partay contn-
gent fee agreement for the representaton before the Department of
n the matter of under the terms of a power of attorney fed wth
the Treasury Department on and (In case a contngent or partay
contngent fee agreement has been made) that a report of such fee agreement
(has ) been made to the Commttee on Practce,
(has not)
Ths requrement sha not be appcabe to the powers of attorney wheren the
authorty granted Is mted to the fng of ta or nformaton returns.
(z) Duty to observe canons of ethcs. ach enroed person sha conduct hs
practce n an ethca and professona manner and It sha be the duty of each
enroed attorney to observe the canons of ethcs as adopted by the mercan ar
ssocaton and of each enroed agent to observe the ethca standards of the
accountng professon. mong other forms of unethca and unprofessona con-
duct the foowng w be deemed to consttute such conduct: The use of ntem-
perate and abusve anguage, the makng of fase accusatons or statements
knowng them to be fase, or the crcuaton of macous and beous matter
In connecton wth Treasury practce.
Sec. 10.3. uafcatons fob nroment. (a) (1) Persons of the foowng
casses who are found, upon consderaton of ther appcatons, to possess the
quafcatons requred by the reguatons n ths part may be admtted to prac-
tce before the Treasury Department as attorneys or agents respectvey:
(1) ttorneys at aw who have been admtted to practce before the courts
of any State or Terrtory, or the Dstrct of Coumba, and who are awfuy
engaged n the actve practce of ther professon.
() Certfed pubc accountants who have duy quafed to practce as
certfed pubc accountants In ther own names, under the aws and regua-
tons of any State or Terrtory, or the Dstrct of Coumba, and who are
awfuy engaged In actve practce as certfed pubc accountants.
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29
(2) ppcants who are empoyed by corporatons on a fu-tme bass and
who do not mantan offces apart from such empoyment wth ther servces
avaabe to the genera pubc w not be consdered to be n actve practce
wthn the meanng of the term as used above.
(3) ppcants for enroment to practce before the Treasury Department
are requred by statute to show that they are of good character and n good
repute, possessed of the necessary quafcatons to enabe them to render sucn
camants vauabe servce, and otherwse competent to advse and assst such
camants n the presentaton of ther cases. (5 U. S. C, 261.) The burden
s upon appcants to estabsh ceary ther rght to enroment by showng
that they possess (1) a good character and reputaton, () an adequate educa-
ton, and ( ) a knowedge of the aws and reguatons reatng to ta matters
and other sub|ects whch they e pect to hande before the Department and of
the rues and reguatons governng practce before the Department.
( ) Good character and good reputaton are not dentca requrements. The
former s determned by the appcant s actua quates; the atter depends
upon the opnon entertaned of the appcant by those who have had the op-
portunty of knowng hm n the communty n whch he resdes or n whch
he practces hs professon. It foows that evdence of any act or omsson
whch tends to estabsh ack of ntegrty or untrustworthness or other qua-
tes reprehensbe n a professona man, s matera as bearng upon the char-
acter of the appcant, notwthstandng there s cear proof that hs reputaton
Is good. n appcant must furnsh as references the names and addresses of
at east s persons who are acquanted wth hs reputaton and wth whom the
appcant has come, n contact n hs professon or busness.
(6) (1) mong the causes suffcent to |ustfy dena of an appcaton for
enroment are: ny conduct, or practces, or proposed practces, whch woud
consttute a voaton of any of the provsons of the reguatons In ths part
f the appcant were enroed or any other conduct whch woud be a ground
for suspenson or dsbarment under the appcabe aw or aws; any conduct
whch woud be deemed grossy unfar In commerca transactons by accepted
standards; or a bad reputaton mputng to an appcant conduct of a crmna,
dshonest, or unethca knd.
(2) The Commttee on Practce w endeavor to ascertan a the facts deemed
necessary by It to pass upon any appcaton wthout e pense or undue ncon-
venence to the appcant. In the event, however, that the Commttee s not
satsfed wth the nformaton receved, t may requre the appcant to appear
n person before the Commttee or before some person or persons desgnated by
t for the purpose of undergong addtona wrtten or ora e amnaton as to
hs ftness for enroment The Commttee may grant a hearng on an appcaton
at the appcant s request
(c) ppcaton for enroment may be dened In any case In whch t appears
that the appcant has termnated hs empoyment wth the Treasury Depart-
ment In voaton of an obgaton assumed as a condton of such empoyment
to reman n the servce of the Department for a specfed perod or for a rea-
sonabe tme.
(d) Ony ctzens of the Unted States over the age of 21 years are egbe for
enroment. person who s unabe for any reason to take the oath of ae-
gance, and to support the Consttuton of the Unted States, as requred of persons
prosecutng cams aganst the Unted States by Tte 31, secton 20 , Unted
States Code, can not be enroed.
(e) Corporatons and partnershps are Inegbe for enroment.
(/) Offcers and empoyees of any State, or subdvson thereof, whose dutes
requre them to pass upon, nvestgate, or dea wth ta matters of such
State or subdvson, sha be negbe for enroment, provded such empoy-
ment may dscose facts or Informaton appcabe to Federa ta matters.
(g) udges of courts of record sha be negbe for enroment.
(ft) persons to whom secton 198 or.secton 203 of Tte 18 of the Unted
States Code appes, a persons prohbted by other aw from representng
camants aganst the Unted States, a persons reguary empoyed by cor-
poratons owned whoy by the Unted States, and a persons reguary empoyed
by the Dstrct of Coumba sha be negbe for enroment.
() The quafcatons for enroment stated In paragraph (a)(1) () and
(11) are prerequstes for genera enroment for practce before the Treasury
Department.
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(Msc.
( ) Speca enroment. - owever, speca enroment for the presentaton
of matters before a partcuar bureau or dvson may be effected n the foowng
manner: n appcant for such speca enroment sha present hs quafca-
tons to the Commttee. The Commttee sha prescrbe an e amnaton for
such appcant. If the Commttee s satsfed that the appcant s possessed
of the quafcatons necessary to enabe hm to render vauabe servces to
camants and other persons before the partcuar bureau or dvson before
whch he Is seekng authorzaton to practce, It sha Issue to the appcant an
approprate speca enroment card.
(fc) uthorty for a partcuar matter. Moreover, authorty for the presenta-
ton of a partcuar matter before the Treasury Department may be effected n
the foowng manner: n appcant for such authorty sha present hs quaf-
catons to the Commttee. If the Commttee Is satsfed that the appcant s
possessed of the quafcatons necessary to enabe hm to render vauabe serv-
ces to hs prncpa n the presentaton of the partcuar matter before the
Treasury Department, It sha Issue to the appcant an approprate etter of
authorty. Such a etter of authorty sha not be necessary, e cept n the case
of matters before the ureau of Interna Revenue, f the offcer or empoyee of
the bureau or dvson before whom appearance Is made Is satsfed that the person
appearng s not under orders of suspenson or dsbarment from the Treasury
Department and s so ceary quafed that appcaton to the Commttee woud
be a useess formaty.
Nothng n paragraphs ( ) and (k) sha authorze any procedure to permt a
person to act as a customhouse broker wthout compance wth the requre-
ments of Part 11 of ths chapter, nor mt the rghts granted by such Part 11 to
customhouse brokers to represent ther cents before the Treasury Department.
Sec. 10. . ppcaton for nroment. ppcants for enroment sha sub-
mt to the Commttee an appcaton n dupcate propery e ecuted on Form 23.
ppcatons n any other form may not be consdered. Members of the bar of
an mercan court of records w appy for enroment as attorneys; a other
appcants w appy for enroment as agents. appcatons for enroment
must be ndvdua. Whe members of a partnershp shoud appy as ndvduas
and not n the partnershp name, an enroed attorney or agent may represent
cents before the Treasury Department n the name of the partnershp of whch
he s a member or wth whch he Is otherwse reguary connected. In case a of
the members of a partnershp are not enroed, then the enroed attorney or
agent sha be responsbe for any acts or omssons of the unenroed partner or
partners whch are n voaton of aw or of the provsons of the reguatons n
ths part, to the same e tent as though the offendng partner hmsef were enroed.
Sec. 10.5. Customhouse rokers Secton 6 1 of the Tarff ct of 1930 ( 6
Stat., 759; 19 U. S. C, 16 1), as amended, provdes n part that the Secretary of the
Treasury may prescrbe rues and reguatons governng the censng as custom-
house brokers of ctzens of the Unted States of good mora character, and of
corporatons, assocatons, and partnershps. The Department s reguatons pur-
suant thereto are pubshed n Part 11 of ths chapter. customhouse broker
so censed requres no further enroment under the reguatons In ths part
for the transacton, wthn the customs dstrcts n whch he s censed, of any
busness reatng specfcay to the mportaton or e portaton of merchandse
under customs or nterna-revenue aws. e Is aso entted, wthout further
cense or enroment, to represent camants or other persons before the Treas-
ury Department n Washngton n any matter In whch he acted as a customhouse
broker n any dstrct In whch he Is censed. When servng In such capacty,
a censed customhouse broker sha, n addton to beng sub|ect to the prov-
sons of secton 6 1 of the Tarff ct of 1930, as amended, and the rues and regu-
atons thereunder, be sub|ect aso to a the provsons of the aws and reguatons
set forth n ths part, as revsed from tme to tme, and sha be responsbe as
specfed In 31 CFR, 11.7(d) for voaton of any such aws or reguatons com-
mtted by hs or ts offcers, empoyees, or authorzed attorneys or agents, In
connecton wth the prosecuton on behaf of the prncpa of any busness before
the Treasury Department n Washngton.
Sec. 10.6. Roster of nroees ; nroment Cards. (a) Roster of attorneys
and agents. roster of a attorneys and agents who make appcaton for en-
roment or who are enroed, or whose appcatons have been dened, or who
have been suspended or dsbarred, w be kept In the offce of the Commttee on
Practce. bureaus, offces, and dvsons of the Treasury Department sub|ect
to the e ceptons n secton 10.5 In the case of the ureau of Customs, are pro-
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296
hbted from recognzng or deang wth any unenroed attorney or agent as the
representatve of any person havng a cam pendng before the Department:
Provded, That the Commttee on Practce may grant, pendng acton upon an
appcaton, temporary recognton to an appcant not requred to take an
e amnaton In connecton wth hs appcaton: nd provded further, That an
unenroed person who has not been dsbarred or suspended from practce before
the Treasury Department may be permtted to make nta appearance n a
partcuar case. Such permsson sha In no case authorze an unenroed
person to appear before the Treasury Department In Washngton, D. C, or to
represent a camant In any forma hearng. It sha be the duty of the Govern-
ment offca before whom such person appears to notfy hm that If he wshes
to appear further n the case, or n any forma hearng, or before the Treasury
Department n Washngton, It w be necessary to fe an appcaton for
enroment.
(6) Informaton as to enroment. The Commttee w furnsh upon request
nformaton as to whether any ndvdua s enroed. Other Informaton w
be made avaabe to the varous departments and agences of the Government
and to any person entted to receve the same n accordance wth the rues and
reguatons of the Treasury Department, and, e cept as prohbted by aw, access
to the fes and records of the Commttee w be granted to The Ta Court
of the Unted States and ts representatves.
(c) nroment cards. The Commttee on Practce sha ssue an enroment
card to every attorney or agent upon hs enroment. Uness advsed to the
contrary by the Commttee on Practce, any offcer of the Treasury Department
may consder the hoder of such an enroment card as duy authorzed to prac-
tce before the Department.
Sec. 10.7. Proceedngs for Dsbarment, Suspenson, and Renstatement. (a)
Proceedngs for suspenson and dsbarment. If an offcer or empoyee of the
Treasury Department has reason to beeve that an enroed attorney or agent
has voated any provson of the aws or reguatons governng practce before
the Treasury Department, or f a compant concernng any enroed attorney
or agent Is made to any such offcer or empoyee, he sha prompty make a
wrtten report thereof to the attorney for the Government. If any other person
has nformaton of such voatons, he may aso make wrtten report thereof
to the sad attorney. The attorney and the Commttee w treat as strcty
confdenta the dentty of the nformant n any case n whch the nformant s
other than an offcer or empoyee of the Treasury Department, uness the n-
formant n gvng hs nformaton states that hs dentty and connecton there-
wth are not confdenta.
(6) Rues of procedure. The attorney for the Government may, ether on
the bass of such nformaton or upon hs own moton where he has cause to be-
eve that any enroed attorney or agent has voated any provson of the aws
or reguatons governng practce before the Treasury Department, nsttute
proceedngs for suspenson or dsbarment aganst any enroed attorney or
agent, herenafter caed the respondent n ths paragraph, by fng wth the
Commttee a statement of charges sgned by the attorney for the Government
Sub|ect to the provsons of the dmnstratve Procedure ct (60 Stat., 237),
such proceedngs sha be governed by the foowng rues:
(1) Opportunty to avod proceedng. The attorney for the Government sha,
before a proceedng Is nsttuted, gve to the respondent notce n wrtng that:
(I) Transmts a copy of the proposed statement of charges, or a specf-
caton of the substance thereof;
() Ctes sectons 5(b) and 9(b) of the dmnstratve Procedure ct;
() Cas upon the respondent to show cause why the proceedng shoud
not be nsttuted;
(v) Informs the respondent that the notce affords hm opportunty to
make submssons and demonstratons of the character contempated by the
cted statutory provsons;
(v) Invtes any negotaton that the respondent deems t desrabe to
enter nto; and
(v) Specfes a reasonabe tme for response to such notce: Provded,
That, f pror to nsttuton of the proceedng, the attorney for the Govern-
ment determnes that the case s one n whch such notce woud be mproper
and unnecessary, he sha fe hs fndngs and hs reasons therefor n the
record, and such proceedng may be Insttuted wthout frst gvng notce.
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(2) Servce. (I) Servce of notce and statement of charges. Notce of a
proceedng for suspenson or dsbarment, sgned by the Secretary or a member
of the Commttee, sha be served upon the respondent n the foowng manner:
(a) y devery to the respondent personay, or
(6) y regstered ma, wth demand for a return card sgned by the
respondent: Provded, That, f an enroed attorney or agent sha have
sgned and fed wth the Commttee on Practce hs wrtten consent to be
served In some other manner t sha be suffcent f servce s made n that
manner. Where the servce s by regstered ma, the recept of the return
card duy sgned sha be satsfactory evdence of servce. The notce
sha gve the pace and tme wthn whch the respondent sha fe hs
answer, whch tme sha be not ess than 20 days from the date of servce
of the notce, and sha contan or be accompaned by a statement of charges,
whch statement sha be sgned by the attorney for the Government.
(11) Servce of papers other than notce and statement of charges. Papers
other than the orgna notce and statement of charges sha be served on the
respondent as foows:
(a) y deverng the same to the respondent personay, or by regstered
ma; or
(6) y eavng them at hs offce wth hs cerk or wth a person n charge
thereof; or
(c) y depostng them n a Unted States post offce or post offce bo ,
encosed In a seaed enveope, pany addressed to such respondent at the
address under whch he s enroed or at hs ast address known to the
Commttee.
(d) When the respondent Is represented by attorney, by servce upon
the attorney In the same manner as provded n subdvsons (a), (6), and
(e) of ths subdvson for servce on the respondent.
(3) amner. There sha presde at the recepton of the evdence an
e amner, apponted as provded n the dmnstratve Procedure ct: Provded,
however, That unt e amners are apponted as provded In sad ct (but n no
case Intated after une 10, 19 7), the Commttee sha act as e amner, and
Its acton sha be taken by ma|orty vote.
( ) Fng of papers. Whenever under ths paragraph the fng of a paper n
a proceedng s requred or permtted, and the pace of fng s not specfed ether
by rue of the e amner n the partcuar proceedng or pursuant to ths paragraph,
the paper sha be fed wth the Commttee on Practce, Treasury Department,
Washngton, D. C.
(5) tenson of tme. In any case In whch the tme for fng, peadng,
makng a submtta, or makng an appea, sha have e pred, or sha be about
to e pre, to the pre|udce of a party, the e amner sha have the power n hs
dscreton and upon approprate appcaton and showng by the party pre|udced,
to e tend the tme, as ustce may be deemed to requre.
(6) Negotaton. t any tme pror to hearng by the e amner, the attorney
for the Government Is authorzed, n hs sound dscreton, to negotate wth the
respondent for the purposes contempated by sectons 5(b) and 9(b) or the
dmnstratve Procedure ct. The partes may at any tme durng the hearng
mt the Issues by stpuaton. ny stpuatons resutng from such negotaton
sha be entered n the record.
(7) Resgnaton to avod dsbarment. If pursuant to negotaton (or other-
wse) the respondent resgns to avod possbe nsttuton of dsbarment proceed-
ngs, or to avod possbe dsbarment or suspenson n a pendng proceedng, the
Commttee may, upon moton of the attorney for the Government, accept the
resgnaton. If the Commttee overrues the moton t sha enter a forma ord r
whch sha recte the fndngs of fact and concusons of the Commttee and
whch sha be made of record In the proceedng, f any, aganst the respondent
before the e amner.
(8) Statement of charges. The statement of charges sha gve a pan and
concse descrpton of the facts whch t s camed consttute grounds for suspen-
son or dsbarment, wthout a detaed descrpton of such facts. statement of
charges whch fary nforms the respondent of the charges aganst hm so that
he s abe to prepare hs defense sha be deemed suffcent. Dfferent menus by
whch a purpose may have been accompshed or dfferent nteuts wth whch acts
77338 8 20
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298
may have been commtted may be aeged In the statement of charges In a snge
count In the aternatve.
(9) of partcuars. If, In order to prepare hs defense, the respondent
desres addtona Informaton as to the tme and pace of the aeged msconduct,
or the means by whch It was commtted, or any other more specfc nformaton
concernng the aeged msconduct, he may present a moton In wrtng to the
e amner askng that the statement of charges be made more specfc, settng
forth In such moton In specfc manner In what respect the statement of charges
eaves hm In doubt and descrbng the partcuar anguage of the statement of
charges as to whch addtona Informaton Is needed. If n the opnon of the
e amner such nformaton s reasonaby necessary to enabe the respondent to
prepare hs defense, the e amner sha drect the attorney for the Government
to furnsh the respondent wth an amended statement of charges gvng the
needed nformaton.
(10) nswer. The respondent s answer sha be fed In wrtng wthn the
tme specfed In the orgna notce uness on appcaton the tme Is e tended
pursuant to subparagraph (5) of ths paragraph. The answer sha be made under
oath before a notary pubc or other offcer authorzed to admnster oaths and
sha be fed n dupcate wth the Commttee on Practce.
(11) Content of answer. In hs answer the respondent shoud specfcay
admt or deny every matera aegaton of fact n the statement of charges. very
aegaton In the statement of charges not dened sha be deemed admtted,
uness the respondent sha state n hs answer that he has no knowedge thereof
suffcent to form a beef, whch statement sha be consdered a dena. In
answer to a statement of charges, no enroed person sha deny a matera aega-
ton of fact whch he knows to be true, or state n such answer that he s
wthout suffcent nformaton to form a beef when In fact he possesses such
nformaton.
(12) ffrmatve defense. In hs answer the respondent may aso state affrma-
tvey speca matters of defense, and sha not gve n evdence any matters In
avodance or of defense, consstent wth the truth of the aegatons of the state-
ment of charges, uness In hs answer he states such matters specfcay.
(13) Companng wtness. The attorney for the Government may In hs ds-
creton furnsh a companng wtness wth a copy of the answer f In hs opnon
such acton w ad n ascertanng the truth or fasty of the charges. The term
companng wtness for the purposes of ths provson sha Incude any offcer
or empoyee of the Treasury Department or any enroed attorney or agent who
may have reported the aeged msconduct to the attorney for the Government, or
any other person upon whose Informaton the attorney for the Government has
nsttuted the proceedng.
(1 ) Repy to answer. If the answer contans affrmatve matter n avodance,
consstent wth the truth of the matera aegatons In the statement of charges,
a repy by the attorney for the Government admttng or denyng the new matter
set forth In the answer sha be fed and served upon the respondent
(15) Suppementa charges. If It appears that a dena of a matera aega-
ton of fact In the statement of charges, or a statement that the respondent has
no knowedge suffcent to form a beef, was made In bad fath n the answer;
or that the respondent has knowngy Introduced fase testmony durng proceed-
ngs aganst hm for suspenson or dsbarment, the attorney for the Government
may thereupon fe suppementa charges, whch charges may be tred wth the
other charges n the case, provded the respondent sha be gven due notce
thereof and afforded an opportunty for preparng a defense thereto.
(16) Suffcency of the peadngs. The e amner sha have authorty to pass
upon the suffcency of the statement of charges, the answer, and a other pead-
ngs. The partes may be heard upon the suffcency of any peadngs whenever
n the opnon of the e amner a hearng thereon Is necessary or desrabe.
(17) Immatera mstakes. The e amner sha dsregard an Immatera
msnomer of a thrd person, an mmatera mstake In the descrpton of any
person, thng, or pace or the ownershp of any property, a faure to prove
mmatera aegatons In the descrpton of the respondent s conduct, or any
other Immatera mstake n the peadngs.
(18) earngs. Sub|ect to ths paragraph the e amner may determne the
tme, pace, and manner In whch hearngs sha be conducted; the form n whch
evdence sha be receved, and may adopt rues of procedure and modfy the
same from tme to tme as occason requres for the ordery dsposton of
suspenson, dsbarment, and renstatement cases. Wrtten notce of the tme
and pace of a hearngs sha be gven the respondent In the manner provded
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n ths paragraph for the servce of papers. No hearng sha be hed In ess
than 10 days from the date of servce on the respondent of the notce of such
hearng, e cept that the e amner may postpone or ad|ourn hearngs when
necessary or desrabe, on notce to the partes.
(19) Testmony. Uness the e amner sha otherwse drect, the testmony
of wtnesses at a hearngs w be taken under oath and stenographcay
recorded and transcrbed.
(20) Depostons. Depostons for use at a hearng may, wth the wrtten
approva of the e amner, be taken by ether the attorney for the Government
or the respondent, or ther duy authorzed representatves, upon ora or wrtten
nterrogatores, before any offcer duy authorzed to admnster an oath for
genera purposes, or an offcer of the Interna Revenue ureau authorzed to
admnster an oath n nterna revenue matters, upon not ess than 10 days
wrtten notce to the other party. Such notce sha state the names of the
wtnesses, and the tme and pace where such depostons are to be taken: Pro-
vded, That when depostons are taken as aforesad, f both partes are present
or represented at the tme and pace specfed for the takng of the depostons,
ether party may, after the e amnaton of the wtnesses produced under the
order of the e amner, be entted to produce and e amne other wtnesses; but
In such case one day s notce must be gven to the other party or hs duy author-
zed representatve there present, uness such notce s waved: nd provded
further. That the partes or ther duy authorzed representatves may agree n
wrtng upon a tme when and pace at whch such depostons are to be taken,
wthout forma notce. When a deposton s taken upon wrtten Interrogatores,
any cross-e amnaton sha be upon wrtten nterrogatores. Copes of such
wrtten nterrogatores sha be served wth the notce, and copes of any wrtten
cross-nterrogatores sha be maed or devered to the opposng party or hs
duy authorzed representatves at east fve days before the tme of takng the
depostons.
(21) Documents. Whenever any book, document, or paper s ntroduced as
an e hbt n a proceedng, the e amner may authorze, upon such condtons
as he may deem proper, the wthdrawa of such e hbt upon the request of the
attorney for the Government, or of the respondent or hs attorney.
(22) Proof; parta. If the e amner fnds that a part of the charges n the
statement of charges s not suffcenty proved but that the resdue thereof s
so proved, he may base hs fndngs on any facts estabshed by the evdence
whch are grounds for suspenson or dsbarment and whch are substantay
charged by the sad resdue of the statement of charges.
(23) Proof; varance. In the case of a varance between the aegatons n
the statement of charges and the evdence, the e amner sha have power to base
hs fndngs on any facts estabshed by the evdence whch are grounds for
suspenson or dsbarment, and to order the amendment of the statement of
charges to conform to the evdence: Provded, That the respondent has had or Is
gven reasonabe opportunty to present hs defense to such amended charges,
wth such postponements of the hearng as may be reasonaby necessary to permt
the respondent to present such defense.
(2 ) Submttas. fter the recepton of evdence has been concuded, the e -
amner sha by rue afford the partes a reasonabe opportunty to submt pro-
posed fndngs and concusons and supportng reasons therefor. In the event
that depostons are Introduced on behaf of the Government at the hearng or
n the event that ora testmony In support of the charges Is produced by the
Government at the hearng, the attorney for the Government, as soon as possbe
after the hearng, sha prepare and fe wth the e amner proposed fndngs of
fact based upon a the evdence In the case.
(25) ceptons to proposed fndngs. Upon recept of proposed fndngs and
concusons submtted by a party pursuant to subparagraph (2 ) of ths para-
graph, the e amner sha forward to the other partes n the case or ther attor-
neys a copy thereof together wth a copy of the transcrpt of such ora testmony
and depostons as may have been ntroduced. Such partes sha have not ess
than 10 days after recept of such papers n whch to submt n wrtng to the
e amner ther e ceptons, If any, to such proposed fndngs and concusons.
Nether such partes nor ther attorneys sha have the rght to receve any copes
of e hbts Introduced at the hearng or at the takng of the depostons. Such
partes or ther attorneys, however, sha have the rght to e amne a e hbts.
Upon recept of such e ceptons, or after the tme for fng such e ceptons has
e pred If no such e ceptons are fed the e amner sha make hs fndngs and
concusons as requred by subparagraph (20) of ths paragraph.
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300
(26) Decson by the e amner. fter the partes rest, the e amner sha
make hs decson In the case, whch decson sha Incude (I) fndngs and con-
cusons, as we as the reasons or bass therefor, upon a the matera Issues of
fact, aw, or dscreton presented on the record and (11) a recommended order of
suspenson or dsbarment or hs order to dsmss the charges, as the case may
requre. In makng hs fndngs and concusons as to the truth of any charges
whch are duy put In Issue by the papers n any case and upon whch a hearng
Is had, the e amner sha be guded by the preponderance of reabe, probatve,
and substanta evdence. If at any hearng upon ssues of fact rased by the
papers In the case the respondent fas to put In any evdence, the e amner may
base hs fndngs upon the evdence submtted by the attorney for the Government
(27) ffect of nta decson. If the decson of the e amner does not con-
tempate the suspenson ov dsbarment of the respondent, such nta decson
In the absence of an appea pursuant to subparagraph (28) of ths paragraph
sha wthout further proceedngs become the decson of the Secretary of the
Treasury.
(28) ppea. ny party adversey affected or aggreved, wthn 30 days after
the decson s fed wth the Commttee, has the rght to appea from such nta
decson of the e amner by fng notce of appea and to submt e ceptons to
the decson and supportng reasons therefor, whch submttas sha be ncuded
In the record of the case. Upon the e praton of sad perod, the entre record
sha be transmtted to the Secretary of the Treasury.
(29) Submttas on recommended decson. If the recommended decson of
the e amner contempates the suspenson or dsbarment of the respondent, any
party has the rght, wthn 30 days after the decson s fed wth the Commttee,
to submt e ceptons to such recommended decson and supportng reasons there-
for, whch submttas sha be Incuded In the record of the case. Upon the
e praton of sad perod, the entre record sha be transmtted to the Secretary
of the Treasury.
(30) Decson by Secretary of the Treasury. The Secretary of the Treasury
w make the agency decson n each case n whch an appea has been taken
from the Inta decson of the e amner as provded n subparagraph (28) of
ths paragraph and n each case n whch the decson of the e amner contem-
pates the suspenson or dsbarment of the respondent. In makng such decson,
the Secretary of the Treasury, pursuant to the provsons of the dmnstratve
Procedure ct, w revew the whoe record or such portons thereof as may be
cted by any party to permt mtng of the ssues.
(31) Notce of decsons. ach decson (Inta, recommended, or agency)
sha prompty be fed n the record, and the Commttee sha thereupon gve
notce thereof to the partes In the manner prescrbed for the servce of papers.
(32) Notce of suspenson or dsbarment. Upon Issuance of an order of sus-
penson or dsbarment of an attorney or agent by the Secretary of the Treasury
notce thereof sha be gven by the Commttee to the heads of a nterested
bureaus, offces, and dvsons of the Treasury Department and to other nterested
departments and agences of the Government n such manner as the Commttee
may determne. Such person w not thereafter be recognzed durng the perod
of suspenson or dsbarment as an attorney or agent In any matter before the
Treasury Department. Notce In such manner as the Commttee may determne
may be gven to the proper authortes In the State from whch an enroed attor-
ney, certfed pubc accountant, or pubc accountant derves hs cense to prac-
tce n the event that such attorney, certfed pubc accountant, or pubc ac-
countant Is suspended or dsbarred.
(33) Reopenng. ny attorney or agent who has been suspended or dsbarred
may make wrtten appcaton to the Commttee to have the order of suspenson
or dsbarment vacated or modfed upon the ground (I) of newy dscovered ev-
dence, or (II) that Important evdence s now avaabe whch the appcant was
unabe to produce at the orgna hearng by the e ercse of due dgence. very
appcaton for renstatement sha be fed wth the Commttee n dupcate.
Such appcaton must set forth specfcay the precse character of the evdence
to be reed upon n Its support and sha state the reasons why the appcant
was unabe to produce t when the orgna charges were heard. If the e amner
after due consderaton of the appcaton sha deem t suffcenty mertorous to
warrant a hearng, he sha so advse the Commttee, who sha set a tme and
pace for such hearng and gve due notce thereof to the appcant. Upon the
concuson of the hearng the Commttee sha transmt the recommended decson
of the e amner to the Secretary of the Treasury for hs approva or dsapprova
In the event that the Secretary sha ssue an order vacatng or modfyng the
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pror order of suspenson or dsbarment, notce thereof sha be gven by the
Commttee to a those to whom notce of the orgna order of suspenson or ds-
barment was sent. In a cases not covered by the foregong provsons, a ds-
barred attorney or agent who desres to be restored to the ro must fe a new
appcaton for enroment and otherwse compy wth the requrements of
secton 10.3.
(3 ) (Savng provson. The reguatons governng suspenson, dsbarment, and
renstatement that were n force and effect March 31, 19 7, are referred to n ths
subparagraph as the od rues. Ths paragraph as amended effectve pr 1,
19 7, s referred to n ths subparagraph as the new rues. The od rues sha
contnue to govern any proceedng that was Insttuted pror to March 31, 19 7:
Provded, however, That f n the course of the proceedng there s taken any
acton that s authorzed by the od rues but that s not authorzed by the new
rues, sad acton sha not consttute grounds for dsturbng any order thereafter
made n the proceedng: () Uness t s shown that the acton was In derogaton
of substantve rghts, and not merey procedura rghts; and () uness upon
occurrence of the acton the respondent made tmey ob|ecton supported by hs
reasons, and the ob|ecton was overrued: Provded further. That adherence may
be had to the new rues pursuant to stpuaton of the partes.
Sec. 10.8. uthorty to Prosecute Cams.- power of attorney from the
prncpa n proper form may be requred of enroed attorneys or agents n any
case by heads of bureaus, offces, and dvsons. In the prosecuton of cams
before the ureau of Interna evenue, nvovng the asserton of demands for
payment of money by the Unted States, proper powers of attorney sha aways
be fed before an attorney or agent s recognzed.
Sec. 10.9. Substtuton of ttorneys or gents; Revocaton of uthorty-
Co) Substtuton of attorneys or agents. Where the power of attorney under
whch an enroed attorney or agent s actng e pressy confers the power of
substtuton, such attorney or agent may, by a duy e ecuted Instrument, subst-
tute another enroed attorney or agent n hs stead: Provded, That such other
attorney or agent w be recognzed as such ony after due notce In wrtng has
been gven the head of the bureau, offce, unt, or dvson before whch the matter
Is pendng: nd provded further. That where the enroed attorney or agent
desgnated n the power of attorney, wth power of substtuton, has hmsef by
reason of hs suspenson or dsbarment or hs subsequent entry nto Government
servce become negbe further to represent before the Treasury Department
the cent who e ecuted the power, the Treasury Department sha be under no
obgaton to recognze any substtute power of attorney e ecuted at any tme by
such attorney or agent, authorzng some other enroed attorney or agent to
appear before the Department upon behaf of such cent, and t w be necessary
for such cent to retan a new attorney or agent.
(6) Confctng powers of attorney. Where there s a contest between members
of a dssoved frm or between two or more attorneys or agents, actng under the
same power of attorney, as to whch one s entted to prosecute a matter pendng
before the Treasury Department or to receve a draft, warrant, or check, the
Cent ony sha thereafter be recognzed, uness the members or survvors of
the dssoved frm, or the contestng attorneys or agents, fe un agreement sgned
by a desgnatng whch of them sha be entted to prosecute such matter or to
receve the sad draft, warrant, or check. In no case sha the devery of a fna
draft, warrant, or check to the cent be deayed more than GO days by reason of
faure to fe such agreement.
(c) Revocaton of powers. The revocaton of an authorty to represent n
camant before the Treasury Department sha n no case become effectve, so
far as the Department s concerned, unt due notce n wrtng has been gven
the head of the bureau, offce, or dvson before whch such matter Is pendng,
and the fng of evdence of notfcaton of the revocaton to the attorney whose
power has been revoked.
Sec. 10.10. Dsreputabe Conduct. (a) The Secretary of the Treasury may
after due notce and opportunty for hearng suspend, and dsbar from further
practce before the Treasury Department any attorney or agent shown to be
ncompetent, dsreputabe, or who refuses to compy wth the rues and reguatons
n ths part, or who sha wth Intent to defraud, In any manner wfuy and
knowngy deceve, msead, or threaten any camant or prospectve camant,
by word, crcuar, etter, or by advertsement.
(6) mong other forms of dsreputabe conduct the foowng are deemed to
consttute such conduct:
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302
(1) Convcton of a crme Invovng mora turptude.
(2) Makng fase answers In the appcaton for enroment wth know-
edge that such answers are fase.
(3) Preparng or fng for hmsef or another a fase Federa ncome ta
return or other statement on whch Federa ta es may be based, knowng
the same to be fase.
( ) Suggestng to a cent or a prospectve cent an Iega pan for evad-
ng payment of Federa ta es, knowng the same to be ega.
(5) Gvng fase testmony In any proceedng before the Commttee on
Practce, or n any other proceedng before the Treasury Department, or be-
fore any trbuna authorzed to pass upon Federa ta matters, knowng the
same to be fase.
(6) Fng any fase or frauduenty atered document or affdavt n any
case or other proceedng before the Treasury Department, or procurng the
fng thereof, knowng the same to be fase or frauduenty atered.
(7) Usng, wth Intent to deceve, fase or mseadng representatons to
procure empoyment n any case or proceedng before the Treasury Depart-
ment.
(8) Gvng, wth ntent to deceve, fase or mseadng nformaton rea-
tve to a matter pendng before the Treasury Department to any offcer or
agent of the Department.
(9) Preparng a fase fnanca statement for a corporaton, partnershp,
assocaton, or ndvdua, or certfyng the correctness of such fase state-
ment, knowng the same to be fase.
(10) Impartng to a cent fase nformaton reatve to the progress of a
case or other proceedng before the Treasury Department, knowng the same
to be fase.
(11) Fase representatons by an enroed agent that he Is an attorney or
a certfed pubc accountant.
(12) Preparng or assstng n the preparaton of, or fng, a fase cam
aganst the Unted States, knowng the same to be fase.
(13) pprovng, for fng, a fase ncome ta return prepared by some
other person, knowng the same to be fase.
(1 ) Msappropraton of sums receved from cents for the purpose of
payment of ta es or other obgatons due the Government, or of funds or
other property beongng to a cent
(15) Improper retenton of a fee for whch no servces have been ren-
dered.
(16) Obtanng or attemptng to obtan money or other thng of vaue
from a camant by fase representatons, knowng the same to be fase.
(17) Obtanng or attemptng to obtan money or other thng of vaue
from a camant by duress or undue nfuence.
(18) Conceang or attemptng to concea assets n order to evade .the pay-
ment of Federa ta es.
(10) Representng to a cent or prospectve cent that the attorney or
agent can obtan e traordnary favors from the Treasury Department or
an offcer or empoyee thereof or has access to unusua sources of Informa-
ton wthn the Department.
(20) Soctng or procurng the gvng of fase testmony n any proceed-
ng before the Commttee on Practce or n any other proceedng before the
Treasury Department.
Sec. 10.11. Strkng Names from Ro. (a) On request of an attorney or
agent, the Commttee may strke hs name from the ro, but before grantng the
request the Commttee sha make Inqures to ascertan whether the request has
been made n order to evade proceedngs for suspenson or dsbarment, In whch
event the request sha be dened uness the Commttee sha deem t to the best
nterest of a partes concerned to grant such request.
(6) The Commttee may upon moton of the attorney for the Government or
upon ts own moton strke from the ro the name of any person who has faed
to suppy the nformaton requred by secton 15 of Department Crcuar 230, re-
vsed October 1, 193 , provded that any attorney or agent whose name has been
so strcken from the ro may have hs naane restored thereto by fng wth the
Commttee such nformaton and a statement showng that hs faure to suppy
t wthn the tme specfed n such crcuar was not due to any faut on hs part.
Upon the recept of such nformaton and statement, the name of such attorney
or agent sha be restored to the ro uness t sha appear that he s Inegbe for
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enroment, In whch event he sha be advsed of the fact and gven 60 days
wthn whch to present to the Commttee satsfactory evdence that he s egbe
for enroment.
Sec. 10.12. ppcaton and ffectve Date of Reguatons. The reguatons
n ths part supersede the reguatons promugated by Treasury Department Cr-
cuar No. 230 of October 1, 193 , reatng to the recognton of attorneys, agents,
and others, as heretofore amended and suppemented. Ths part sha appy to
attorneys, agents, and censed customhouse brokers representng camants be-
fore any offce of the Treasury Department, wth such e ceptons as to custom-
house brokers as are set forth n secton 10.5, and sha be effectve from and
after October 1, 1836. The reguatons n ths part sha aso appy to a unset-
ted matters then pendng n ths Department or whch may hereafter be pre-
sented or referred to the Department or offces thereof for ad|udcaton, and sha
be appcabe to a those now enroed to practce before the Treasury Depart-
ment as attorney or agent, and a proceedngs wthn the purvew of secton 3
of the ct of uy 7, 188 (23 Stat., 258, 5 U. S. C, 261), after October 1, 1936,
sha n a procedura matters be governed by the provsons of the reguatons
n ths part and such suppementary rues as may from tme to tme be adopted
pursuant to sad reguatons: Provded, That voatons of the reguatons com-
mtted pror to October 1, 1936, sha n a substantve matters be deat wth
accordng to the provsons of the reguatons n force at the tme when the act
or acts aeged to consttute such voatons occurred.
Sec. 10.13. Wthdrawa or mendment of Reguatons. The Secretary of the
Treasury reserves the power to wthdraw or amend or suppement at any tme
or from tme to tme a or any of the reguatons n ths part, and may make
such speca orders as he may deem proper n any case.
sea . . Foey, r.,
ctng Secretary of the Treasury.
Mat 29, 19 7.
paet 12 organzaton and functons of the commttee on practce.
Secton 12.1. Organzaton and Functons. (a) The centra organzaton
and functons of the Commttee on Practce are descrbed generay n Treasury
Department Crcuar No. 230, Revsed (31 CFR, Part 10), and Treasury Depart-
ment Crcuar No. 559 (31 CFR, Part 11).
(6) The Commttee on Practce has no fed organzaton.
Sec. 12.2. Deegatons of uthortt. There have been no deegatons of fna
authorty by the Commttee on Practce.
Sec. 12.3. Informaton, Requests, and Submttas. The pubc may secure
nformaton from, or make submttas or requests to, the Commttee on Practce,
Treasury Department, Room 106, Tower udng, Fourteenth and Streets NW,
Washngton 25, D. C., by persona appearance, by teephone, or by wrtten
communcaton.
Sec. 12. . Offca Records. (a) There are made avaabe to pubc nspec-
ton at the offce of the Commttee on Practce:
(1) The roster of a persons admtted to practce before the Treasury
Department pursuant to the ct of uy 7, 188 (23 Stat., 258, 5 U. S. C, 201).
(2) The roster of a persons censed as customhouse brokers pursuant to
amended secton 0 1 of the Tarff ct of 1930 ( 0 Stat, 759,19 U. S. C, 16 1).
(3) The fna opnon or order n the ad|udcaton of any case n whch
there was sought revocaton of any cense of the character Indcated In
paragraphs ( ) (1) and (2) of ths secton, provded the censee (or former
censee) e pressy consents to pubcaton.
(6) Matters of offca record pertanng to the enroment of persons to prac-
tce before the Treasury Department and pertanng to the censng of custom-
house brokers are avaabe at the offce of the Commttee on Practce to persons
propery and drecty concerned.
(c) The offca records pertanng to the revocaton (or the proposed revoca-
ton) of censes of the character ndcated In paragraphs (a) (1) and (2) of
ths secton, and to the Investgaton of appcants therefor, consttute confden-
ta nformaton, e cept as provded n paragraphs (a) and ( ) of ths secton.
These records are hed confdenta for these good causes:
(1) Pubcaton Is capabe of In|urng censees and former censees
wthout furtherng the pubc nterest.
(2) Much of the nformaton s ected wthout the ad of the subpena
power on the assurance that the sources w be protected.
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Sec. 12.5. Substantve Rues. The substantve rues and statements of gen-
era pocy of the Commttee on Practce are emboded In Treasury Department
Crcuar No. 230, Revsed (31 CFR, Part 10), regardng practce before the
Treasury Department, and In Treasury Department Crcuar No. 550 (31 CFR,
Part 11) regardng customhouse brokers.
P RT 13 PROC DUR S OF T COMMITT ON PR CTIC .
Secton 13.1. Procedures. (a) Lcensng to practce before the Treasury De-
partment s sub|ect to ths procedure:
(1) n appcant Is requred to fe wth the Commttee on Practce an
appcaton on the form prescrbed by secton of Treasury Department
Crcuar No. 230, Revsed (31 CFR, 10. ). The appcaton form cas for
these Items of nformaton regardng the appcant: dentfcaton, de-
scrpton and ocaton of hs practce, quafcatons, references, etc. Copes
of the form may be procured from the Commttee on Practce.
(2) Upon recept of the appcaton, the Commttee on Practce grants a
temporary cense, provded the appcaton Is reguar on Its face; provded
the averments of fact made theren, If true, woud warrant ssuance of a
cense; provded nothng of record before the Commttee on Practce Ind-
cates the averments to be untrue; and provded there s nothng before the
Commttee on Practce to Indcate that the appcant has not a good
character.
(3) If a temporary cense Is not granted, the Commttee on Practce ac-
cords the appcant an opportunty by correspondence or conference to correct
any defcency n the appcaton.
( ) Upon the grantng of a temporary cense the Commttee on Practce
refers the appcaton to the Integence Unt of the ureau of Interna
Revenue, Treasury Department, for nvestgaton as to the truth of the
averments made In the appcaton and as to the character of the appcant.
(5) Upon competon of nvestgaton, the Integence Unt sends the
resutant report to the Commttee on Practce for consderaton.
(6) If the appcaton and the Investgatve report are favorabe to the
appcant, the Commttee on Practce recommends to the Secretary of the
Treasury that the temporary cense be repaced wth a permanent cense,
repacement normay beng accompshed In due course wthout the necessty
of speca request or petton on the part of the appcant.
(7) If the appcaton and Investgatve report are not favorabe to the
appcant, the Commttee on Practce by etter notfes the appcant of the
apparent defcences and accords the appcant opportunty to show cause
why a permanent cense shoud be granted, the nature of the opportunty
beng determned by the character of the questons presented by the
defcences.
(8) controverted queston s not determned adversey to the appcant
by the Commttee on Practce wthout accordng the appcant the oppor-
tunty for a hearng.
(9) Upon determnaton by the Commttee on Practce that an appcaton
shoud be dened, the Commttee on Practce so recommends to the Secretary
of the Treasury, who thereupon affrms, overrues, or remands the recom-
mendaton.
(6) Lcensng (1. e., the grantng of the consent of the Secretary of the
Treasury to) former personne of the Treasury Department to act as attorney
or agent (or as empoyee of an attorney or agent) wthn two years after the
termnaton of the empoyment by the Treasury Department s sub|ect to the
procedure descrbed n secton 2(a) of Treasury Department Crcuar No. 230,
Revsed (31 CFR, 10.2(a)(2)). The appcaton form prescrbed by secton
2(a) of the crcuar cas for the Items of nformaton specfed n that secton.
Copes of the form may be procured from the Commttee on Practce.
(c) Proceedngs for suspenson, dsbarment, and renstatement of censees
to practce before the Treasury Department are sub|ect to the procedure de-
scrbed n secton 7 of the Treasury Department Crcuar No. 230, Revsed (31
CFR, 10.7).
( ) Lcensng to be a customhouse broker Is sub|ect to the procedure de-
scrbed n sectons 3 and of Treasury Department Crcuar No. 559 (31 CFR.
11.3, 11. ). The appcaton form prescrbed by secton 3(a) of the crcuar
cas for these Items of nformaton regardng the appcant: dentfcaton, de-
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scrpton and ocaton of hs busness, quafcatons, references, etc. Copes of
the form may be procured from the Commttee on Practce and from the offces
of coectors of customs.
(e) Proceedngs for revocaton and suspenson of customhouse brokers censes
are sub|ect to the procedure descrbed n sectons 10, 11, and 13 of Treasury
Department Crcuar No. 550 (31 CFR, 11.10,11.11,11.13).
sea oseph . O Conne , r.,
ctng Secretary.
ST TUT S.
Secton 3 of the ct of uy 7, 188 (23 Stat., 258 ;5D-S. C, 261) :
That the Secretary of the Treasury may prescrbe rues and reguatons gov-
ernng the recognton of agents, attorneys, or other persons representng cam-
ants before hs Department, and may requre of such persons, agents and at-
torneys, before beng recognzed as representatves of camants, that they sha
show that they are of good character and n good repute, possessed of the neces-
sary quafcatons to enabe them to render such camants vauabe servce, and
otherwse competent to advse and assst such camants In the presentaton of
ther cases. nd such Secretary may after due notce and opportunty for hear-
ng suspend, and dsbar from further practce before hs Department any such
person, agent, or attorney shown to be Incompetent, dsreputabe, or who refuses
to compy wth the sad rues and reguatons, or who sha wth ntent to de-
fraud, n any manner wfuy and knowngy deceve, msead, or threaten any
camant or prospectve camant, by word, crcuar etter, or by advertsement.
Secton 109 of the ct of March , 1900 (35 Stat., 1107) ; Secton 109 of the
Crmna Code (18 D. S. C, 198) :
Whoever, beng an offcer of the Unted States, or a person hodng any pace
of trust or proft, or dschargng any offca functon under, or n connecton
wth, any e ecutve department of the Government of the Unted States, or under
the Senate or ouse of Representatves of the Unted States, sha act as an
agent or attorney for prosecutng any cam aganst the Unted States, or n any
manner, or by any means, otherwse than n dscharge of hs proper offca
dutes, sha ad or assst n the prosecuton or support of any such cam, or re-
ceve any gratuty, or any share of or nterest n any cam from any camant
aganst the Unted States, wth Intent to ad or assst, or n consderaton of
havng aded or asssted, n the prosecuton of such cam, sha be fned not more
than fve thousand doars, or mprsoned not more than one year, or both.
Secton 113 of the ct of March , 1909 ( 35 Stat., 1109) ; Secton 113 of the
Crmna Code; as amended by the ct of October 8, 19 0 ( 5 Stat., 1021; 18
U. S. C, 203) :
Whoever, betg eected or apponted a Senator, Member of or Deegate to
Congress, or a Resdent Commssoner, sha, after hs eecton or appontment
and ether before or after he has quafed, and durng hs contnuance In
offce, or beng the head of a department, or other offcer or cerk n the empoy
of the Unted States, sha, drecty or ndrecty, receve, or agree to receve,
any compensaton whatever for any servces rendered or to be rendered to any
person, ether by hmsef or another, In reaton to any proceedng, contract,
cam, controversy, charge, accusaton, arrest, or other matter or thng n whch
the Unted States Is a party or drecty or ndrecty nterested, before any depart-
ment, court marta, bureau, offcer, or any cv, mtary, or nava commsson
whatever, sha be fned not more than 10,000 and mprsoned not more than
two years; and sha, moreover, thereafter be ncapabe of hodng any offce of
honor, trust, or proft under the Government of the Unted States.
Retred offcers of the rmy, Navy, Marne Corps, and Coast Guard of the
Unted States, whe not on actve duty, sha not by reason of ther status as
such be sub|ect to the provsons of ths secton: Provded, That nothng heren
sha be construed to aow any retred offcer to represent any person n the sae
of anythng to the Government through the department n whose servce he hods
a retred status.
Secton 190 of the Revsed Statutes (5 U. S. C, 99) :
It sha not be awfu for any person apponted after the frst day of une,
one thousand eght hundred and seventy-two, as an offcer, cerk, or empoyee In
any of the departments, to act as counse, attorney, or agent for prosecutng any
cam aganst the Unted States whch was pendng n ether of sad departments
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306
whe he was, such offcer, cerk, or empoyee, nor In any manner, nor by any
means, to ad In the prosecuton of any such cam, wthn two years ne t after
e sha have ceased to be such offcer, cerk, or empoyee.
Secton 3793(b) of the Interna Revenue Code (26 U. S. C, 3793(b)):
ny person who wfuy ads or asssts In, or procures, counses, or advses
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the Interna revenue aws, of a fase or frauduent return, affdavt, cam,
or document, sha (whether or not such fasty or fraud Is wth the knowedge
or consent of the person authorzed or requred to present such return, affdavt,
cam, or document) be guty of a feony, and, upon convcton thereof, be fned
not more than 10,000, or mprsoned for not more than fve years, or both,
together wth the costs of prosecuton.
Secton 1 of the ct of pr 27, 1910 (39 Stat., 5 ; 5 U. S. C, 101) :
It sha be unawfu for any person, frm, or corporaton practcng before
any department or offce of the Government to use the name of any Member of
ether ouse of Congress or of any offcer of the Government In advertsng the
sad busness.
Secton 3 78 of the Revsed Statutes (31 U. S. C, 20 ) :
ny person prosecutng cams, ether as attorney or on hs own account,
before any of the departments or bureaus of the Unted States, sha be requred
to take the oath of aegance, and to support the Consttuton of the Unted
States, as requred of persons In the cv servce.
ct of une 29, 1906 (3 Stat., 022) :
That secton fve hundred and ffty-eght of the Code of Law for the Dstrct
of Coumba, reatng to notares pubc, be amended by addng at the end of
sad secton the foowng: Provded, That the appontment of any person as
such notary pubc, or the acceptance of hs commsson as such, or the per-
formance of the dutes thereunder, sha not dsquafy or prevent such person
from representng cents before any of the departments of the Unted States
Government n the Dstrct of Coumba or esewhere, provded such person so
apponted as a notary pubc who appears to practce or represent cents before
any such department s not otherwse engaged In Government empoy, and sha
be admtted by the heads of such departments to practce theren n accordance
wth the rues and reguatons prescrbed for other persons or attorneys who
are admtted to practce theren: nd provded further. That no notary pubc
sha be authorzed to take acknowedgments, admnster oaths, certfy papers,
or perform any offca acts n connecton wth matters In whch he Is empoyed
as counse, attorney, or agent or n whch he may be n any way nterested before
any of the departments aforesad. ( ed by (1907) 20 Op. tty. Gen., 236, to
appy to a notares who may practce before the departments.)
Secton 161 of the Revsed Statutes (5 U. S. C, 22) :
The head of each department s authorzed to prescrbe reguatons, not n-
consstent wth aw, for the government of hs department, the conduct of ts
offcers and cerks, the dstrbuton and performance of Its busness, and the
custody, use, and preservaton of the records, papers, and property appertanng
to It.
Secton 19(e) of the Contract Settement ct of 19 (58 Stat, 667; 1 U. S. C,
119):
(e) It sha be unawfu for any person empoyed In any Government agency,
ncudng commssoned offcers assgned to duty In such agency, durng the perod
such person s engaged n such empoyment or servce, to prosecute, or to act as
counse, attorney, or agent for prosecutng, any cam aganst the Unted States,
cr for any such person wthn two years after the tme when such empoyment
or servce has ceased, to prosecute, or to act as counse, attorney, or agent for
prosecutng, any cam aganst the Unted States Invovng any sub|ect matter
drecty connected wth whch such person was so empoyed or performed duty.
ny person voatng any provson of ths subsecton sha be fned not more
than 10,000 or Imprsoned for not more than one year, or both.
Secton 03 (a) (1) and (|) of the S th Suppementa Natona Defense
ppropraton ct, 19 2, as amended by secton 701(b) of the ct of February
25,19 ( 58 Stat, 78; 50 U. S. C. pp., 1191 (a) (1) and ( ):
(1) The term Department means the War Department, the Navy Depart-
ment, the Treasury Department, the Martme Commsson, the War Shppng
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dmnstraton, Defense Pant Corporaton, Metas .Reserve Company, Defense
Suppes Corporaton, and Rubber Reserve Company, respectvey.

( ) Nothng n sectons 106 and 113 of the Crmna Code (D. S. C, tte 18,
fectons 198 and 203) or n secton 190 of the Revsed Statutes (U. S. C, tte 5,
sec. 99) sha be deemed to prevent any person by reason of servce n a Depart-
ment or the oard durng the perod (or a part thereof) begnnng May 27, 19 0,
and endng s months after the termnaton of hosttes n the present war, as
procamed by the Presdent, from actng as counse, agent, or attorney for
prosecutng any cam aganst the Unted States: Provded, That such person sha
not prosecute any cam aganst the Unted States (1) nvovng any sub|ect
matter drecty connected wth whch such person was so empoyed, or (2) durng
the perod such person s engaged n empoyment n a Department.
cerpts dmnstratve Procedure ct (60 Stat., 237).
ad|udcaton.
Sec. 5. In every case of ad|udcaton requred by statute to be determned on
the record after opportunty for an agency hearng, e cept to the e tent that
there s Invoved (1) any matter sub|ect to a subsequent tra of the aw and the
facts de novo n any court; (2) the seecton or tenure of an offcer or empoyee
of the Unted States other than e amners apponted pursuant to secton 11;
(3) proceedngs n whch decsons rest soey on nspectons, tests, or eecton;
( ) the conduct of mtary, nava, or foregn affars functons; (5) cases n whch
an agency s actng as an agent for a court; and (6) the certfcaton of empoyee
representatves
(a) Notce. Persons entted to notce of an agency hearng sha be tmey
nformed of (1) the tme, pace, and nature thereof; (2) the ega authorty and
ursdcton under whch the hearng s to be hed; and (3) the matters of fact
and a v asserted. In nstances n whch prvate persons are the movng partes,
other partes to the proceedng sha gve prompt notce of Issues controverted n
fact or aw; and n other Instances agences may by rue requre responsve
peadng. In f ng the tmes and paces for hearngs, due regard sha be bad
for the convenence and necessty of the partes or ther representatves.
(b) Procedure. The agency sha afford a nterested partes opportunty for
(1) the submsson and consderaton of facts, arguments, offers of settement,
or proposas of ad|ustment where tme, the nature of the proceedng, and the
pubc Interest permt, and (2) to the e tent that the partes are unabe so to
determne any controversy by consent, hearng, and decson upon notce and n
conformty wth sectons 7 and 8.
(c) Separaton or functons. The same offcers who presde at the recepton
of evdence pursuant to secton 7 sha make the recommended decson or nta
decson requred by secton 8 e cept where such offcers become unavaabe
to the agency. Save to the e tent requred for the dsposton of e parte matters
as authorzed by aw, no such offcer sha consut any person or party on any fact
In Issue uness upon notce and opportunty for a partes to partcpate; nor
sha such offcer be responsbe to or sub|ect to the supervson or drecton of any
offcer, empoyee, or agent engaged n the performance of nvestgatve or prose-
cutng functons for any agency. No offcer, empoyee, or agent engaged n the
performance of nvestgatve or prosecutng functons for any agency In any case
sha, n that or a factuay reated case, partcpate or advse n the decson,
recommended decson, or agency revew pursuant to secton 8 e cept as wtness
or counse In pubc proceedngs. Ths subsecton sha not appy In determnng
appcatons for Inta censes or to proceedngs nvovng the vadty or app-
caton of rates, factes, or practces of pubc uttes or carrers; nor sha t
be appcabe n any manner to the agency or any member or members of the
body comprsng the agency.
(d) Decaratory orders. The agency s authorzed n ts sound dscreton,
wth ke effect as n the case of other orders, to ssue a decaratory order to
termnate a controversy or remove uncertanty.
hearngs.
Sec. 7. In the hearngs whch secton or 5 requres to be conducted pursuant
to ths secton
(a) Presdng offcers. There sha presde at the takng of evdence (1) the
agency, (2) one or more members of the body whch comprses the agency, or (3)
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308
one or more e amners apponted as provded In ths ct; bnt nothng In ths ct
sha be deemed to supersede the conduct of specfed casses of proceedngs In
whoe or part by or before boards or other offcers specay provded for by or des-
gnated pursuant to statute. The functons of a presdng offcers and of offcers
partcpatng n decsons n conformty wth secton 8 sha be conducted n an
mparta manner. ny such offcer may at any tme wthdraw f he deems
hmsef dsquafed; and, upon the fng n good fath of a tmey and suffcent
affdavt of persona bas or dsquafcaton of any such offcer, the agency sha
determne the matter as a part of the record and decson n the case.
(b) earng powebs. Offcers presdng at hearngs sha have authorty, sub-
|ect to the pubshed rues of the agency and wthn ts powers, to (1) admnster
oaths and affrmatons, (2) ssue subpenas authorzed by aw, (3) rue upon offers
of proof and receve reevant evdence, ( ) take or cause depostons to be taken
whenever the ends of |ustce woud be served thereby, (5) reguate the course of
the hearng, (6) hod conferences for the settement or smpfcaton of the ssues
by consent of the partes, (7) dspose of procedura requests or smar matters,
(8) make decsons or recommend decsons n conformty wth secton 8, and (9)
take any other acton authorzed by agency rue consstent wth ths ct
(c) vdence. cept as statutes otherwse provde, the proponent of a rue
or order sha have the burden of proof. ny ora or documentary evdence may
be receved, but every agency sha as a matter of pocy provde for the e cuson
of Irreevant, mmatera, or unduy repettous evdence and no sancton sha be
Imposed or rue or order be ssued e cept upon consderaton of the whoe record
or such portons thereof as may be cted by any party and as supported by and
n accordance wth the reabe, probatve, and substanta evdence. very party
sha have the rght to present hs case or defense by ora or documentary ev-
dence, to submt rebutta evdence, and to conduct such cross-e amnaton as
may be requred for a fu and true dscosure of the facts. In rue makng or
determnng cams for money or benefts or appcaton for nta censes any
agency may, where the nterest of nny party w not be pre|udced thereby, adopt
procedures for the submsson of a or part of the evdence In wrtten form.
(d) Record. The transcrpt of testmony and e hbts, together wth a
papers and requests fed n the proceedng, sha consttute the e cusve record
for decson n accordance wth secton 8 and, upon payment of awfuy pre-
scrbed costs, sha be made avaabe to the partes. Where any agency de-
cson rests on offca notce of a matera fact not appearng In the evdence n
the record, any party sha on tmey request be afforded an opportunty to show
the contrary.
D CISIONS.
Sec. 8. In cases n whch a hearng Is requred to be conducted n conformty
wth secton 7
(n) cton by subordnates. In cases n whch the agency has not presded
at the recepton of the evdence, the offcer who presded (or, n cases not sub|ect
to subsecton (c) of secton 5, any other offcer or offcers quafed to presde at
hearngs pursuant to secton 7) sha ntay decde the case or the agency
sha requre (In specfc cases or by genera rue) the entre record to be certfed
to t for nta decson. Whenever such offcers make the nta decson and
n the absence of ether an appea to the agency or revew upon moton of the
agency wthn tme provded by rue, such decson sha wthout further pro-
ceedngs then become the decson of the agency. On appea from or revew
of the nta decsons of such offcers the agency sha, e cept as t may mt
the ssues upon notce or by rue, have a the powers whch t woud have In
makng the Inta decson. Whenever the agency makes the Inta decson
wthout havng presded at the recepton of the evdence, such offcers sha frst
recommend a decson e cept that n rue makng or determnng appcatons for
nta censes (1) n eu thereof the agency may ssue a tentatve decson or
any of ts responsbe offcers may recommend a decson or (2) any such procedure
may be omtted n any case n whch the agency fnds upon the record that due
and tmey e ecuton of Its functons mperatvey and unavodaby so requres.
(b) Submttas and decsons. Pror to each recommended. Inta, or tenta-
tve decson, or decson upon agency revew of the decson of subordnate
offcers the partes sha be afforded a reasonabe opportunty to submt for the
consderaton of the offcers partcpatng n such decsons (1) proposed fndngs
and concusons, or (2) e ceptons to the decsons or recommended decsons
v.
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of subordnate offcers or to tentatve agency decsons, and (3) supportng reasons
for such e ceptons or proposed fndngs or concusons. The record sha show
the rung upon each suc fndng, concuson, or e cepton presented. de-
csons (ncudng Inta, recommended, or tentatve decsons) sha become
a part of the record and ncude a statement of (1) fndngs and concusons, as
we as the reasons or bass therefor, upon a the matera Issues of fact, aw,
or dscreton presented on the record; and (2) the approprate rue, order,
sancton, reef, or dena thereof.
S NCTIONS ND POW S.
Sec. 9. In the e ercse of-any power or authorty
(a) In geneba.. No sancton sha be mposed or substantve rue or order be
Issued e cept wthn |ursdcton deegated to the agency and as authorzed by
aw.
(b) Lcenses. In any case n whch appcaton s made for a cense requred
by aw the agency, wth due regard to the rghts or prveges of a the nterested
partes or adversey affected persons and wth reasonabe dspatch, sha-set and
compete any proceedngs requred to be conducted pursuant to sectons 7 and 8
of ths ct or other proceedngs requred by aw and sha make Its decson.
cept n cases of wfuness or those n whch pubc heath, nterest, or safety
requres otherwse, no wthdrawa, suspenson, revocaton, or annument of
any cense sha be awfu uness, pror to the Insttuton of agency proceedngs
therefor, facts or conduct whch may warrant such acton sha have been caed
to the attenton of the censee by the agency n wrtng and the censee sha
have been accorded opportunty to demonstrate or acheve compance wth a
awfu requrements. In any case n whch the censee has, n accordance wth
agency rues, made tmey and suffcent appcaton for a renewa or a new
cense, no cense wth reference to any actvty of a contnung nature sha
e pre unt such appcaton sha have been fnay determned by the agency.
Form 23
TR SURY D P RTM NT
Commttee On Practce
(Rev. May 29, 19 7)
PPLIC TION FOR DMISSION TO PR CTIC FOR T TR SURY
D P RTM NT1
1,
resdng at Street address Cty
State , wth offce at Street address
Cty , State , hereby appy for admsson to practce
as to represent others before the Treasury Department, and submt the
( ttorney or agent )
foowng nformaton for consderaton n determnng my egbty and ftness
for such practce, n compance wth Treasury reguatons as set forth n
Department Crcuar No. 230, revsed May 29, 19 7:
L (o) re you a ctzen of the Unted States (6) Natura born
(c) Naturazed (d) Where and when were you naturazed
(e) Date of brth Pace of brth
2. (o) re you a member of the bar (6) If so, of what court
(c) re you now n good standng at sad bar
8. (a) Do you hod a certfcate as a certfed pubc accountant (6) If
so, from what State (c) re you now n good standng under sad
certfcate ,
. What Is your present occupaton
5. re you engaged n your busness or professon on your ndvdua account ; or as a member of a partnershp ; or as an empoyee
1 appcatons must be submtted In dupcate on these forms. Typewrter and carbon
paper shoud be used.
1 Members of the bar of an mercan court of record w appy as attorneys; a others
as agents.
If ctzenshp Is dervatve state name of parent.
Name of State court preferred.
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(a) Under what name or stye do you practce
(6) If a member of a partnershp, s any member of the parnershp an unen-
roed person who s nether an attorney, a certfed pubc accountant, nor a pubc
accountant
(o) If an empoyee, gve name and address of your empoyer, and the nature
of your empoyment
6. If enroed, w t be your purpose, as an offcer or empoyee of a corporaton
or assocaton, to represent the offcers, empoyees, stockhoders or members,
cents, or customers of such corporaton or assocaton n unquafed
negatve answer Is requred. See sec. 10.2(Z), Department Crcuar 230. Repre-
sentaton of offcers, empoyees, etc., of corporatons as Indvduas f retaned and
pad by them, or the representaton of agrcutura cooperatve assocatons as
permtted under sec. 10.2(0, Department Crcuar 230, Is not Inconsstent wth a
negatve answer to the above.
7. Do you own stock n, or are you an offcer or empoyee of, any accountng
or audtng corporaton
8. re you famar wth the contents of Department Crcuar No. 230, revsed
May 29, 19 7
9. If you are not a member of an mercan bar or a certfed pubc accountant,
outne the e tent and nature of your educaton; your persona or busness e -
perence, wth names of your empoyers; and the partcuar quafcatons you
possess whch you beeve render you competent to represent other persons before
the Treasury Department. Use paper the sze of ths form and submt dupcate
copes.
10. Submt names and addresses of s busness or professona references who
are famar wth your professona work.
11. as any compant ever been fed or charge made aganst you before any
person or trbuna havng authorty to Insttute or try proceedngs for suspenson
or dsbarment from practce or for the revocaton of a cense or certfcate to
practce or for e puson from membershp n a professona socety
If so, state partcuars
12. ave you ever been defendant n a crmna prosecuton
If so, state the crcumstances and resut _
13. re you an offcer or empoyee of the Unted States, of any corporaton
whoy owned by the Unted States, or of the Dstrct of Coumba
(a) If you have ever been so empoyed, state empoyment and date of separaton
therefrom
1 . Do you agree, f you are admtted to practce before the Treasury Depart-
ment, to gve the Commttee on Practce wrtten notce of any change n your
mang address, and any change In your professona connecton, or the name and
stye under whch you practce, and agree further that, n the event any pro-
ceedngs sha be nsttuted aganst you at any tme before the Commttee on
Practce, a wrtten notce thereof, together wth a statement of the charges
aganst you, sent to you by regstered ma to the ast address fed by you wth
the Commttee, sha consttute due and suffcent notce
I, , do soemny swear (or affrm) that the state-
ments contaned n the foregong appcaton are true and correct; that I w
support and defend the Consttuton of the Unted States aganst a enemes,
foregn and domestc; that I w bear true fath and aegance to the same; that
I take ths obgaton freey wthout any menta reservaton or purpose of evason;
that. If authorzed to represent others before the Treasury Department, I w at
a tmes conduct mysef strcty n compance wth the aws, reguatons, and
rues governng practce before the Treasury Department, as now consttuted or
as they may hereafter be awfuy atered or amended; and that I w empoy
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311 Msc
for the purpose of mantanng the muses confded to me such means ony as are
consstent wth truth and honor; so hep me God.
(Sgnature) ,
( ddress)
Subscrbed and sworn to before me ths day of
19
(Sgnature of offcer)
(Offca tte)
Impress sea here.
n oath as Incuded heren Is requred of persons prosecutng cams aganst the Unted
States (Tte 81, secton 20 . Unted States Code) and may be taken before any notary
gubc, |ustce of the peace, or other person egay authorzed to admnster an oath n the
tate. Terrtory, or Dstrct where the appcaton s e ecuted.
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312
T T COURT OF T UNIT D ST T S (FORM RLY
UNIT D ST T S O RD OF T PP LS).
19 7-2 -12697
RUL S OF PR CTIC FOR T T COURT OF T UNIT D ST T S
(R IS D TO NO M R 3, 19 7).
Introducton.
These revsed rues are promugated pursuant to authorty of secton 1111,
Interna Revenue Code, whch provdes that The proceedngs of the Court and
ts dvsons sha be conducted n accordance wth such rues of practce and
procedure (other than rues of evdence) as the Court may prescrbe and In
accordance wth the rues of evdence appcabe In the courts of the Dstrct
of Coumba n the type of proceedngs whch pror to September 16, 1938, were
wthn the |ursdcton of the courts of equty of sad Dstrct
Congress n the Revenue cts has enacted provsons reatng to the organza-
ton, |ursdcton, and procedure of The Ta Court of the Unted States, and to
the acton of the ureau of Interna Revenue wth respect to the assessment
and coecton of defcences when a petton has been fed wth the Court
Reference s made to those statutory provsons n the Revenue cts for pro-
cedura requrements other than those reatng to the conduct of proceedngs
before the Court and ts dvson to whch these rues of practce are mted.
ttenton Is caed to the Interna Revenue Code for convenent reference, and
partcuary to sectons 271, 272, 273, 1100, 11 2, and amendments, and secton
50 , Revenue ct of 19 2.
Rue 1. usness oubs.
The offce of the cerk of the Court at Washngton, D. C, sha be open durng
busness hours on a days, e cept Saturdays, Sundays, and ega hodays, for
the purpose of recevng pettons, peadngs, motons, and the ke. usness
hours are from 8. 5 o cock a. m. to 5.15 o cock p. m.
Rue 2. dmsson to Practce.
ppcants who estabsh to the satsfacton of the Court that they are ctzens
of the Unted States, of good mora character and repute, and possessed of the
requste quafcatons to represent others n the preparaton and tra of cases,
may be admtted to practce before the Court.
appcants, before beng admtted to practce, must take a wrtten e am-
naton or e amnatons gven by the Court; provded, however, that a current
certfcate from the cerk of the approprate court, showng that the appcant Is
an attorney at aw who has been admtted to practce before and Is a member
In good standng of the bar of the Supreme Court of the Unted States or of the
hghest court of any State or Terrtory or of the Dstrct of Coumba, may be
accepted n eu of e amnaton. The Court, before admttng an appcant to
practce, may requre hm to take an ora e amnaton In addton to the wrtten
e amnaton. ny person who has thrce faed a wrtten e amnaton gven by
the Court sha not thereafter be egbe for admsson to practce before the
Court.
n appcaton to be fed must be on the form provded by the Court. pp-
caton banks and other necessary Informaton w be furnshed by the secretary
of the Court upon request.
n appcant for admsson by e amnaton must be sponsored by at east
three persons, theretofore enroed to practce before ths Court each of whom
must send hs etter of recommendaton drecty to the Court where t w be
treated as a confdenta communcaton. The sponsor sha state n hs etter
fuy and franky the e tent of hs acquantance wth the appcant, hs opnon
of the mora character and repute of the appcant, and hs opnon of the qua-
fcatons of the appcant to practce before ths Court. The Court may In Its
dscreton accept an appcant wth ess than three such sponsors.
The Court w hod an e amnaton for appcants at Its offces n Washngton,
D. C., on the second Wednesday n September of each year and at such other
tmes and paces as It may desgnate. The Court w notfy each appcant.
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IMsc
whose appcaton s n order, of the tme and pace at whch he s to present hm-
sef for e amnaton, and the appcant must present that notce to the e amner
as hs authorty for takng an e amnaton. n appcant seekng to quafy
by e amnaton must accompany hs appcaton wth a fee of 10. (For name
of payee, see rue 8.)
Corporatons and frms w not be admtted or recognzed.
Practtoners before ths Court sha carry on ther practce n accordance wth
the etter and sprt of the canons of professona ethcs as adopted by the mer-
can ar ssocaton.
The Court may deny admsson to, suspend, or dsbar any person who n ts
|udgment does not possess the requste quafcatons to represent others, or
who s ackng n character, ntegrty, or proper professona conduct. No person
sha be suspended for more than 60 days or dsbarred unt he has been afforded
an opportunty to be heard. dvson may mmedatey suspend any person
for not more than 60 days for contempt or msconduct durng the course of any
proceedng.
The Court may requre any practtoner before t to furnsh a statement under
oath of the terms and crcumstances of hs empoyment n any proceedng.
Rue 3. Persona Rf.pkksentaton n Leu of Counse.
ny ndvdua ta payer or member of a ta payer partnershp may appear
for hmsef or such partnershp upon adequate dentfcaton to the Court.
ta payer corporaton may be represented by a bona fde offcer of the corpora-
ton upon permsson granted, n ts dscreton, by the Court or the dvson
sttng.
Rue . Form and Stye of Papers.
(a) papers fed wth the Court sha be ether prnted or typewrtten,
and sha be fastened on the eft sde ony, and sha have a capton, and a
sgnature, and copes, as specfed beow.
(b) Prnted papers sha be prnted n 10 or 12 pont type, on good nngnzed
paper, 5 nches wde by 9 nches ong, wth nsde margn not ess than 1
nch wde, and wth doube-eaded te t and snge-eaded quotatons.
(c) Typewrtten papers sha be typed on ony one sde of pan whte paper,
8 nches wde by 11 nches ong, and weghng not ess than 16 pounds to the
ream, and sha have no backs or covers.
(d) Ctatons sha be n tacs when prnted and sha be underscored when
typewrtten.
(e) The proper capton omttng a pref es and ttes sha be paced on a
papers fed. The fu gven name and surname of each ndvdua pettoner
sha be set forth n the capton, but wthout any pref or tte, such as Mrs.,
Dr., etc. The name of the estate, the trust, or the other person for whom
he acts, sha be gven frst by each pettoner who s a fducary, foowed then
by hs own name and pertnent tte, thus: state of ohn Doe, deceased,
Rchard Roe, ecutor. (See rues 5 and 6(a) and ppend I, Form No. 2.)
(/) The sgnature, ether of the pettoner or of hs counse, sha be sub-
scrbed to the petton n wrtng, and sha be n ndvdua and not n frm
name, e cept that the sgnature of a pettoner corporaton sha be n the name
of the corporaton by one of ts actve offcers, thus: ohn Doe, Inc., by Rchard
Roe, presdent. The name and the mang address of the pettoner or coun-
se actuay sgnng sha be typed or prnted mmedatey beneath the wrtten
sgnature.
(g) Four conformed copes sha be fed wth the sgned orgna of every
paper fed, e cept as otherwse provded n these rues. Papers to be fed
n more than one proceedng (as a moton to consodate, or n proceedngs
aready consodated) sha ncude one addtona copy for each such addtona
proceedng.
(h) copes sha be cear and egbe, but they may be on any weght
paper.
Rue 5. Proper Partes.
The proceedng sha be brought by and n the name of the person aganst
whom the Commssoner determned the defcency or abty, as the case may
be , or by and n the fu descrptve name of the fducary egay entted to
nsttute a proceedng on behaf of such person.
77338 8 21
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In the event of a varance between the name set forth n the notce of def-
cency or abty and the correct name, a statement of the reasons for such
varance sha be set forth In the petton. (See rues , 6, and 23.)
Rue 6. Intaton of a Proceedng Petton.
proceedng sha be Intated by fng wth the Court a petton, as provded
n rues , 5, and 8, and substantay n accordance wth Form 2, shown n
ppend I. (See rue 7.) The petton sha be compete In tsef so as fuy
to state the ssues. It sha contan:
(a) capton n the foowng form:
The Ta Coubt of the Unted States.
, pettoner,)
v. Docket No.
Commssoner of Interna Revenue, respondent.)
petton.
(6) Proper aegatons showng |ursdcton n the Court.
(c) statement of the amount of the defcency or abty, as the case
may be , determned by the Commssoner, the nature of the ta , the perod
for whch determned, and the coecton dstrct n whch the return was fed.
(d) Cear and concse assgnments of each and every error whch the pet-
toner aeges to have been commtted by the Commssoner n the determnaton
of the defcency. Issues n respect of whch the burden of proof s by statute
paced upon the Commssoner w not be deemed to e rased by the pettoner
n the absence of assgnments of error n respect thereof. ach assgnment of
error sha be numbered.
(e) Cear and concse numbered statements of the facts upon whch the pet-
toner rees as sustanng the assgnments of error, e ce those assgnments of
error In respect of whch the burden of proof s by statute paced upon the
Commssoner.
(/) prayer, settng forth reef sought by the pettoner.
(g) The sgnature of the pettoner or that of hs counse. (See rue .)
(7) verfcaton by the pettoner; provded that where the pettoner s
so|ournng outsde the Unted States or s a nonresdent aen, the petton may
be verfed by a duy apponted attorney n fact, who sha attach to the petton
a copy of the power of attorney under whch he acts and who sha state n hs
verfcaton that he acts pursuant to such power, that such power has not been
revoked; that pettoner s absent from the Unted States, and the grounds of
hs knowedge of the facts aeged n the petton. s used heren the term
Unted States ncudes ony the States and the Dstrct of Coumba. notary
pubc s not authorzed to admnster oaths, etc., n matters n whch he s em-
poyed as counse. (See tte 1, ch. 5, D. C. Code, 10 0, and 215 Op. . G., 23 .)
The verfcaton sha contan a statement that the fducares sgnng and ver
tyng have authorty to act for the ta payer.
Where the pettoner s a corporaton, the person verfyng sha state n hs
verfcaton that he has authorty to act for the corporaton.
The sgnature and the verfcaton to the petton sha be consdered the certf-
cate of those performng these acts that there s good ground for the petton, the
proceedng has not been nsttuted merey for deay, and t s not frvoous.
() copy of the notce of defcency or abty, as the case may be sha
be appended to the petton. If a statement has accompaned the notce of de-
fcency, so much thereof as s matera to the ssues set out n the assgnments
of error kewse sha be appended. If the notce of defcency refers to pror
notces from the ureau, whch are necessary to eucdate the determnaton, such
parts thereof as are matera to the ssues set out n the assgnments of error
sha kewse bo appended. (See ppend I, Form No. 2.)
Ru.e 7. Fng of Petton.
n orgnn and four cear copes of the petton, ether prnted or typewrtten
as provded by rue , sha be fed wth the Court. (See rue 9.) The copes
of the petton sha be conformed to the orgna by the pettoner.
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Faure to fe a suffcent number of copes, as provded n ths rue, or to con-
form to the requrements of rues , 5, and 8, sha be ground for the dsmssa of
the proceedng.
No teegram, cabe, rado, or smar message w be recognzed as a petton.
Rut.e 8. Fee for Fng Petton.
The fee for fng a petton wth the Court sha be 10, payabe at the tme of
fng. Make checks, money orders, etc., payabe to the Treasurer of the Unted
States.
Rue 9. Fng.
ny document to be fe wth the Court must be fed n the offce of the cerk
of the Court n Washngton, D. C, durng busness hours (see rue 1) ; provded,
that a dvson hearng a proceedng may permt documents pertanng thereto
to be fed at the hearng.
Rue 11. Docket.
Upon recept of the petton, the proceedng w be docketed and assgned a
number and the partes notfed thereof. Ths number sha be paced by the
partes on a papers thereafter fed n tte proceedng.
R e 12. Servce of the Petton.
Upon fng of a petton and the copes, as prescrbed n rue 7, the cerk w
serve a copy upon the Commssoner.
Rue 1 . nswer.
fter servce upon hm of a copy of the petton, the Commssoner sha have
60 days wthn whch to fe an answer or 5 days wthn whch to move n
respect of the petton. The answer sha be so drawn as fuy and competey
to advse the pettoner and the Court of the nature of the defense. It sha
contan a specfc admsson or dena of each matera aegaton of fact con-
taned n the petton and a statement of any facts upon whch the Commssoner
rees for defense or for affrmatve reef or to sustan any ssue rased n the
petton n respect of whch ssue the burden of proof s, by statute, paced upon
the Commssoner. Paragraphs of the answer sha be numbered to correspond
to those of the petton to whch they reate. n orgna and three copes of
the answer sha be fed, of whch the orgna sha be sgned by the Comms-
soner or hs counse and the copes conformed by hm.
The cerk w serve one copy of the answer upon the pettoner or hs counse
of record by regstered ma.
R e 15. Repy.
If the answer of the Commssoner sets forth facts upon whch he rees for
affrmatve reef, or contans a statement of the facts upon whch he rees to
sustan an ssue n respect of whch the burden of proof s paced upon hm by
statute, the pettoner sha, wthn 5 days after a copy of such answer s maed
to hm or hs counse of record by regstered ma, fe a repy whch sha contan
a specfc admsson or dena of each matera aegaton of fact contaned n the
answer and sha set forth any facts upon whch he rees for defense. ach
paragraph contaned n the repy sha be numbered to correspond wth the para-
graphs of the answer. n orgna and four copes of the repy sha be fed,
of whch the orgna sha be sgned by the pettoner or hs counse and the
copes conformed by hm.
The Court upon moton of the respondent n whch good cause s shown, or
upon ts own moton, may requre the verfcaton of any repy.
The cerk w serve one copy of the repy upon the Commssoner.
Rue 16. onder of Issue.
proceedng sha be deemed at ssue upon the fng of the answer uness
a repy s requred under rue 15, n whch event the proceedng sha be deemed
at ssue upon fng of the repy.
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Rue 17. mended and Suppementa Peadngs.
The pettoner may, as of course, amend hs petton at any tme before answer
s fed. fter answer s fed, a petton may be amended ony by consent of
the Commssoner or on eave of the Court
motons to amend, made pror to the hearng, must be accompaned by
the proposed amendments or amended peadng.
Upon moton made, the Court may, In ts dscreton, at any tme before the
concuson of the hearng, permt a party to a proceedng to amend the peadngs
to conform to the proof.
When motons to amend are granted at the hearng, the amendment or
amended peadngs sha be fed at the hearng or wth the Court wthn such
tme as the dvson may f .
(See rues and 19.)
Rue 18. Peadngs Genera.
The Court, upon moton of ether party n whch good cause s shown, or
upon ts own moton, may order a further and better statement of the nature of
the cam or defense, or of any matter stated n any peadng. Such a moton
fed by a party sha pont out the defects companed of and the detas desred.
If such order of the Court s not obeyed wthn 15 days or wthn such other
tme as the Court may f , the Court may strke the peadng to whch the
moton was drected or may make such other order as t deems |ust.
If no repy Is requred by these rues, each and every matera aegaton of
fact set out n the answer sha be deemed to be dened. ny new or affrmatve
matter contaned n the repy sha be deemed to be dened.
Where an answer has been fed, each and every matera aegaton of fact
set out n the petton and not e pressy admtted or dened n the answer, sha
be deemed to be admtted. Where a repy s requred by these rues and a
repy has been fed, each and every matera aegaton of fact set out n the
answer and not e pressy admtted or dened n the repy sha be deemed to
be admtted.
Where no answer s fed or where a repy s requred by these rues, but no
repy s fed, the adverse party, wthn 5 days after the e praton of the tme
f ed by these rues for fng the answer or the repy, as the case may be, may
fe a moton wth the Court cang attenton to the fact that the peadng has
not been fed wthn the specfed tme and certan matera aegatons of fact
have not been dened, an requestng the Court to enter ts order that those
partcuar undened aegatons sha be deemed to be admtted. The Court w
serve a copy of ths moton upon the other party and ssue an order to show
cause, returnabe on or before a day certan. If the above-descrbed moton s
not fed wthn the prescrbed tme, the aegatons of the peadng to whch
there was no response sha be deemed to be dened.
Rue 19. Motons.
Motons must be tmey. If a moton, other than one reatng to the recept
of evdence durng tra, s made oray durng tra, the maker thereof sha
prompty reduce t to wrtng and fe t wth the Court uness the dvson drects
otherwse. Motons sha be prepared n the form and stye prescrbed by rue
. The cerk w serve a copy of each moton upon the opposte party. Motons
w be acted upon as |ustce may requre and may, n the dscreton of the
Court, be paced upon the caendar for argument. (See aso rue 30(61.) The
fng of a moton sha not consttute cause for postponement of a hearng from
the (ate set.
No moton for rehearng, further hearng, or reconsderaton may, e cept by
speca eave, be fed more than 30 days after the opnon has been served; and
no moton to vacate or revse a decson may, e cept by speca eave, be fed
more than 30 days after the decson has been entered. No moton covered by
ths paragraph sha be |oned to or made a part of any other moton.
Rue 20. tensons of Tme.
Contnuances, e tensons of tme (e cept for the fng of the petton and
e cept as otherwse provded n these rues), and ad|ournments may be ordered
by the Court on ts own moton or may be granted by t n ts dscreton on moton
of ether party fed n wrtng and showng good and suffcent cause therefor.
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Rue 21. Dsmssa.
proceedng may be dsmssed for cause upon moton of ether party or of
the Court.
Rue 22. Servce.
(a) Upon pettoner. If there s no counse of record, servce w be made
upon the pettoner.
(6) Upon frst counse of record. Servce upon any counse of record w be
deemed servce upon the party, but, where there are more than one, servce w
be made ony upon counse for pettoner whose appearance was frst entered of
record uness the frst counse of record, by wrtng fed wth the Court,
desgnates other counse to receve servce, n whch event servce w be so made.
(c) Upon respondent. Servce may be made upon any named respondent n
person, upon deputes duy desgnated by hm to accept servce, or upon counse
appearng for the respondent n the proceedng. (See rues 12, 1 , and 15.)
Rue 23. Substtuton of Partes.
In the event of the death of a pettoner or for other cause, the Court may
order the substtuton of the proper partes. In the event of mstake In the
name or tte of a proper party, the Court may order substtuton of the proper
name or tte. (See rue 5.)
Motons for substtuton shoud be accompaned by a proper certfcate of the
court or offca havng custody of the record showng the nterest of the party
substtuted. In the event of a change n the name of a corporaton or other party
pettoner, a moton to amend the peadngs to show such change shoud be fed,
accompaned by a copy of the certfcate, decree, or other document, effectng
such change, certfed by the offca havng custody of such document, uness the
partes have agreed to the change and have so ndcated n the record.
Rue 2 . Substtuton or Wthdrawa of Counse ntry of ppearance.
Counse of record n any proceedng desrng to wthdraw or any pettoner
desrng to wthdraw counse of record must fe a moton wth the Court re-
questng eave therefor and must show n the moton that notce of the proposed
change has been gven to the cent or to counse beng wthdrawn, as the case
may be. n orgna and two copes of the moton must be fed. The Court
may, n ts dscreton, wthhod the permsson requested n such motons.
Where the petton s not subscrbed by counse, or counse of record has
wthdrawn, counse subsequenty appearng for the pettoner sha mmedatey
fe two copes of hs entry of appearance, whch sha ncude statements of hs
admsson to practce before the Court and of hs mang address.
Notce of a change n the mang address of counse or pettoner sha be fed
prompty wth the Court, n dupcate, and a separate notce sha be fed for
each docket number nvoved.
Rue 25. Caendars.
(a) Washngton and crcut caendars. ach proceedng when at ssue w
be paced ether upon the Washngton caendar or upon a crcut caendar, n
accordance wth rue 26. (See ppend II.)
(6) earng caendars. The cerk, as drected from tme to tme by the
Presdng udge, w prepare hearng caendars.
(c) Reserve caendar. proceedng whch s at ssue may be paced upon the
reserve caendar for good cause shown, as, for e ampe, to awat the decson
of the Supreme Court n a pendng case.
Rue 20 Pace of earng Requests and Desgnaton.
The pettoner at the tme of fng the petton sha aso fe a request showng
the name of the pace where he woud prefer the hearng on the merts to be
hed. copy of ths request w be served upon the Commssoner by the cerk
of the Court.
If the pettoner has fed no request the respondent sha fe at the tme he
fes hs answer, a request showng te name of the pace preferred by hm.
copy w be served upon the pettoner by the cerk of the Court.
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318
These requests sha not be bound as a part of the petton or answer but sha
be separate therefrom and sha consst of an orgna and two copes.
The Court w desgnate the pace of hearng n accordance wth the statutory
provson that the tme and pace of tra sha be f ed wth as tte ncon-
venence and e pense to ta payers as s practcabe, and, n a cases, w
notfy the partes of the pace at whch or n the vcnty of whch the hearng
on the merts w be hed.
If ether party desres a change n desgnaton of the pace of hearng he must
fe a moton to that effect, statng fuy hs reasons therefor. Such motons,
made after the notce of the tme of the hearng has been maed, w not be
deemed to have been tmey fed.
In case It s necessary for the Court to hear the partes on matters other than
the merts, such hearng w be hed n Washngton uness good cause s shown
for hodng t esewhere.
(See ppend II for further nformaton to assst n makng requests as to
pace of hearng.)
Rue 27. Notce of earng.
When a proceedng has been paced upon the hearng caendar the cerk w,
not ess than 15 days n advance, notfy the partes of the pace where and the
date when t w be caed.
Rue 28. Ca of Caendar and ssgnment for earng.
The hearng caendar of proceedngs to be heard at Washngton w be caed
at 9.30 a. m. The hearng caendar of proceedngs to be heard esewhere w be
caed at the tme ndcated n the notce of hearng. Proceedngs w be assgned
terefrom for hearng n due course.
Rue 29. Faure to ppear.
The une cused absence of a party or hs counse on the day set for the hearng
of any proceedng w not be the occason for deay. The hearng w proceed
and the case w be regarded as submtted on the part of the absent party or
partes.
The Court may requre appearance for argument or t may accept brefs n
eu of persona appearance.
Rue 30. Submsson Wthout earng oh ppearance,
(a) Submsson of cases wthout hearng where facts are uncontested. ny
proceedng not requrng a hearng for the submsson of evdence (as, for e -
ampe, whore suffcent facts have been admtted, stpuated, or ncuded n the
record In some other way), may be submtted at any tme by notce of the partes
fed wth the Court. The partes need not wat for the proceedng to be caen-
dared and need not appea n poson. The Presdng udge w then assgn the
proceedng to a dvson for report, whch dvson, upon request of the partes,
w f a tme for fng brefs or for ora argument
(6) contested moton, not predcated upon an ssue of fact, may be submtted
n the same way.
(See, however, rue 31.)
Rue 31. vdence and the Suumrshn of vdence.
(a) Rues appcabe. The proceedngs of the Court and ts dvsons w bt
conducted n accordance wth the rues of evdence appcabe In the courts of
the Dstrct of Coumba n the type of proceedngs whch pror to September
1C 1938, were wthn the |ursdcton of the courts of equty of sad Dstrct
(b) Stpuatons. The partes, by stpuaton n wrtng fed wth the Court
or presented at the hearng, may agree upon any facts nvoved n a proceedng.
Stpuatons fed need not be formay offered to be consdered n evdence.
Wrtten stpuatons sha be fed n dupcate. Dupcates of e hbts appended
to the stpuaton need not bo provded uness requested. oth partes sha
endeavor to stpuate evdence to the fuest e tent to whch ether compete or
quafed agreement can be reached. If a evdence endng tsef to stpuaton,
as, for e ampe, entres or summares from books of account and other records.
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I Msc.
has not been stpuated at the tme the notce of the date of the hearng Is maed,
then the party desrng to Introduce such evdence sha confer wth hs adversary
or opposng counse prompty after recept of the hearng notce, n an effort to
stpuate such facts. ny ob|ecton to the reevancy of a partcuar part or a
of a stpuaton shoud be noted n the stpuaton, but the Court w gve con-
sderaton to any ob|ecton to the reevancy of stpuated facts made at the hear-
ng. The Court may set asde a stpuaton where |ustce requres, but w not
receve evdence tendng to quafy, change, or contradct any fact propery
ntroduced nto the record by stpuaton.
(c) Depostons must be offered. Testmony taken by deposton w not
be consdered unt offered and receved n evdence.
(d) hbts attached to a stpuaton or a deposton sha be numbered ser-
ay, . e., 1, 2, 3, etc., f offered by the pettoner; sha be ettered seray, L e.,
, , C, etc., f offered by the respondent; and sha be marked seray, 1. e.,
1- , 2- , 3-C, etc., f offered as a |ont e hbt.
(e) Documentary evdence. (1) When books, records, papers, or documents
have been receved n evdence, a copy thereof or of so much thereof as may be
matera or reevant may, n the dscreton of the dvson hodng the hearng,
be substtuted therefor.
(2) fter the decsoa of the Court n any proceedng has become fna, the
Court may, upon moton, permt the wthdrawa by the party entted thereto of
orgna e hbts, or the Court may, on ts own moton, make such other dsposton
thereof as t deems advsabe.
(f) Not evdence. Statements n the petton or e parte affdavts and brefs
do not consttute evdence.
(g) Faure of proof. Faure to adduce evdence n support of the matera
facts aeged n the petton and dened by the Commssoner In hs answer w
be ground for dsmssa. Where there Is a onder of ssue on questons of fact,
the provsons of rue 30 do not reeve the party upon whom rests the burden
of proof from propery producng evdence to support the ssues.
Rue 32. urden of Proof.
The burden of proof sha be upon the pettoner, e cept as otherwse provded
by statute, and e cept that n respect of any new matter peaded In hs answer,
t sha be upon the respondent.
Rue 35. refs.
The partes shoud be prepared to make ora arguments at the concuson
of the hearng or to fe wrtten ctatons of authortes at that tme f the
dvson so drects. The fng of brefs and the makng of ora arguments sha
be n accordance wth the drectons of the |udge presdng at the hearng. If
the dvson does not drect otherwse, eae party sha have 5 days after the
day on whch the hearng was concuded wthn whch to re a bref and ether
party may fe a repy bref wthn 15 days after the rng of the orgna bref
by hs opponent. fter a bref has been fed, the cerk w serve a copy upon
the opposte party, uness the bref bears a notaton that a copy has aready
been served.
If brefs are typewrtten, an orgna and two copes sha be fed; f prnted,
20 copes. ach bref sha contan on ts front fyeaf a tabe of contents wth
page references, suppemented by a st of a ctatons, aphabetcay arranged
as to cases cted, together wth references to pages Ctatons sha be n tacs,
when prnted, and underscored when typewrtten.
The form of a brefs sha be as foows:
(a) statement of the nature of the controversy, the ta nvoved, and the
ssues to be decded.
(6) The party havng the burden of proof sha set forth compete statements
of the facts based upon the evdence. ach statement sha be numbered, sha
be compete n tsef, and sha consst of a concse statement of the essenta fact
and not a dscusson or argument reatng to the evdence or the aw. Reference
to the pages of the transcrpt or the e hbts reed upon In support thereof
sha be nserted after each separate statement.
If the other party dsagrees wth any or a of the statements of fact, he
sha set forth each correcton whch he beeves the evdence requres and sha
gve the same numbers to hs statements of fact as appear n hs opponent s
bref. s statement of fact sha be set forth n accordance wth the requre-
ments above desgnated.
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(c) concse statement of the ponts upon whch the party rees.
(d) The argument. The argument sha set forth the ponts of aw reed
upon and any dscusson of the evdence deemed necessary to support the state-
ment of fact. (See rue .)
Rue 0. Transcrpts of Pboceednos.
earngs before the Court or ts dvsons sha be stenographcay reported
and a transcrpt thereof sha be made f, n the opnon of the Court or of the
dvson hodng the hearng, a permanent record of the hearng s deemed
necessary. Transcrpts sha be supped to the partes and to the pubc by
the offca reporter at such rates as may be f ed by contract between the Court
and the reporter.
Rue . Subpenas.
(a) ow ssued. The party desrng a subpena must make a tmey appcaton
therefor, n wrtng.
( ) ppcaton for. The appcaton sha state the name and address of
each wtness requred, the tme and pace at whch and the offcer before whom
he Is to appear, and whether he may desgnate someone to appear In hs pace.
Ony the orgna of the appcaton need be fed. (See ppend I, Form No. 3.)
(c) For producton of documents. If evdence other than ora testmony Is
requred, such as documents or wrtten data, the appcaton sha set forth the
specfc matter to be produced and suffcent facts to ndcate that such matter
s reasonaby necessary to estabsh the cause of acton or defense of the app-
cant.
(d) Servce and proof. The Court w not serve subpenas, but w eave
servce to be procured by the party makng the appcaton. Servce may be
made by any ctzen of the Unted States over the age of 21 years and competent
to be a wtness, and not a party to or n any way nterested n the proceedng.
Proof of servce may be made by affdavt
Rue 5. Depostons.
(a) ppcaton to take. When ether party desres to take a deposton, he
sha fe wth the Court a verfed appcaton and two conformed copes, together
wth an addtona copy for each addtona docket number nvoved. The Court
upon request w furnsh forms for ths purpose. If the space n the form fur-
nshed by the Court Is nadequate for settng forth the reasons In support of
the appcaton In any partcuar case, a substtute form may be used, but the
substtute must contan a of the nformaton caed for on the Court s form.
(See ppend I, form No. 5a.)
(6) Lmtaton on tme for appcaton to take. ppcatons to take depos-
tons must be fed at east 30 days pror to the date set for the hearng of the
proceedng, and such depostons must be competed and fed wth the Court
at east 10 days pror to the hearng: Provded, Such appcatons w not be
regarded as suffcent ground for the grantng of a contnuance from the date
or pace of the hearng theretofore set, uness the proceedng sha have been at
ssue ess than 60 days and the moton for contnuance sha have been fed not
ess than 20 days pror to sad date of hearng: Provded further. That under
speca crcumstances, and for good cause shown, the Court may otherwse
order.
(c) uafcaton of offcer. The offcer before whom depostons are taken must
e authorzed to admnster oaths. (Secton 3632, I. R. C.) In no case sha a
deposton be taken before any person who has any offce connecton or busness
empoyment wth ether party or hs counse e cept by consent of the partes and
when no other offcer s avaabe, and n hs certfcate of return to such deposton
such offcer sha so certfy.
(d) Order for takng. Upon recept of such appcaton, the cerk w serve a
copy thereof on the opposte party, and aow a reasonabe tme for ob|ecton
thereto. Thereafter, the Court w, n ts dscreton, make an order, a copy of
whch w be maed or devered to the partes or ther counse, wheren the
Court w name the wtness whose deposton s to be taken and specfy the tme
when, the pace where, and the offcer before whom the wtness s to testfy, but
such tme, pace, and offcer specfed In the Court s order may or may not be the
same as set forth n the appcaton. The appcant sha thereupon make a
necessary arrangements for the takng of each deposton and sha furnsh the
offcer before whom t s to be taken wth a copy of the order above mentoned.
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(e) y stpuaton. t any tme after ssue s |oned, the partes or ther
counse may, by stpuaton duy sgned and fed, take depostons. In such cases,
the stpuaton sha state the name and address of each wtness, the tme when
and the pace where such depostons w be taken, and the name, address, and
offca tte of the offcer before whom t s proposed to take the depostons. In
such cases, no order to take depostons w be ssued, but they sha be taken and
returned by the offcer n accordance wth the rues of the Court.
(f) Manner of takng, ach wtness must frst take the oath or affrm. The
questons propounded to hm and hs answers must be recorded verbatm.
Ob|ectons to questons or answers sha he e pcty but brefy and concsey
stated and recorded wthout any unnecessary comment, e panaton, or argument
by counse for ether party.
(g) Other wtnesses to be e cuded. t the request of ether party, a person
whom ether e pects or ntends to ca as a wtness n the same or any reated
proceedng sha be e cuded from the room where the testmony of a wtness s
beng taken. If such person remans n the room or wthn hearng of the e am-
naton after such request has been made, he sha not thereafter be permtted to
testfy e cept by the consent of the party who requested hs e cuson.
(fc) Depostons to be sgned. The testmony of the wtness when transcrbed
sha be read to or by hm and sha be sgned by hm. (See ppend I, Form
No. 6.)
() Form n whch depostons must be returned to the Court. When a depos-
ton Is returned to the Court t must show the docket number and the capton (the
names of the partes) of the proceedng as they appear n the Court s records, the
pace and date of takng, the name of the wtness, the party by whom caed, the
names of counse present, Indcatng whch party each counse represents, and (n
the body of the deposton) the name of counse e amnng or cross-e amnng
the wtness.
The offcer must so fasten the sheets of the deposton that they can not be
tampered wth. e must spare no pans to return to the Court the e act testmony
he has taken. e hbts must be carefuy marked so as to be capabe of dentf-
caton, and when practcabe must be attached to the deposton.
The offcer must propery e ecute and attach to the deposton a certfcate of
return n the form prescrbed. (See ppend I, Form No. 6.)
(|) Return of. The offcer must encose the orgna depostons and e hbts,
together wth two copes of the depostons, n a seaed packet, wth postage or
other transportaton charges prepad, and drect and forward the same to The Ta
Court of the Unted States, Washngton 25, D. C. In each case, the orgna of the
depostons must be drected and forwarded to the Court. The offcer may, how-
ever, upon wrtten request, dever a copy of the depostons to ether or to both of
the partes, or to ther representatves, n en of sendng such copes to the Court
as above provded. If one or both of the requred copes are devered by the
offcer takng the depostons, he sha attach to hs return the wrtten request of
the party or partes, or of ther counse to whom such copy or copes were devered,
and sha state n hs certfcate of return the fact of devery by hm of such copy
or copes. If copes of the depostons are devered by the offcer takng the same,
no servce of copes of such depostons upon the party or hs counse of record w
be made by the Court,
Re 0. Depostons Upon Wrtten Interrogatores.
Depostons may be taken n the dscreton of the Court upon wrtten nterroga-
tores n substantay the same manner as provded n rue 0 for depostons
upon ora e amnaton. n orgna and fve copes of the nterrogatores must be
fed wth the appcaton. The cerk w serve one copy of the appcaton and of
the nterrogatores upon the opposte party. If the opposte party desres to fe
ob|ectons or cross-nterrogatores, he must do so wthn 15 days after the appca-
ton and nterrogatores have been served upon hm. Cross-Interrogatores must
consst of an orgna and fve copes. The cerk w serve one copy thereof upon
the opposte party who, f e has any ob|ecton thereto, must fe hs ob|ectons
wthn 15 days thereafter. The appcaton and the Interrogatores must be fed
n suffcent tme to aow for ob|ectons, cross-Interrogatores, and ob|ectons
thereto as provded above, and for fng of the compete depostons at east 10
days pror to the hearng.
No person other than the wtness, a stenographc reporter, and the offcer takng
the deposton upon wrtten nterrogatores and cross-nterrogatores sha be
present at the e amnaton of the wtness. Ths fact sha be certfed by the
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322
offcer takng the deposton. That offcer sha propound the Interrogatores and
cross-Interrogntores to the wtness n ther order and cause the testmony to be
reduced to wrtng n the wtness own words.
Depostons obtaned n foregn countres must be taken upon wrtten Inter-
rogatores, e cept as otherwse drected by the Court for cause shown.
Rue 7. Tendeb or and Ob|ectons to Depostons.
The deposton of any wtness whether taken upon ora e amnaton or upon
wrtten Interrogatores sha not consttute a part of the record unt offered and
receved n evdence (see rue 81), but the consderaton of any ob|ecton to the
recept of a deposton or any part thereof w be mted as set forth n ths rue.
Where depostons are taken upon ora e amnaton ob|ectons to the competency
of a wtness or to the competency, reevancy, or materaty of testmony may be
made at the hearng, even though not noted at or before the takng of the depos-
ton, uness the ground for the ob|ecton s one whch mght have been obvated
or removed f presented at or before the tme of the takng of the deposton.
Ob|ectons drected to errors and rreguartes n the manner of takng the depos-
ton, n the form of any queston or answer, In the oath or affrmaton, or n the
conduct of partes, and errors of any knd whch mght have been obvated,
removed or cured If prompty presented w not be consdered uness made at
the takng of the deposton. (See rue 5(f).)
No ob|ectons to wrtten nterrogatores or cross-nterrogatores w be con-
sdered subsequent to the takng of the deposton uness they have been made
n the manner and wthn the tme prescrbed therefor by rue 6.
rrors or rreguartes n the manner n whch the testmony s transcrbed or
the deposton s prepared, sgned, certfed, seaed, endorsed, transmtted, fed
or otherwse deat wth by the offcer under rues 5 and 6 sha not form the
bass for ob|ectons but questons n respect thereto sha be rased on a moton
to suppress the deposton n whoe or n part made wth reasonabe promptness
after such defect s or wth due dgence mght have been ascertaned.
Rur 8 Commssoners of the Ta Court.
(a) The term commssoner as used n ths rue 8 appes to any attorney
on the ega stuff of ths Court who sha have been desgnated by the Presdng
udge as a commssoner In a partcuar case pursuant to secton 111 of the
Interna Revenue Code, as amended by secton 503 of the Revenue ct of 19 3.
(6) The commssoner sha conduct the hearng n such case In accordance
wth the Court s rues of practce. e sha rue upon ob|ectons and other
evdentary matters n accordance wth the rues of evdence as provded n sec-
ton 1111, and sha e ercse such further and ncdenta authorty, ncudng the
ssuance of subpenas, as may be necessary for the conduct of the hearng.
(c) Uness otherwse drected the partes sha have 30 days from the cosng of
proof n the case for fng proposed fndngs of fact. Such fndngs of fact sha
be prepared n the manner and form prescrbed n the frst paragraph of rue
35(6).
Upon the fng by the partes of ther proposed fndngs of fact, the comms-
soner sha prepare and submt to the Court or a dvson thereof a report of hs
fndngs of fact based upon the evdence n the case, and copes thereof sha be
served upon both partes.
Wthn 20 days from the fng of the commssoner s proposed fndngs of fact
the partes may fe e ceptons thereto whch w be consdered by the dvson to
whch the case Is assgned.
(d) Uness otherwse drected by .he Court, the partes sha have 5 days from
the date of the fng of the commssoner s proposed fndngs of fact wthn whch
to fe brefs, and 15 days addtona wthn whch to fe repy brefs. ach bref
sha he prepared n the manner and form prescrbed n rue 35.
(e) Upon moton of ether pary or upon ts own moton, the dvson to whch
the case Is assgned may In Us dscreton drect ora argument and set a date
therefor.
Rue 50. Computatons by Partes for ntbtt of Decson.
Where the Court has promugated or entered ts opnon determnng the s-
sues n a proceedng, t may wthhod entry of Its decson for the purpose of
permttng the partes to submt computatons pursuant to the Court s determna-
ton of the ssues, showng the correct amount of the defcency or overpayment to
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be entered as the decson. If the partes are In agreement as to the amount of
the defcency or overpayment to be entered as the decson pursuant to the report
of the Court, they or ether of them sha fe prompty wth the Court an orgna
and two copes of a computaton showng the amount of the defcency or over-
payment and that there s no dsagreement that the fgures shown are n accord-
ance wth the report of the Court. The Court w then enter Its decson. If,
however, the partes are not n agreement as to the amount of the defcency or
overpayment to he entered as the decson, n accordance wth the report of the
Court, ether of them may fe wth the Court a computaton of the defcency
or overpayment beeved by hm to be n accordance wth the report of the
Court. The cerk w serve a copy thereof upon the opposte party, w pace
the matter upon the hearng caendar for argument n due course, and w serve
notce of the argument upon both partes. If the opposte party fas to fe ob-
|ecton, accompaned by an aternatve computaton, at east fve days pror to
the date of such argument, or any contnuance thereof, the Court may enter
decson n accordance wth the computaton aready submtted. If n ac-
cordance wth ths rue computatons are submtted by the partes whch dffer
as to the amount to be entered as the decson of the Court, the partes w be
afforded an opportunty to be heard n argument thereon on the date f ed, the
Court w determne the correct defcency or overpayment and enter ts decson.
ny argument under ths rue w be confned strcty to the consderaton of
the correct computaton of the defcency or overpayment resutng from the
report aready made, and no argument w be heard upon or consderaton gven
to the ssues or matters aready dsposed of by such report or of any new ssues.
Ths rue s not to be regarded as affordng an opportunty for rehearng or
reconsderaton.
Rue 51. Preparaton of Record on Revew Costs.
Immedatey after the contents of a record on revew have been setted or
agreed to, the cerk w notfy the pettoner of the costs and charges for the
preparaton, comparson, and certfcaton of sad records; such charges to be
determned n accordance wth the provsons of secton 1133, Interna Revenue
Code, and the ct of September 27, 19 ( 58 Stat., 7 3).
No transcrpt w be certfed and transmtted to the appeate court unt
the costs and charges therefor have been pad. (For name of payee, see rue 8.)
pettoner for revew who requests the cerk to certfy but not to prepare
documents for transmsson to a Unted States crcut court of appeas or to the
Unted States Court of ppeas for the Dstrct of Coumba sha furnsh the
cerk wth the copes of the documents to be certfed.
(For statutory provsons reatng to Court revew of Ta Court decsons see
Subchapter , Secton 11 0 et seq., I. R. C. For forms of bonds, see ppend
I, Forms Nos. 7 and 8. The rues of the appeate court to whch the appea s
beng taken shoud be consuted.)
Rue 53. Copes of Records Fees for Furnshng.
pan or a certfed copy of any document, record, entry, or other paper per-
tanng to a proceedng before ths Court may be had upon appcaton to the
cerk, the fee to be charged and coected therefor to be determned In accordance
wth the provsons of secton 1133. Interna Revenue Code, and the ct of Sep-
tember 27, 19 ( 58 Stat.. 7 3).
Rue CO. Fees and Meage
Secton 1115 of the Interna Revenue Code provdes:
(a) mount. ny wtness summoned or whose deposton Is taken under
secton 111 sha receve the same fees and meage as wtnesses In courts of
the Unted States.
(b) Payment. Such fees and meage and the e penses of takng any such
deposton sha be pad as foows:
(1) Wtnesses for Commssoner. In the case of wtnesses for the Com-
mssoner, such payments sha be made by the Secretary out of any moneys
approprated for the coecton of nterna-revenue ta es, and may be made
In advance.
(2) Other wtnesses. In the case of any other wtnesses, such pay-
ments sha be made, sub|ect to rues prescrbed by the oard Court , by
the party at whose nstance the wtness appears or the deposton s taken.
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No wtness, other than one for the Commssoner, sha be requred to testfy
In any proceedng before the Court unt he sha have been tendered the fees
and meage to whch he s entted n accordance wth the above provson of aw.
Rue 61. Computaton of Tme Saturdays, Sundats, and odays.
The day of the act, event, or defaut startng any perod of tme prescrbed or
aowed by these rues or by an order of ths Court sha not be counted as a part
of the perod, but Saturdays, Sundays, and ega hodays n the Dstrct of
Coumba sha count |ust as any other days, e cept that when the perod woud
e pre on a Saturday, Sunday, or ega hoday n the Dstrct of Coumba, t
sha e tend to and ncude the ne t succeedng day that s not a Saturday,
Sunday, or such ega hoday.
The foowng-named days are ega hodays wthn the Dsfrct of Coumba:
New Year s Day, anuary 1 (U. S. C, Tte 5, sec. 87).
Inauguraton Day, every fourth year ( 8 Stat., 879; D. C. Code, Tte22, sec. 126).
Washngton s rthday, February 22 (U. S. C, Tte 5, sec. 87).
Decoraton Day, May 30 (U. S. C, Tte 5, sec. 87).
Fourth of uy (U. S. C, Tte 5, sec. 87).
Labor Day, frst Monday n September (U. S. C, Tte 5, sec. 87).
rmstce Day, November 11 (52 Stat., 351).
Thanksgvng Day, fourth Thursday of November, ont Resouton approved
December 26,19 1 (Pubc Law 379, Seventy-seventh Congress)
Chrstmas Day, December 25 (U. S. C, Tte 5, sec. 87).
When ega hodays fa on Sunday the ne t day sha be a hoday (22 Stat.,
1; D. C. Code, Tte 22, sec. 126).
Rue 63. Proceedngs ased Upon Dsaowance of Cams fob
Refund oe Reef.
of the rues of practce, wth approprate changes n wordng wherever
necessary, sha appy to proceedngs nvovng the dsaowance of cams for
refund or reef over whch ths Court has |ursdcton. Pettons n such cases
sha have attached to them a copy of the notce of dsaowance, together wth
whatever statements may accompany that notce, and sha aso have attached
to them a copy of the cam or appcaton for refund or reef. In cases where
no appea es from the decson of The Ta Court a copy of the cam or
appcaton need be attached ony to the orgna and frst copy of the petton.
Rue 6 . Renegotaton of Wak Contracts Cases.
I. cept as otherwse prescrbed by ths rue, proceedngs for the redetermna-
ton of e cessve profts under the Renegotaton ct1 sha be governed by the
e stng rues of practce before ths Court. Where any of the e stng rues
(e cept rue 8) or the matter contaned n the ppend refer to the Comms-
soner, such rues and the matter n the ppend , when apped to a proceedng
for the redetermnaton of e cessve profts under the Renegotaton ct, sha
refer to the War Contracts Prce d|ustment oard or to the Secretary as defned
and used In that ct. Smary references to the ta payer sha refer to the
contractor or subcontractor; references to ta sha refer to profts under a con-
tract or subcontract sub|ect to renegotaton, or to e cessve profts thereunder,
dependent upon conte t: and references to the determnaton of a defcency, or
a notce of such determnaton, sha refer to the order of the board or the Secre-
tary determnng the amount of e cessve profts.
II. proceedng for the redetermnaton of e cessve profts under the Renego-
taton ct sha be ntated by the fng of a petton, as provded n Rues
, 5, 7, and 8. (See Form No. 2, ppend I.)
In proceedngs ntated under secton 03(e) (1) of the ct, the War Contracts
Prce d|ustment oard sha be shown as the respondent. In proceedngs
ntated under secton 03(e) (2) of the ct, the Secretary as referred to In that
secton sha be shown as the respondent.
The petton sha be compete n tsef so as fuy to state the Issues. It sha
contan:
1 Secton 03 of the S th Suppementa Natona Defense ppropraton ct, 19 2, as
amended by secton 701, Revenue ct of 19 3.
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325
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(a) capton In the foowng form:
The Ta Court of the Unted States.
, pettoner,
v. Docket No. , respondent.
P TITION.
(6) Proper aegatons showng |ursdcton n the Court.
(c) statement of the amount of e cessve profts determned by the board
or the Secretary, as the case may be, the perod for whch determned and the
amount thereof n controversy. If the determnaton of e cessve profts was
made on the bass of a specfc contract or contracts, the petton sha dentfy
the contract or contracts and sha state the perod covered thereby.
( t) Cear and concse assgnments of each and every error whch the pet-
toner aeges to have been commtted by the board or the Secretary n the deter-
mnaton of e cessve profts. ach assgnment of error sha be numbered.
(e) Cear and concse numbered statements of the facts upon whch the pet-
toner rees as sustanng the assgnments of error. The aegatons of fact
sha contan a statement of the amount receved or accrued durng the perod
n queston under the contracts or subcontracts sub|ect to renegotaton, the costs
pad or ncurred wth respect thereto and the profts derved therefrom, the type
and character of busness done, and any other facts pertnent to a determnaton
of the errors aeged.
(/) prayer, settng forth reef sought by the pettoner.
ff) The sgnature of the pettoner or that of hs counse. (See rue .)
(ft) verfcaton by the pettoner n accordance wth the appcabe pro-
vson of subsecton (ft) of rue 6.
() copy of the notce by the board, and a copy of the order of the board, or
of ts deegatee, as the case may be, determnng the amount of e cessve profts,
whch notce and order form the bass for the ntaton of the proceedng under
secton 03(e) (1) of the ct, or a copy of the order by the Secretary determnng
the amount of e cessve profts, whch order forms the bass for the ntaton of
the proceedng under secton 03(e)(2) of the ct, sha be appended to the
petton. If a statement has been furnshed to the pettoner by the board or
the Secretary settng forth the facts upon whch the determnaton of e cessve
profts was based and the reasons for such determnaton, a copy of such state-
ment sha aso be appended to the petton.
III. ny cam for the redetermnaton of an amount of e cessve profts greater
than the amount shown n the notce of determnaton sha be made by the
respondent In hs answer fed under rue 1 , or In an amendment thereto fed
under rue 17 at or before the tme of the hearng,
I . Wth respect to the matter covered by rue 60, attenton s drected to
secton 03(e) (1) of the Renegotaton ct.
PP NDI .
I. Forms
These forms are sub|ect to amendment as crcumstances may render necessary.
No. 2. Petton.
No. 3. ppcaton for subpena.
No. 5a. ppcaton for order to take depostons.
No. 0. Certfcate on return of depostons.
No. 7. ppea bond, form of, corporate surety.
No. 8. ppea bond, form of, approved coatera.
No. 8a. Power of attorney and agreement Corporate appeants.
No. 8b. Power of attorney and agreement Indvdua appeants.
(Note. Read rue of the rues of practce of the Court and carefuy observe
rhe requrements thereof as to form, sze, and stye of papers.)
NO. 2. P TITION.
(See rues , 5a, 6, 7, and 8.)
The Ta Court of the Unted Statks.
, pettoner,
v.
Commssoner of Interna Revenue, respondent.
Docket No.
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32b
The above-named pettoner hereby pettons for a redetermnaton of the
defcency set forth by the Commssoner of Interna Revenue n hs notce of
defcency ( ureau symbos) dated , 19 , and as a bass
of hs proceedng aeges as foows:
1. The pettoner s (set forth whether ndvdua, corporaton, fducary, etc.,
as provded n rue 6) wth prncpa offce (or resdence) at
(Street.)
, The return for the perod here
(Cty.) (State.)
Invoved was fed wth the coector for the dstrct of
2. The notce of defcency (a copy of whch s attached and marked e hbt
) was maed to the pettoner on , 19
3. The ta es n controversy are (Income, profts, estate, or gft) ta es for the
(caendar or fsca year) year 19 and n the amount of doars
(state as e acty as possbe the amount n dspute).
. The determnaton of ta set forth n the sad notce of defcency s based
upon the foowng errors: ( numerate specfcay the assgnments of error
In a concse manner and avod peadng facts whch propery beong n the
succeedng paragraph.)
5. The facts upon whch the pettoner rees as the bass of ths proceedng
are as foows: ( ere set forth aegatons of the facts reed upon but not
the evdence n ordery and ogca sequence, wth subparagraphs ettered,
so as fuy to Inform the Court of the Issues to be presented and to enabe
the Commssoner to admt each or deny each specfc aegaton.)
Wherefore, the pettoner prays that ths Court may hear the proceedng and
(here state the reef desred).
(Sgned)
(Pettoner or counse.)
(Post-offce address.)
State of I
County of I -
, beng duy sworn, says that he Is the pet-
toner (If a corporaton, or fducary, state tte of offce or trust of person
verfyng and that he s duy authorzed to verfy the foregong petton) above
named ; that he has read the foregong petton, or had the same read to hm,
and s famnr wth the statements contaned theren, and that the statements
contaned theren are true, e cept those stated to be upon nformaton and
beef, and that those he beeves to be true.
(Sgned)
Subscrbed and sworn to before me ths
day of , 19
(Sgned)
Lsea
(Offca tte.)
NO. S. PPLIC TION FOR SU P N .
, pettoner,
Docket No.
v.
Commssoner of Interna Revenue, respondent.
To The Ta Court of the Unted States:
ppcaton Is hereby made for the ssuance of a subpena for the attendance
before
(The Ta Court of the Unted States or the name and offca tte of the person
authorzed to take depostons.)
at on
at o cock m. of the foowng persons whose ora testmony
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327 Ms.,
Is desred on behaf of the In the above-
(Pettoner or respondent.)
entted proceedng:
N M . DDR SS.
Dated , 19
(Sgned)
(Post-offce address)
NO. 5a. PPLIC TION FO ORD R TO T D POSITIONS.
(See rues 5 and 6.)
The Ta Court of the Unted States. , pettoner, )
v. Docket No.
Commssoner of Interna Revenue, respondent.)
PPLIC TION FOR ORD R TO T D POSITIONS.
To The Ta Court of the Unted States:
1. ppcaton Is hereby made by the above-named
(Pettoner or respondent.)
for an order to take the deposton of the foowng-named person :
N M OF WITN SS. POST-OFFIC DDR SS,
.(a)-
(b) ,
(c) _1
(d)
2. It Is desred to take the depostons of the persons above named and each
of them for the foowng reasons:
(a) w testfy to the foowng matera matters:
(Set forth brefy the matter upon whch snd wtness w be caed to testfy.)
(b) w testfy to the foowng matera matters:
(c) w testfy to the foowng matera matters:
(d) w testfy to the foowng matera matters:
3. The reasons why desres to take the
(Pettoner or respondent.)
testmony of the above-named persons rather than have them appear personay
and testfy before the Court are as foows: (State specfcay reasons for each
wtness.)
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Msc. 328
. It Is desred to take the testmony of
(Names of wtnesses.)
on the day of , 19 , at the hour of o cock m.
( date suffcenty n advance of the day set for hearng of the proceedngs to enabe
the deposton to be competed and fed wth the Court at east 10 days pror to the hearng.)
before n the cty of
(State name and tte of offca.)
State of , at room
(Gve number of room, street
number, and name of budng.)
5. That . s a
(Name of offca before whom depostons are to be taken.)
, who has no offce connecton or busness empoy-
(Gve offca tte.)
ment wth the pettoner or hs counse.
Dated , 19
(Sgned) .
(Pettoner or counse.)
State of
County of Is
(Post-offce address.)
, beng duy sworn, says that the fore-
(Pettoner or counse.)
gong appcaton for order to take depostons s made n good fath and for
the reasons theren stated and that the same s not made for purposes of deay.
(Sgned)
Subscrbed and sworn to before me ths
day of , 19
(Sgned)
(Offca tte.)
sea
NO. . C RTIFIC T ON R TURN.
o the Ta Court of the Unted States:
I, , the person named In the foregong
order to take depostons, hereby certfy:
1. That I proceeded, on the day of , . D. 19 ,
at the offce of , n the cty of ,
State of , at o cock, __m., under the sad
order and n the presence of , and
the counse for the respectve partes, to take the foowng
depostons vz:
, a wtness produced on behaf
, a wtness produced on behaf
, a wtness produced on behaf
of the .
(Pettoner or respondent.)
of the ;
(Pettoner or respondent.)
of the ;
(Pettoner or respondent.)
2. That each wtness was e amned under oath at such tmes and paces
as condtons of ad|ournment requred, and that the testmony of each wtness
(or hs answers to the nterrogatores ed) was taken stenographcay and
reduced to typewrtng by me or under my drecton.
3. That after the testmony of each wtness had been reduced to wrtng the
transcrpt of the testmony was read and sgned by the wtness n my presence,
and that each wtness acknowedged before me that hs testmony was n a
respects truy and correcty transcrbed.
. That, after the sgnng of the deposton n my presence, no ateratons or
changes were made theren.
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329
Msc.
5. That I have no offce connecton or busness empoyment wth the pettoner
or hs attorney e cept that , ob|ecton to whch was
(State connecton.)
waved by both partes to the proceedng.
sea
(Sgnature of person takng deposton.)
(Post-offce address.)
Note. Ths form when propery e ecuted shoud be attached to and bound wth the
transcrpt precedng the frst page thereof. It shoud then be encosed In a seaed packet,
wth postage or other transportaton charges prepad, and drected and forwarded to The
Ta Court of the Unted States. Washngton 25, D. C.
NO. 7. OND WIT CORPOR T SUR TY.
The foowng s a satsfactory form of bond for use n case bond wth a cor-
porate surety approved by the Treasury Department s to be furnshed to stay the
assessment and coecton of ta nvoved n an appea from a decson of The Ta
Court.
The Ta Coubt of the Unted States.
Washngton, D. C.
, pettoner.
Commssoner of Interna Revenue, respondent.)
Docket No.
now a men by these presents, that we
as prncpa, and , as surety, are hed and
frmy bound unto the above-named Commssoner of Interna Revenue and/or
the Uuted States of merca, n the sum of (doube
the defcency or such sum as The Ta Court has f ed upon pettoner s pror
moton), to be pad to the sad Commssoner of Interna Revenue and/or the
Unted States of merca for the payment of whch we and truy to be made we
bnd ourseves and each of us and our successors and assgns |onty and severay
frmy by these presents. Seaed wth our seas and dated the day
of , n the year of our Lord one thousand nne hundred
and
Whereas, the above-named , s fng or s about to fe
wth The Ta Court of the Unted States a petton for revew of the sad Court s
decson n respect of the ta abty of the above pettoner for the ta abe year
or years , by the Crcut Court of ppeas of the Unted
States for the Crcut to reverse the decson rendered n
the above-entted cause.
Now, therefore, the condton of ths obgaton s such, that If the above-
named sha fe ts petton for revew and sha prosecute
sad petton for revew to effect and sha pay the defcency as fnay determned,
together wth any Interest, addtona amounts or addtons to the ta provded
for by aw, then ths obgaton sha be vod, otherwse the same sha be and
reman n fu force and vrtue.
ttest:
y
(Corporate sea.) Secretary Tte.
ttest:
y
(Corporate sea.) Secretary Tte.
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Msc. I
330
NO. (8 ND 8 ). OND PPRO D COLL T R L.
satsfactory form of bond for use In case an appeant desres to furnsh
approved coatera (Treasury Department Crcuar No. 15 ), nstead of furnsh-
ng a corporate surety bond, and aso forms of powers of attorney coverng the
pedged coatera are shown beow:
The Ta Coubt or the Unted States.
Washngton, D. C.
, pettoner,
v. Docket No.
Commssoner of Interna Revenue, respondent.)
OND.
now a men by these presents, that
Is hed and frmy bound unto the above-named Commssoner of Interna Revenue
and/or the Unted States of merca n the sum of
( ) doars, to be pad to the sad Commssoner of Interna
Revenue and/or the Unted States of merca, for the payment of whch, we
and truy to be made, the
bnds Itsef and Its successors, frmy by these presents. Seaed wth our sea and
dated the day of , In the year
of our Lord one thousand nne hundred and
Whereas, the above-named
s fng or Is about to fe wth The Ta Court of the Unted States, a petton for
revew of the sad Court s decson n respect of the ta abty of the above
pettoner for the ta abe year or years by the
Crcut Court of ppeas of the Unted States for the Crcut
to reverse the decson rendered In the above-entted cause.
Now, therefore, the condton of ths obgaton Is such that f the above-named
sha fe ts petton
for revew and sha prosecute sad petton for revew to effect and sha pay
the defcency as fnay determned, together wth any Interest, addtona
amounts or addtons to the ta provded for by aw, then ths obgaton sha
be vod, otherwse the same sha be and reman In fu force and vrtue.
The above-bounden obgor, In order the more fuy to secure the Commssoner
of Interna Revenue and/or the Unted States In the payment of the aforemen-
toned sum, hereby pedges as securty therefor bonds/notes of the Unted States
n a sum equa at ther par vaue to the aforementoned sum, to wt:
doars ( ), whch sad bonds/notes are
numbered seray and are n the denomnatons and amounts, and are otherwse
more partcuary descrbed as foows:
whch sad bonds/notes have ths day been deposted wth the cerk of The Ta
Court of the Unted States and hs recept taken therefor.
Contemporaneousy herewth the undersgned has aso e ecuted and devered
an rrevocabe power of attorney and agreement n favor of the cerk of The
Ta Court of the Unted States, authorzng and empowerng hm, as such attor-
ney to coect or se or transfer or assgn the above-descrbed bonds/notes so
deposted, or any part thereof, n case of any defaut In the performance of any
of the abo ve-named condtons or stpuatons.
Corporate sea.
y
ttest: Tte.
Secretary.
pproved by
udge, The Ta Court of the Unted States.
Date:
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331
Msc
NO. 8a. POW R OF TTORN Y ND GR M NT.
now a men by these presents, that 1 , a corporaton
duy ncorporated under the aws of the State of , and havng ts prn-
cpa offce n the cty of , State of , n pur-
suance of a resouton of the board of drectors of sad corporaton, passed on the
day of , 19__, a duy certfed copy of whch resouton s hereto
attached, does hereby consttute and appont the cerk of The Ta Court of the
Unted States as attorney for sad corporaton, for and n the name of sad
corporaton to coect or to se, assgn, and transfer certan Unted States Lberty
bonds, Treasury notes, or other Unted States bonds/notes, the property of sad
corporaton, descrbed as foows:
rte o coupon bonds/
notes.
Tota ace amount.
Denomnaton
sera No.
nterest dates
Tte o bonds/notes
regstered n name of
and assgned In bank.
Tota ace amount.
Denomnaton
Sera No
Interest date
such bonds/notes havng been deposted by t, pursuant to authorty conferred by
secton 1126 of the evenue ct of 1920, approved February 26, 1926, and sub|ect
to the provsons thereof, as securty for the fathfu performance of any and a
of the condtons or stpuatons of a certan obgaton entered nto by t wth
the Commssoner of Interna Revenue and/or the Unted States under date of
, whch s hereby made a part thereof, and the undersgned agrees
that, n case of any defaut n the performance of any of the condtons and
stpuatons of such undertakng. Its sad attorney sha have fu power to
coect sad bonds/notes or any part thereof, or to se, assgn, and transfer sad
bonds/notes or any part thereof wthout notce, at pubc or prvate sae, or to
transfer or assgn to another for the purpose of effectng ether pubc or prvate
sae, free from any equty of redempton and wthout apprasement or vauaton,
notce and rght to redeem beng waved, and the proceeds of such sae or
coecton, n whoe or In part to be apped to the satsfacton of any damages,
demands, or defcency arsng by reason of such defaut, as may be deemed
best, and the undersgned further agrees that the authorty heren granted s
rrevocabe.
nd sad corporaton hereby for Itsef, ts successors and assgns, ratfes and
fonfrms whatever ts sad attorney sha do by vrtue of these presents.
In wtness whereof, the , the corporaton
herenabove named, by , duy authorzed to
(Name and tte of offcer.)
act n the premses, has e ecuted ths nstrument and caused the sea of the
corporaton to be hereto aff ed ths day of , 19 .
Corporate Sea.
y
efore me, the undersgned, a notary pubc wthn and for the county of
, n the State of , personay appeared
, and for and n behaf of sad ,
(Name and tte of offcer.)
corporaton, acknowedged the e ecuton of the foregong power of attorney.
Wtness my hand and notara sea ths day of , 19
Notara Sea.
Notary Pubc.
My commsson e pres
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332
NO. 8b. POW R OF TTORN Y ND GR M NT Y INDI IDU L PP LL NTS.
now a men by these presents, that I (we), , do
hereby consttute and appont the cerk of The Ta Court of The Unted States
as attorney for me (us), and n my (our) name to coect or to se, assgn, and
transfer certan Unted States Lberty bonds, Treasury notes, or other Unted
States bonds/notes, beng my (our) property descrbed as foows:
Tte of coupon bonds/
notes.
Tota face amount.
Denomnaton.
Sera No.
Interest dates
Tte of bonds/notes
regstered n nurue of
and assgned n bank.
Tota face amount.
Denomnaton.
Sera No
Interest dates
such bonds/notes havng been deposted by me (us) pursuant to authorty
conferred by secton 112(5 of the Revenue rt of 1926, approved February 26, 192o,
and sub|ect to the provsons thereof, as securty for the fathfu performance
of any and a of the condtons or stpuatons of a certan obgaton entered
nto by ne (us) wth the Commssoner of Interna Revenue and/or the Unted
States under date of , whch s hereby made a part thereof,
and I (w:e) agree that, n case of any defaut n the performance of any of the
condtons and stpuatons of such undertakng, my (our) sad attorney sha
have fu power to coect sad bonds/notes or any part thereof, or to se,
assgn, and transfer sad bonds/notes or any part thereof wthout notce, at
pubc or prvate sae, or to transfer or assgn to another for the purpose of
effectng ether pubc or prvate sae, free from any equty of redempton and
wthout apprasement or vauaton, notce and rght to redeem beng waved,
and the proceeds of such sae or coecton, n whoe or n part to be apped to
the satsfacton of any damages, demands, or defcency arsng by reason of
such defaut, as may he deemed best, and I (we) further agree that the authorty
heren granted s Irrevocabe.
nd for mysef (ourseves), my (our severa) admnstrators, e ecutors, and
assgns, I (we) hereby ratfy and confrm whatever my (our) sad attorney
sha do by vrtue of these presents.
In wtness whereof, I (we) herenabove named, have e ecuted ths nstru-
ment and aff ed my (our) sea ths day of , 19
I sea
efore me, the undersgned, a notary pubc wthn and for the county of
, n the State of , personay appeared
, and acknowedged the e ecuton of the foregong
(Name of appeant.)
power of attorney.
Wtness my hand and notara sea ths day of , 19
Notara Sea
Notary Pubc.
My commsson e pres
II. Reqttests fob Pace of earng.
The Court w f the tmes and paces for Its hearngs In order to secure
reasonabe opportunty to ta payers to be heard wth as tte nconvenence and
e pense to ta payers as s practcabe. (Secton 1105, I. R. C.) earngs may
be hed at any pace requested f sutabe accommodatons are avaabe and a
suffcent number of eases are ready for hearng there. parta st of ctes
where a combnaton of these crcumstances has ustfed a caendar of bearngs
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Msc.
recenty appears beow. It s pubshed here merey to assst partes n mak-
ng requests under rue 26. The groupng of certan ctes n the st ndcates
that f one of those ctes s requested, t may be necessary to hod the hearng
at the other cty n order to make up a suffcent caendar of hearngs. Lkewse,
f suffcent cases are not ready for hearng n any partcuar cty requested by
ta payers, or f sutabe quarters are not avaabe there, the Court may fnd
t necessary to combne the hearngs requested for that cty and hod them
aong wth the hearngs requested for some other cty n the vcnty.
LIST.
abama:
rmngham.
Mobe.
rkansas: Ltte Rock (aternatve,
Memphs, Tenn.).
Caforna:
Los ngees.
San Francsco.
Coorado: Denver.
Dstrct of Coumba: Washngton.
Forda:
acksonve
Mam.
Tampa (aternatve, Mam).
Georga: tanta.
awa: onouu (aternatve, Los
ngees or San Francsco, Caf.).
Inos: Chcago.
Indana: Indanapos.
Iowa: Des Mones.
entucky: Lousve.
Lousana:
New Oreans.
Shreveport.
Mane: Portand (aternatve, oston,
Mass.).
Massachusetts: oston.
Mchgan:
Detrot.
Grand Rapds.
Mnnesota: St. Pau.
Mssour:
ansas Cty.
St. Lous.
Montana: eena.
Nebraska: Omaha.
New ersey: Newark.
New York:
uffao.
New York Cty.
North Carona:
Greensboro.
Raegh.
Oho:
Cncnnat (aternatve, Coum-
bus).
Ceveand.
Coumbus (aternatve, Cncn-
nat).
Okahoma :
Okahoma Cty (aternatve,
Tusa).
Tusa (aternatve, Okahoma
Cty).
Oregon : Portand.
Pennsyvana:
Phadepha (aternatve, Wash
Ington, D. C, or New York,
N. Y.).
Pttsburgh.
South Carona:
Chareston.
Coumba.
Tennessee:
no ve (aternatve, tanta,
Ga.).
Memphs.
Nashve.
Te as:
Daas.
ouston.
Utah : Sat Lake Cty.
Washngton:
Seatte.
Spokane.
West rgna: Chareston.
Wsconsn:
Madson (aternatve, Mwaukee).
Mwaukee.
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L GISL TION.
19 7-15-12605
. . R S. 210. PU LIC L W 112, IG TI T CONGR SS
C PT R 1 3, FIRST S SSION .
ont Resouton To e tend the tme for the reease, free of estate
and gft ta , of certan powers, and for other purposes.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 03(d)(3)
of the Revenue ct of 19 2 (reatng to the reease of certan powers
of appontment) s hereby amendea by strkng out uy 1, 19 7
wherever t appears and nsertng n eu thereof uy 1, 19 8 :
and secton 52(c) of the Revenue ct of 19 2 s hereby amended
to read as foows:
(c) Reease efore uy 1, 19 8.
(1) reease of a power to appont before uy 1, 19 8, sha not be
deemed a transfer of property by the Indvdua possessng such power.
(2) Ths subsecton sha appy to a caendar years pror to 19 8 and
to that part of the caendar year 19 8 pror to uy 1, 19 8.
Sec. 2. (a) Secton 1000(e) of the Interna Revenue Code (reat-
ng to certan dscretonary trusts s hereby amended by strkng out
pror to anuary 1, 19 5, and nsertng n eu thereof on or be-
fore December 31, 19 7 (or on a ater date n any case where t s
shown to the satsfacton of the Commssoner, n accordance wth
reguatons prescrbed by hm wth the approva of the Secretary,
that faure to renqush pror to such ater date was for reasonabe
cause) .
(b) If any amount pad pror to the date of the enactment of
ths |ont resouton consttutes an overpayment of gft ta soev by
reason of the amendment made by ths secton, no nterest sha be
aowed or pad wth respect to the amount of such overpayment.
Sec. 3. The ast sentence of secton 22(b) (9) and the ast sentence
of secton 22(b) (10) of the Interna Revenue Code (reatng to
e cuson of ncome from dscharge of ndebtedness) are hereby
amended by strkng out 19 7 and nsertng n eu thereof
19 9 .
pproved une 25,19 7.
19 7-15-12606
. R. G8. PU LIC L W 113, IG TI T CONGR SS
C PT R 1 , FIRST S SSION .
n ct To amend secton 115 of the Interna cvenue Code
In respect of dstrbutons by persona hodng companes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That the ast
sentence of secton 115(a) of the Interna Revenue Code s amended
(33 )
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to read as foows: In the case of a corporaton whch, under the
aw appcabe to the ta abe year n whch the dstrbuton s made,
s a persona hodng company, or whch, for the ta abe year n
respect of whch the dstrbuton s made under secton 50 (c) or
secton 506 or a correspondng provson of a pror ncome-ta aw,
s a persona hodng company under the aw appcabe to such
ta abe year, such term aso means any dstrbuton (whether or
not a dvdend as defned n the precedng sentence) to ts share-
hoders, whether n money or n other property, to the e tent of ts
subchapter net ncome, ess the sum of the foowng:
(1) The net operatng oss credt provded n secton 26(c)(1);
(2) The dvdend carry-over provded n secton 27(c); and
(3) The deducton for amounts for retrement of ndebtedness
provded n secton 50 (b).
Sec. 2. The amendment made by secton 1 sha be effectve for a
ta abe years begnnng after December 31, 19 3.
Sec. 3. No nterest sha be aowed or pad n respect of any over-
payment of ta resutng from the foregong amendment.
pproved une 25,19 7.
19 7-1 -12591
. R. 2872. PU LIC L W 116. IG TI T CONGR SS
C PT R 1 7. FIRST S SSION .
n ct To amend further secton of the Pubc Debt ct of 19 1,
as amended, and carfy ts appcaton, and for other purposes.
e t enacted by the Senate and ome of Representatves of the
Unted States of merca n Congress assembed, That secton of
the Pubc Debt ct of 19 1 (Pubc, Numbered 7, Seventy-seventh
Congress, frst sesson), as amended by secton 6 of the Pubc Debt
ct of 19 2 (Pubc, Numbered 510, Seventy-seventh Congress, second
sesson), hereb 7 s amended further to read as foows:
Sec. . (a) Interest upon obgatons, and dvdends, earnngs, or other ncome
from shares, certfcates, stock, or other evdences of ownershp, and gan from the
sae or other dsposton of such obgatons and evdences of ownershp ssued
on or after the effectve date of the Pubc Debt ct of 19 2 by the Unted States
or any agency or nstrumentaty thereof sha not have any e empton, as such,
and oss from the sae or other dsposton of such obgatons or evdences of
ownershp sha not have any speca treatment, as such, under the Interna
Revenue Code, or aws amendatory or suppementary thereto; e cept that any
such obgatons whch the Unted States Martme Commsson or the Federa
ousng dmnstraton had, pror to March 1, 10 1. contracted to ssue at a
future date, sha when ssued bear such ta -e empton prveges as were, at
the tme of such contract, provded n the aw authorzng ther ssuance. For
the purposes of ths subsecton a Terrtory, a possesson of the Unted States,
and the Dstrct of Coumba, and any potca subdvson thereof, and any
agency or nstrumentaty of any one or more of the foregong, sha not be
consdered as an agency or nstrumentaty of the Unted States.
(b) The provsons of ths secton sha, wth respect to such obgatons and
evdences of ownershp, be consdered as amendatory of and suppementary to
the respectve cts or parts of cts authorzng the ssuance of such obgatons
and evdences of ownershp, as amended and suppemented.
(c) Nothng contaned heren sha be construed to amend or repea sectons
11 and 115 of the Revenue ct of 19 1.
pproved une 25,19 7.
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19 7-16-12616
. R. 959. PU LIC L W 185, IG TI T CONGR SS
C PT R 2 5, FIRST S SSION .
n ct To amend secton 3179(b) of the Interna Revenue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subsecton (b)
of secton 3179 of the Interna Revenue Code s amended to read as
foows:
(b) Drawback. Upon the e portaton of dsted sprts and wnes manu-
factured or produced n the Unted States on whch an nterna-revenue ta has
been pad, and whch are contaned In any cask or package or n bottes packed
n cases or other contaners, there sha be aowed, under reguatons to be
prescrbed by the Commssoner, wth the approva of the Secretary, a drawback
equa n amount to the ta found to have been pad on such dsted sprts and
wnes: Provded, That such dsted sprts and wnes have been packaged or
botted especay for e port, under reguatons prescrbed by the Commssoner,
wth the approva of the Secretary. The Commssoner, wth the approva of the
Secretary, s authorzed to prescrbe reguatons governng the determnaton and
payment of drawback of nterna-revenue ta on domestc dsted sprts and
wnes, ncudng the requrement of such notces, bonds, bs of adng, and
other evdence of payment of ta and e portaton as sha be deemed necessary.
pproved uy 1 ,19 7.
19 7-16-12617
. R. 19 5. PU LIC L W 186, IG TI T CONGR SS
C PT R 2 (, FIRST S SSION .
n ct To amend sectons 2801(e)( ), 30 3(a), 30 (b), and
30 5 of the Interna Revenue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the Interna
Revenue Code be, and t s hereby, amended as foows:
1. Secton 2801(e)( ) of the Interna Revenue Code s amended
(a) by deetng from the second sentence thereof the words havng
no nteror communcaton wth any other department or part of
such premses , and (b) by addng mmedatey at the end thereof the
foowng new sentence: The provsons of ths paragraph sha appy
n the same manner and to the same e tent to apertf wnes other
than vermouth.
2. Secton 30 3(a), Interna Revenue Code, s amended by deetng
the coon n the second sentence thereof and nsertng n eu thereof
the foowng: , nor to appy to or prohbt the fermentaton of grape
wne retsna wth resn on bonded wnery premses: .
3. Secton 30 (b), Interna Revenue Code, s amended by deetng
the words and not more than 13 per centum of acoho after compete
fermentaton, and nsertng n eu thereof the words and not more
than 13 per centum of acoho after compete fermentaton or, f
sweetened, after compete fermentaton and sweetenng, .
. Secton 30 5, Interna Revenue Code, s amended by deetng
the perod at the end thereof and addng the foowng: : Provded,
That n the case of wnes produced from oganberres, currants, or
gooseberres, respectvey, havng a norma acdty of twenty parts
or more per thousand, the voume of the resutant product may be
ncreased more than 3. ) per centum but not more than 60 per centum
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by the addton of sugar and water souton under such reguatons as
the Commssoner of Interna Revenue may prescrbe.
pproved uy 1 ,19 7.
19 7-16-12618
. R. 19 6. PU LIC L W 187. IG TI T CONGR SS
C PT R 2 7, FIRST S SSION .
n ct To amend secton 2801(e) of the Interna Revenue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subsecton (e)
of secton 2801 of the Interna Revenue Code be, and t s hereby,
amended by addng the foowng new numbered paragraph:
(5) endng of bevebage brandes. Frut brandes dsted from the
same knd of frut at not more than one hundred and seventy degrees proof
may, for the soe purpose of perfectng such brandes accordng to commerca
standards, be m ed or bended wth eac other, or wth any such m ture or
bend, by the dster thereof n any nterna revenue bonded warehouse
operated by hm e cusvey for the storage of brandy or wne sprts, and
the provsons of ths secton and of sectons 2800(a)(5) and 325 (g) re-
atng to rectfcaton or other nterna revenue aws of the Unted States
sha not be hed to appy to or prohbt such m ng or bendng, and brandes
so m ed or bended may be packaged, stored, transported, transferred n bond,
wthdrawn from bond ta -pad or ta -free, or be otherwse dsposed of, n the
same manner as such brandes not so m ed or bended: Provded., That,
n addton to the ta mposed by ths chapter on the producton of dsted
sprts, there sha be pad a ta of 30 cents as to each proof gaon (and
a proportonate ta at a ke rate on a fractona parts of such proof gaon)
of brandy so m ed or bended (e cept when wthdrawn ta -free and ac-
counted for or when ost and aowance s made therefor), such ta to be
pad by rectfed sprts stamps aff ed to the packages at the tme of wth-
drawa. The Commssoner, under rues and reguatons to be by hm pre-
scrbed wth the approva of the Secretary, upon the presentaton of proof
to hs satsfacton of the oss by eakage, evaporaton, theft, or otherwse of
frut brandes so bended or m ed, not occurrng as the resut of any neg-
gence, connvance, couson, or fraud on the part of the warehouseman or
hs agents, s hereby authorzed to remt or refund the ta es assessed or pad
upon such ost brandes: Provded, however, That such remsson or refund
sha be aowed ony to the e tent that the warehouseman s not ndemnfed
or recompensed for such ta , and that osses of frut brandes occurrng pror
to any such m ng or bendng sha be aowabe n accordance wth secton
2901. The terms dster as used heren sha ncude any one or more
dsters assocated as members of any farm cooperatve, or any one or more
dsters affated wthn the meanng of secton 17(a)(5) of the Federa
coho dmnstraton ct. as amended, or any frut dster for whose
account, recorded wth the dstrct supervsor at the tme of producton, the
brandy to be bended was produced. The Commssoner may, wth the ap-
prova of the Secretary, make such rues or reguatons as he may deem
necessary to carry these provsons nto effect.
pproved uy 1 ,19 7.
19 7-16-12619
. R. 3801. PU LIC L W 189, IG TI T CONGR SS
C IT R 2 9, FIRST S SSION .
n ct To aow to a successor raroad corporaton the benefts
of certan carry-overs of a predecessor corporaton for the purposes of
certan provsons of the Interna Revenue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That (a) f a ra-
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338
road corporaton (as defned n secton 77m of the Natona ank-
ruptcy ct, as amended) (herenafter referred to as successor corpo-
raton) has acqured, pror to anuary 1, 1950, property from another
such raroad corporaton (herenafter referred to as predecessor cor-
oraton) n a recevershp proceedng, or n a proceedng under secton
7 of the Natona ankrupty ct, as amended, and f the bass of the
property so acqured s determned under secton 113(a) (20) of the
Interna Revenue Code, then, for the purposes of the determnaton
under the Interna Revenue Code of
(1) the net operatng oss cany-over from any ta abe year
begnnng after December 31, 1938, under the aw appcabe to
such ta abe year, and
(2) the e cess profts credt carry-over or the unused e -
cess profts credt carry-over from any ta abe year begnnng
after December 31, 1939, under the aw appcabe to such ta abe
year, the net operatng osses and the unused e cess profts credts
of such predecessor corporaton for the ta abe year n whch the
acquston occurred and for the two precedng ta abe years sha
be carry-overs to such successor corporaton n the manner and to
the e tent provded n reguatons prescrbed by the Commssoner
of Interna Revenue, wth the approva of the Secretary of the
Treasury, as necessary to appy such net operatng osses and un-
used e cess profts credts as carry-overs so far as possbe as f the
predecessor corporaton had been made use of n such proceedng
nstead of the successor corporaton.
(b) For the purposes of ths secton, the ta abe year of the successor
corporaton n whch the acquston occurred sha be consdered
as a ta abe year succeedng the ta abe year of the predecessor corpo-
raton n whch the acquston occurred.
(c) For the purposes of ths secton, f the perod, begnnng on
the frst day of the ta abe year of the predecessor corporaton n whch
the acquston occurred and endng on the ast day of the ta abe
year of the successor corporaton n whch the acquston occurred,
s not more than tweve months, the number of ta abe years to whch
such net operatng oss or unused e cess profts credt s a carry-over
sha be three nstead of two, and such reguatons sha prescrbe (as
neary as possbe n the same manner as provded n secton 122 (b) (2)
and secton 710(c) (3) ( ) of such code) the amount to be carred over
to the ast of such succeedng years.
Sec. 2. (a) In the case of any ta abe year of the successor corpo-
raton, f
(1) the aggregate for such ta abe year of the ta es of the
successor corporaton mposed by chapter 1 and subchapter
of chapter 2 of the Interna Revenue Code, computed wthout
regard to ths ct,
s ess than the amount of
(2) the aggregate of such ta es (determned under reguatons
prescrbed by the Commssoner wth the approva of the Secre-
tary) that woud have been mposed on the predecessor corpora-
ton for such ta abe year f the predecessor corporaton had
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339
been made use of n such proceedng nstead of the successor
corporaton,
then the ta es of the successor corporaton for such ta abe year
sha be the ta es computed wthout regard to ths ct.
(b) In the case of any ta abe year to whch subsecton (a) of
ths secton s not appcabe, f
(1) the aggregate for such ta abe year of the ta es of the
successor corporaton mposed by chapter 1 and subchapter
of chapter 2 of the Interna Revenue Code, computed wthout
regard to ths secton,
s ess than the amount of
(2) the aggregate of such ta es (determned under regua-
tons prescrbed by the Commssoner wth the approva of
the Secretary) that woud have been mposed on the predecessor
corporaton for such ta abe year f the predecessor corporaton
had been made use of n such proceedng nstead of the successor
corporaton,
then the ta es of the successor corporaton for such ta abe year
sha be the ta es so determned under reguatons as the ta es that
woud have been mposed on the predecessor corporaton for such
ta abe year.
(c) Ths secton sha be appcabe to those ta abe years of the
successor corporaton to whch there s a carry-over of a net oper-
atng oss or unused e cess profts credt under secton 1, and to any
ater ta abe year for whch a net operatng oss deducton or unused
e cess profts credt ad|ustment resuts or s ncreased by reason of
the use n another year of a carry-over permtted under secton 1.
Sec. 3. Where there are two or more predecessor corporatons or
two or more successor corporatons, the provsons of sectons 1
and 2 of ths ct sha be apped ony to such e tent and sub|ect to
such condtons, mtatons, and e ceptons as the Commssoner,
wth the approva of the Secretary, may by reguatons prescrbe.
Sec. . If the aowance of a credt or refund of an overpayment
of ta resutng from the appcaton of ths ct s prevented, on
the date of the enactment of ths ct or wthn one year from such
date, by the operaton of any aw or rue of aw other than ths
secton and other than secton 3761 of the Interna Revenue Code,
such overpayment sha be refunded or credted n the manner pro-
vded n the Interna Revenue Code f cam therefor s fed wthn
one year from the date of the enactment of ths ct. No nterest
sha be aowed or pad on any overpayment or defcency resutng
from the appcaton of ths ct.
pproved uy 15,19 7.
19 7-17-12627
R. 011. PU LIC L W 220. IG TI T CONGR SS
C PT R 309, FIRST S SSION .
n ct To amend secton 1602 of the Federa Unempoyment Ta ct.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 1602
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of the Federa Unempoyment Ta ct (Interna Revenue Code, sec.
1602), as amended, s hereby amended by addng at the end thereof a
new subsecton to read as foows:
(d) ountary Contrbutons. State aw may, wthout beng deemed to
voate the standards set forth n subsecton (a), permt vountary contrbutons
to be used n the computaton of reduced rates f such contrbutons are pad
pror to the e praton of one hundred and twenty days after the begnnng of
the year for whch such rates are effectve, or pror to anuary 1, 19 8, whchever
date s the ater.
Sec. 2. The amendment made by secton 1 sha be appcabe ony
wth respect to ta abe years begnnng after December 31, 19 5.
pproved uy 2 , 19 7.
19 7-17-1262S
. R. 3 . PU LIC L W 310, IG TI T CONGR SS
C PT R 30, FIRST S SSION .
n ct To amend secton 251 of the Interna Revenue Code.
e t enacted by the Senate and ouse of Representatve of the
Unted States of merca n Congress assembed, That secton 251 of
the Interna Revenue Code (reatng to ncome from sources wthn
possessons of the Unted States) s hereby amended by addng at the
end thereof a new subsecton to read as foows:
(I) Prsoners of Wab and Internees. In the case of a ctzen of the Unted
States taken as a prsoner of war whe servng wthn a possesson of the Unted
States as a member of the mtary or nava forces of the Unted States, and n
the case of a ctzen nterned by the enemy whe servng as an empoyee wthn a
possesson of the Unted States
(1) f such ctzen was confned n any pace not wthn a possesson of
the Unted States, such pace of confnement sha, for the purposes of ths
secton, be consdered as wthn a possesson of the Unted States; and
(2) any compensaton receved wthn the Unted States by such ctzen
attrbutabe to the perod of tme durng whch such ctzen was a prsoner
of war or Interned by the enemy sha, for the purposes of subsecton (b), be
consdered as compensaton receved outsde the Unted States.
Sec. 2. The amendment made by ths ct sha be appcabe to
ta abe years begnnng after December 31,19 1.
pproved ugust 1, 19 7.
19 7-16-12620
. R 3603. PU LIC L W 321, S NTY-NINT CONGR SS
C PT R 82, S COND S SSION .
n ct To provde for the sae of surpus war-but vesses, and
for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Merchant Shp Saes ct of 19 6 .

D FINITIONS.
Sec. 3. s used n ths ct the term
(a) Commsson means the Unted States Martme Commsson.
(b) War-but vesse means an oceangong vesse of one thousand
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fve hundred gross terns or more, owned by the Unted States and sut-
abe for commerca use
(1) whch was constructed or contracted for by or for the
account of the Unted States durng the perod, begnnng anu-
ary 1,19 1, and endng wth September 2,19 5; or
(2) whch, havng been constructed durng the perod begn-
nng September 3, 1939, and endng wth September 2, 19 5, was
acqured by the Unted States durng such perod.
(c) Prewar domestc cost , as apped to any type of vesse, means
the amount determned by the Commsson, and pubshed by the
Commsson n the Federa Regster, to be the amount for whch a
standard vesse of such type coud have been constructed (wthout
ts natona defense features) n the Unted States under norma con-
dtons reatng to abor, materas, and other eements of cost, obtan-
ng on or about anuary 1,19 1. In no case sha the prewar domestc
cost of any type of vesse be consdered to be greater than 80 per
centum of the domestc war cost of vesses of the same type.
(d) Statutory saes prce , as apped to a partcuar vesse, means,
n the case of a dry-cargo vesse, an amount equa to 50 per centum of
the prewar domestc cost of that type of vesse, and n the case of a
tanker, such term means an amount equa to 87 per centum of the
prewar domestc cost of a tanker of that type, such amount n each
case beng ad|usted as foows:
(1) If the Commsson s of the opnon that the vesse s not
n cass, there sha be subtracted the amount estmated by the
Commsson as the cost of puttng the vesse n cass.
(2) If the Commsson s of the opnon that the vesse acks
desrabe features whch are ncorporated n the standard vesse
used for the purpose of determnng prewar domestc cost, and
that the statutory saes prce (unad|usted) woud be ower f
the standard vesse had aso acked such features, there sha be
subtracted the amount estmated by the Commsson as the amount
of such resutng dfference n statutory saes prce.
(3) If the Commsson s of the opnon that the vesse con-
tans desrabe features whch are not ncorporated n the standard
vesse used for the purpose of determnng prewar domestc cost,
and that the statutory saes prce (unad|usted) woud be hgher
f the standard vesse had aso contaned such features, there
sha be added the amount estmated by the Commsson as the
amount of such resutng dfference n statutory saes prce.
( ) There sha be subtracted, as representng norma depreca-
ton, an amount computed by appyng to the statutory saes prce
(determned wthout regard to ths paragraph) the rate of 5 per
centum per annum for the perod begnnng wth the date of
the orgna devery of the vesse by ts buder and endng wth
the date of sae or charter to the appcant n queston, and there
sha aso be subtracted an amount computed by appyng to the
statutory saes prce (determned wthout regard to ths para-
graph) such rate not n e cess of 3 per centum per annum n the
case of a vesse other than a tanker, and not n e cess of per
centum per annum n the case of a tanker, for such perod or
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perods of war servce as the Commsson determnes w make
reasonabe aowance for e cessve wear and tear by reason of
war servce whch cannot be or has not been otherwse com-
pensated for under ths subsecton.
No ad|ustment, e cept n respect of passenger vesses constructed be-
fore anuary 1, 19 1, sha be made under ths ct whch w resut
n a statutory saes prce whch (1) n the case of dry-cargo vesses
(e cept Lberty type vesses) w be ess than 35 per centum of the
domestc war cost of vesses of the same type, (2) n the case of any
Lberty type vesse w be ess than 31/2 per centum of the domestc
war cost of vesses of such type, or (3) n the case of a tanker w be ess
than 50 per centum of the domestc war cost of tankers of the same tvpe.
For the purposes of ths ct, e cept secton 5, a Lberty vesses sna
be consdered to be vesses of one and the same type.
(e) Domestc war cost as apped to any type of vesse means
the average constructon cost (wthout natona defense features)
as determned by the Commsson, of vesses of such type devered
durng the caendar year 19 , e cept n case of any type of vesse
the prncpa deveres of whch were made after the caendar year
19 , there sha be used n eu of such year 19 such perod of not
ess than s consecutve caendar months as the Commsson sha
fnd to be most representatve of war producton costs of such type.
(f| Cessaton of hosttes means the date procamed by the
Presdent as the date of the cessaton of hosttes n the present war,
or the date so specfed n a concurrent resouton of the two ouses of
the Congress, whchever s the earer.
(g) Ctzen of the Unted States ncudes a corporaton, part-
nershp, or assocaton ony f t s a ctzen of the Unted States wthn
the meanng of secton 2 of the Shppng ct of 1916, as amended.
The term affated nterest as used n sectons 9 and 10 of ths
ct ncudes any person affated or assocated wth a ctzen appcant
for benefts under ths ct who the Commsson, pursuant to rues
and reguatons prescrbed hereunder, determnes shoud be so n-
cuded n order to carry out the pocy and purposes of ths ct.

D USTSI NT FO PUIO S L S TO CITIZ NS.
Sec. 9. (a) ctzen of the Unted States who on the date of the
enactment of ths ct
(1) owns a vesse whch he purchased from the Commsson
pror to such date, and whch was devered by ts buder after
December 31, 19 0; or
(2) s party to a contract wth the Commsson to purchase
from the Commsson a vesse, whch has not yet been devered
to hm; or
(3) owns a vesse on account of whch a constructon-dfferen-
ta subsdy was pad, or agreed to be pad, by the Commsson
under secton 50 of the Merchant Marne ct, 1936, as amended,
and whch was devered by ts buder after December 31,19 0; or
( ) s party to a contract wth a shpbuder for the construc-
ton for hm of a vesse, whch has not yet been devered to hm,
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and on account of whch a constructon-dfferenta subsdy was
agreed, pror to such date, to be pad by the Commsson under
secton 50 of the Merchant Marne ct, 1936, as amended;
sha, e cept as herenafter provded, be entted to an ad|ustment n
the prce of such vesse under ths secton f he makes appcaton
therefor, n such form and manner as the Commsson may prescrbe,
wthn s ty days after the date of pubcaton of the appcabe pre-
war domestc costs n the Federa Regster under secton 3(c) of ths
ct. No ad|ustment sha be made under ths secton n respect of any
vesse the contract for the constructon of whch was made after Sep-
tember 2,19 5, under the provsons of tte (ncudng secton 50 )
or tte II of the Merchant Marne ct, 1930, as amended.
(b) Such ad|ustment sha be made, as herenafter provded, by
treatng the vesse as f t were beng sod to the appcant on the date
of the enactment of ths ct, and not before that tme. The amount
of such ad|ustment sha be determned as foows:
(1) The Commsson sha credt the appcant wth the e cess
of the cash payments made upon the orgna purchase prce of
the vesse over 25 per centum of the statutory saes prce of the
vesse as of such date of enactment. If such pavment was ess
than 25 per centum of the statutory saes prce of the vesse, the
appcant sha pay the dfference to the Commsson.
(2) The appcant s ndebtedness under any mortgage to the
Unted States wth respect to the vesse sha be ad|usted.
(3) The ad|usted mortgage ndebtedness sha be n an amount
equa to the e cess of the statutory saes prce of the vesse as of
the date of the enactment of ths ct over the sum of the cash pay-
ment retaned by the Unted States under paragraph (1) pus the
read|usted trade-n aowance (determned under paragraph (7))
wth respect to any vesse e changed by the appcant on the org-
na purchase. The ad|usted mortgage ndebtedness sha be pay-
abe n equa annua nstaments thereafter durng the remanng
fe of such mortgage wth nterest on the porton of the statutory
saes prce remanng unpad at the rate of 3 per centum per
annum.
( ) The Commsson sha credt the appcant wth the e cess,
f any, of the sum of the cash payments made by the appcant
upon the orgna purchase prce of the vesse pus the read|usted
trade-n aowance (determned under paragraph (7)) over the
statutory saes prce of the vesse as of the date of the enactment
of ths ct to the e tent not credted under paragraph (1).
(5) The Commsson sha aso credt the appcant wth an
amount equa to nterest at the rate of 3 per centum per annum
(for the perod begnnng wth the date of the orgna devery
of the vesse to the appcant and endng wth the date of the
enactment of ths ct) on the e cess of the orgna purchase prce
of the vesse over the amount of any aowance aowed by the
Commsson on the e change of any vesse on such purchase; the
amount of such credt frst beng reduced by any nterest on the
orgna mortgage ndebtedness accrued up to such date of enact-
ment and unpad. Interest so accrued and unpad sha be
canceed.
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(6) The appcant sha credt the Commsson wth a amounts
pad by the Unted States to hm as charter hre for use of the
vesse (e cusve of servce, f any, requred under the terms of
the charter) under any charter party made pror to the date of the
enactment of ths ct, and any charter hre for such use accrued
up to such date of enactment and unpad sha be canceed; and
the Commsson sha credt the appcant wth the amount that
woud have been pad by the Unted States to the appcant as
charter hre for bare-boat use of vesses e changed by the app-
cant on the orgna purchase (for the perod begnnng wth
date on whch vesses so e changed were devered to the Comms-
son and endng wth the date of the enactment of ths ct).
(7) The aowance made to the appcant on any vesse e -
changed by hm on the orgna purchase sha be read|usted so
as to mt such aowance to the amount provded for under
secton 8.
(8) There sha be subtracted from the sum of the credts n
favor of the Commsson under the foregong provsons of ths
subsecton the amount of any overpayments of Federa ta es by
the appcant resutng from the appcaton of subsecton (c) (1),
and there sha be subtracted from the sum of the credts n favor
of the appcant under the foregong provsons of ths subsecton
the amount of any defcences n Federa ta es of the appcant
resutng from the appcaton of subsecton (c)(1). If, after
makng such subtractons, the sum of the credts n favor of the
appcant e ceeds the sum of the credts n favor of the Comms-
son, such e cess sha be pad by the Commsson to the appcant.
If, after makng such subtractons, the sum of the credts n favor
of the Commsson e ceeds the sum of the credts n favor of the
appcant, such e cess sha be pad by the appcant to the Com-
msson. Upon such payment by the Commsson or the appcant,
such overpayments sha be treated as havng been refunded and
such defcences as havng been pad.
For the purposes of ths subsecton, the purchase prce of a vesse on
account of whch a constructon-dfferenta subsdy was pad or agreed
to be pad under secton 50 of the Merchant Marne ct, 1936, as
amended, sha be the net cost of the vesse to the owner.
(c) n ad|ustment sha be made under ths secton ony f the
appcant enters nto an agreement wth the Commsson bndng upon
the ctzen appcant and any affated nterest to the effect that
(1) deprecaton and amortzaton aowed or aowabe wth
respect to the vesse up to the date of the enactment of ths ct
for Federa ta purposes sha be treated as not havng been
aowabe; amounts credted to the Commsson under subsecton
(b) (6) sha be treated for Federa ta purposes as not havng
been receved or accrued as ncome; amounts credted to the
appcant under subsecton (b) (5) and (6) sha be treated for
Federa ta purposes as havng been receved and accrued as
ncome n the ta abe year n whch fas the date of the enact-
ment of ths ct;
(2) the abty of the Unted States for use (e cusve of
servce, f any, requred under the terms of the charter) of the
vesse on or after the date of the enactment of ths ct under
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any charter party sha not e ceed 15 per centum per annum of
the statutory saes prce of the vesse as of such date of enact-
ment; and the abty of the Unted States under any such
charter party for oss of the vesse sha be determned on the
bass of the statutory saes prce as of the date of the enactment
of ths ct, deprecated to the date of oss at the rate of 5 per
centum per annum; and,
(3) n the event the Unted States, pror to the termnaton
of the e stng natona emergency decared by the Presdent on
May 27, 19 1, uses such vesse pursuant to a takng, or pursuant
to a bare-boat charter made, on or after the date of the enact-
ment of ths ct, the compensaton to be pad to the purchaser,
hs recevers, and trustees, sha n no event be greater than 15
per centum per annum of the statutory saes prce as of such date,
(d) Secton 506 of the Merchant Marne ct, 1936, as amended,
sha not appy wth respect to (1) any vesse whch s egbe for an
ad|ustment under ths secton, or (2) any vesse descrbed n cause
(1), (2), (3), or ( ) of subsecton (a) of ths secton, the contract
for the constructon of whch s made after September 2, 19 5, and
pror to the date of enactment of ths ct.
LIMIT TION ON LIGI ILITY FOR N FITS OF CT
Sec. 10. No person sha be egbe to purchase or charter a war-
but vesse under ths ct, or to receve an ad|ustment under secton
9, uness such person makes an agreement wth the Commsson bnd-
ng upon such person and any affated nterest to the effect that the
abty of the Unted States under any charter party or takng for
use, made or effected pror to the date of the enactment of ths ct,
for the oss, on or after such date of enactment and pror to Septem-
ber 3, 19 7, of any vesse owned by such person and under charter
to the Unted States (e cudng a vesse wth respect to whch an
ad|ustment s made under secton 9) sha be mted to an amount
equa to |ust compensaton as of the date of sad oss, determned pur-
suant to e stng aw, or such amount as may be mutuay agreed upon
subsequent to the date of the enactment of ths ct as |ust compensa-
ton under the provsons of e stng aw.

T RMIN TION D T .
Sec. 1 . No contract of sae or of charter sha be made under ths
ct after December 31, 19 7.
pproved March 8, 19 6.
19 7-18-12633
. R. 257. PU LIC L W 356, IG TI T CONGR SS
C PT R 81, FIRST S SSION .
n ct To provde an e tenson of tme for camng credt or
refund wth respect to war osses.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That f a cam for
credt or refund under the nterna-revenue aws reates to an over-
payment on account of the deductbty by the ta payer of a oss n
77338 18 23
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respect of property consdered destroyed or sezed under secton 127
(a) of the Interna Revenue Code, reatng to war osses, for a ta abe
year begnnng n 19 1 or 19 2, the three-year perod of mtaton
prescrbed n secton 322(b)(1) of the Interna Revenue Code sha
n no event e pre pror to December 31, 19 8. In the case of such a
cam fed on or before December 31, 19 8, the amount of the credt
or refund may e ceed the porton of the ta pad wthn the perod
provded n secton 322(b) (2) or (3) of the Interna Revenue Code,
whchever s appcabe, to the e tent of the amount of the overpay-
ment attrbutabe to the deductbty of the oss descrbed n ths
secton.
pproved ugust , 19 7.
19 7-18-1263
. R. 70. PU LIC L W 3 7, IG TI T CONGR SS
C PT R 90, FIRST S SSION .
n ct Reatng to the ncome-ta abty of members of the
armed forces dyng n the servce.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 21 of
the Interna Revenue Code (reatng to abatement of ta for members
of armed forces upon death) s amended to read as foows:
S C. 21. T M NT OF T FOR M M RS OF RM D FORC S
UPON D T .
In the case of any ndvdua who des on or after December 7, 19 1, whe
n actve servce as a member of the mtnry or nava forces of the Unted
States or of any of the other Unted Natons and pror to anuary 1, 19 8
(a) the ta mposed by ths chapter sha not appy wth respect to
the ta abe year n whch fas the date of hs death, or wth respect to any
pror ta abe year (endng on or after December 7, 19 1) durng any part
of whch he was a member of such forces; and
(b) the ta under ths chapter and under the correspondng tte of
each pror revenue aw for ta abe years precedng those specfed n cause
(a) whch s unpad at the date of hs death (ncudng nterest, addtons
to the ta , and addtona amounts) sha not be assessed, and f assessed
the assessment sha be abated, and f coected sha be credted or refunded
as an overpayment.
Sec. 2. If at any tme pror to anuary 1, 19 8, the aowance of a
credt or refund of an overpayment of the ta for any ta abe year
specfed n secton 21(a) of the Interna Revenue Code (as amended
by ths ct) s prevented (e cept for the provsons of secton 3801)
by the operaton of any aw or rue of aw, a credt or refund of the
overpayment of such ta to the e tent that the overpayment s at-
trbutabe to the change n aw made by ths ct may, nevertheess, be
aowed or made f a cam therefor s fed before anuary 1,19 9.
pproved ugust 5, 19 7.
19 7-18-1263, )
a. R. 3818. PU LIC L W 379, IG TI T CONGR SS
C PT R 510, FIRST S SSION .
n ct To amend the Federa Insurance Contrbutons ct wth
respect to rates of ta on empoyers and empoyees, and for other
purposes.
e t enacted by the Senate and the ouse of Representatves of the
Unted States of merca n Congress assembed, That causes (1),
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(2), and (3) of secton 1 00 of the Federa Insurance Contrbutons
ct (Interna Revenue Code, sec. 1 00), as amended, are hereby
amended to read as foows:
(1) Wth respect to wages receved durng the caendar years 1039 to 1919,
both ncusve, the rate sha be 1 per centum.
(2) Wth respect to wages receved durng the caendar years 1950 and
1951, the rate sha be I per centum.
(3) Wth respect to wages receved after December 31, 1951, the rate sha
be 2 per centum.
Sec. 2. Causes (1), (2), and (3) of secton 1 10 of the Federa
Insurance Contrbutons ct (Interna Revenue Code, sec. 1 10), as
amended, are hereby amended to read as foows:
(1) Wth respect to wages pad durng the caendar years 1939 to 19 9,
both ncusve, the rate sha be 1 per centum.
(2) Wth respect to wages pad durng the caendar years 1950 and 1951,
the rate sha be 1 a per centum.
(3) Wth respect to wages pad after December 31, 1051, the rate sha be
2 per centum.
Sec. 3. Secton 50 of the Soca Securty ct mendments of 19 6
(Pubc Law 719, Seventy-nnth Congress), f ng the termnaton date
of amendments reatng to grants to States for od-age assstance, ad
to the bnd, and ad to dependent chdren, s hereby amended by
strkng out December 31,19 7 and nsert ng n eu thereof une
30,1950 .
Sec. . Secton 603 of the War Mobzaton and Reconverson ct
of 19 (termnatng the provsons of such ct on une 30, 19 7)
sha not be appcabe n the case of the amendments made by tte I
of such ct to the Soca Securty ct.
Sec. 5. (a) Secton 90 (h) of the Soca Securty ct s hereby
amended to read as foows:
(h) There s hereby estabshed n the Unempoyment Trust Fund a Federa
unempoyment account. There s hereby authorzed to be approprated to such
Federa unempoyment account a sum equa to (1) the e cess of ta es coected
pror to uy 1,10 6, under tte I of ths ct or under the Federa Unempoyment
Ta ct, over the tota unempoyment admnstratve e pendtures made pror
to uy 1, 10 6, pus (2) the e cess of ta es coected n each fsca year begnnng
after une 30, 10 6, and endng pror to uy 1. 19 9, under the Federa Unempoy-
ment Ta ct, over the unempoyment admnstratve e pendtures made n such
year, and the e cess of such ta es coected durng the perod begnnng on uy 1,
19 9, and endng on December 31, 19 9, over the unempoyment admnstratve
e pendtures made durng such perod. ny amounts n the Federa unempoy-
ment account on pr 1,1050, and any amounts repad to such account after such
date, sha be covered nto the genera fund of the Treasury. s used n ths
subsecton, the term unempoyment admnstratve e pendtures means e pend-
tures for grants under tte III of ths ct. e pendtures for the admnstraton
of that tte by the oard or the dmnstrator, and e pendtures for the admn-
straton of tte I of ths ct, or of the Federa Unempoyment Ta ct by the
Department of the Treasury, the oard, or the dmnstrator. For the purposes
of ths subsecton there sha be deducted from the tota amount of ta es coected
pror to uy 1, 19 3, under tte I of ths ct, the sum of 0,561,886. 3 whch
was authorzed to be approprated by the ct of ugust 2 , 1037 ( 50 Stat. 75 )
and the sum of 18, 51,8 0 whch was authorzed to be approprated by secton
11(b) of the Raroad Unempoyment Insurance ct.
(b) Secton 1201(a) of the Soca Securty ct s hereby amended
by strkng out on une 30, 19 5, or on the ast day n any ensung
caendar quarter whch ends pror to uy 1, 19 7 , and nsertng n
eu thereof on une 30, 19 7, or on the ast day n any ensung caen-
dar quarter whch ends pror to anuary 1,1950 .
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Sec. 6. Ths ct may be cted as the Soca Securty ct mend-
ments of 19 7.
pproved ugust 6,19 7.
19 7-18-12636
. R. 069. PU LIC L W 38 , IG TI T CONGR SS
C PT R 515, FIRST S SSION .
n ct. To termnate certan ta provsons before the end of
Word War II.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

S C. 5. M RC NT M RIN CONSTRUCTION R S R FUND.
For the purposes of the provso of subsecton (h) of secton 511 of
the Merchant Marne ct, 1936, as amended, added to such subsecton
by the ct of une 17, 19 3 (57 Stat. 158), the present war sha be
consdered as havng termnated on March 31,19 8.
S C. 6. T D F RM NTS OF S R IC P RSONN L.
Secton 13(c)(2) of the Mssng Persons ct (Pubc Law 90,
Seventy-seventh Congress; 56 Stat. 1 6) s hereby amended to read as
foows:
(2) December 31, 19 7; or
S C. 7. DDITION L LLOW NC FOR MILIT RY ND N L P R-
SONN L.
Secton 22(b) (13) of the Interna Revenue Code s hereby amended
to read as foows:
(13) ddtona aowance for mhtart and nava personne.
( ) In the case of compensaton receved pror to anuary 1, 19 9,
durng any ta abe year, for actve servce as a commssoned offcer (or
a commssoned warrant offcer) n the mtary or nava forces of the
Unted States durng the present war, or, n the case of a ctzen or
resdent of the Unted States, as a member of the mtary or nava forces
of any of the other Unted Natons durng such war, so much of such
compensaton as does not e ceed 1,500.
( ) Compensaton receved pror to anuary 1, 19 9, durng any
ta abe year, for actve servce as a member beow the grade of com-
mssoned offcer (or commssoned warrant offcer) n the mtary or
nava forces of the Unted States durng the present war.
S C. 8. IN OLUNT RY LI UID TION ND R PL C M NT OF IN N-
TORY.
Secton 22(d)(6)( ) of the Interna Revenue Code s hereby
amended by strkng out pror to the termnaton of the present war
as procamed by the Presdent and nsertng n eu thereof pror
to anuary 1,19 8 , and by strkng out not more than 3 years after
the termnaton of the present war as procamed by the Presdent
and nsertng n eu thereof pror to anuary 1, 1951 .
S C. 9. T M NT OF T FOR M M RS OF RM D FORC S UPON
D T .
Secton 21 of the Interna Revenue Code s hereby amended by
strkng out the termnaton of the present war as procamed by the
Presdent and nsertng n eu thereof anuary 1, 19 8
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3 9
S O. 10. COLL CTION OF INCOM T T SOURC ON W G S.
(a) Secton 1621(a) of the Interna Revenue Code s hereby
amended by strkng out paragraph (1), by strkng out the sentence
foowng paragraph (9), and by amendng paragraph (8) to read as
foows:
(8) ( ) for servces for an empoyer (other than the Unted States or
any agency thereof) performed by a ctzen of the Unted States, f t s
reasonabe to beeve that durng the entre caendar year the empoyee w
be a bona fde resdent of a foregn country or countres, or
( ) for servces for an empoyer performed wthn a possesson of the
Unted States by a ctzen of the Unted States, f t s reasonabe to beeve
that at east 80 per centum of the remuneraton to be pad to the empoyee
by such empoyer durng the caendar year w be for such servces, or
(b) The amendments made by ths secton sha be appcabe wth
respect to wages pad on or after anuary 1, 19 8, e cept that the
amendment strkng out paragraph (1) of secton 1621(a) of the
Interna Revenue Code sha be appcabe wth respect to wages pad
on or after anuary 1,19 9.
S C. 11. T ON DMISSIONS.
(a) Secton 1700(a) (1) of the Interna Revenue Code s hereby
amended by strkng out (e cept bona fde empoyees, muncpa off-
cers on offca busness, chdren under tweve years of age, members
of the mtary or nava forces of the Unted States when n unform,
members of the mtary or nava forces of any of the Unted Natons,
when n unform, and members of the Cvan Conservaton Corps
when n unform) , and nsertng n eu thereof: (e cept bona fde
empoyees, muncpa offcers on offca busness, and chdren under
tweve vears of age) , and by strkng out the ast sentence.
(b) The amendments made by subsecton (a), nsofar as appcabe
wth respect to amounts pad for admsson, sha be appcabe to
amounts pad after December 31, 19 7, and, nsofar as appcabe to
free admssons, sha be appcabe wth respect to such admssons
after December 31, 19 7.
S C. 12. TR NSPORT TION T MPTION OF MILIT RY ND N L
P RSONN L.
Secton 3 69(f)(2) of the Interna Revenue Code sha not be
appcabe to amounts pad after December 31,19 7.
S C. 13. TIM FOR P RFORMING C RT IN CTS POSTPON D Y
R SON OF W R.
Secton 380 (c) of the Interna Revenue Code s hereby amended
to read as foows:
(c) Lmtaton on Tme To e Dsregarded. The perod of tme dsregarded
under ths secton sha not e tend beyond the date specfed n cause (1) or
cause (2) of ths subsecton, whchever s the earer:
(1) December 31, 19 7, or such date ater than December 31, 10 7, as the
Commssoner may f n any case n whch he makes a determnaton under
subsecton (b) f such determnaton s made after the date ths subsecton
as amended takes effect and Is based on the e stence pror to anuary 1,
10 8, of one or more of the crcumstances specfed In paragraph (1), (2), or
(3) of subsecton (b); or
(2) In the case of an ndvdua wth respect to whom a perod of tme
Is dsregarded under ths secton, the ffteenth day of the thrd month fo-
owng the month n whch an e ecutor, admnstrator, or a conservator of
the estate of such Indvdua quafes.
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350
S C. 1 . C IN TR D CT CORPOR TIONS.
Secton 3805 of the Interna Revenue Code s hereby amended by
strkng out the ffteenth day of the s th month foowng the month
n whch the present war wth Germany, Itay, and apan s term-
nated, as procamed by the Presdent and nsertng n eu thereof:
December 31, 19 7 .
S C. 15. P RC NT G D PL TION.
(a) Secton 12 (e) of the Revenue ct of 19 3 (reatng to term-
naton of percentage depeton for certan mneras) s repeaed as of
the date of ts enactment.
(b) So much of secton 11 (b) ( ) of the Interna Revenue Code
(reatng to percentage depeton for certan mneras) as precedes the
second sentence thereof, s amended to read as foows:
( ) Percentage depeton for coa, bau te, fuorspar, fake graphte,
vermcute, beky, fedspar, mca, tac (ncudng pyropy|te), epdo
te, spoumene, barte, ba, sagger, and chna cay, rock as hat, phos-
phate rock, trona, benront, gsonte, thenakdte, and meta mnes,
potash, and sufur.
( ) In Genera. The aowance for depeton under secton 23(m)
sha be, n the case of coa mnes, 5 per centum, n the case of meta
mnes, bau te, fuorspar, fake graphte, vermcute, bery, fedspar,
mca, tac (Incudng pyrophyte), epdote, spodumeue, barte, ba,
sagger, and chna cay, phosphate rock, rock asphat mnes, trona, ben-
tonte, gsonte, theuardte (from brnes or m tures of brne), and
potash mnes or deposts, 15 per centum, and n the case of sufur mnes
or deposts, 23 per centum, of the gross ncome from the property dur-
ng the ta abe year, e cudng from such gross ncome an amount equa
to any rents or royates pad or ncurred by the ta payer n respect of
the property.
(c) The frst sentence of secton 11 (b) (2) of the Interna Revenue
Code (reatng to dscovery vaue) s amended to read as foows: In
the case of mnes (other than meta, bau te, coa, fuorspar, fake
graphte, vermcute, bery, fedspar, mca, tac (ncudng pyro-
phyte) , epdote, spodumene, barte, potash, ba, sagger, and chna
cay, phosphate rock, rock asphat, trona, bantonte, gsonte, thenar-
dte, or sufur mnes) dscovered, by the ta payer after February 28,
1913, the bass for depeton sha be the far market vaue of the prop-
erty at the date of dscovery or wthn thrty days thereafter, f such
mnes were not acqured as the resut of purchase of a proven tract or
ease, and f the far market vaue of the property s materay dspro-
portonate to the cost.
(d) The amendments made by subsectons (b) and (c) of ths sec-
ton sha be appcabe wth respect to ta abe years begnnng after
December 31, 19 6.
S C. 16. C RIT L CONTRI UTIONS Y CORPOR TIONS.
Secton 23(q)(2) of the Interna Revenue Code (reatng to char-
tabe and other contrbutons by corporatons) s hereby amended by
strkng out the date of the cessaton of hosttes n the present war,
as procamed by the Presdent and nsertng n eu thereof Decem-
ber 31, 19 8 .
pproved ugust 8, 19 7.
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351
19 7-18-12637
. R. 3613. PU LIC L W 387, IG TI T CONGR SS
C PT R 518, FIRST S SSION .
n ct To amend sectons 1802(a), 1802(b), and 3 81(a) of the
Interna Revenue Code.
e t enacted by the Senate and ome of Representatves of the
Unted States of merca n Congress assembed, That secton 1802 (a)
of the Interna Revenue Code s amended by deetng the perod at
the end of the ne t to the ast sentence and nsertng n eu thereof
the foowng: : Provded further, That where such certfcates (or
shares, where no certfcates are ssued) are ssued n a recaptazaton,
the ta payabe sha be that proporton of the ta computed on such
certfcates or shares ssued n the recaptazaton that the amount
dedcated as capta for the frst tme by the recaptazaton, whether
by a transfer of earned surpus or otherwse, bears to the tota par
vaue (or actua vaue f no par stock) of such certfcates or shares
ssued n the recaptazaton.
Secton 1802(b) of the Interna Revenue Code s amended by nsert-
ng after the frst provso the foowng: Provded further, That
upon any transfer of an nterest n a partnershp ownng shares or
certfcates of stock, the ta sha be mted to an amount equa to that
percentage of a ta computed on the transfer of a of such shares or
certfcates of stock owned by the partnershp as the nterest trans-
ferred bears to the tota nterests n the partnershp of a the
partners: .
Secton 1802(b) of the Interna Revenue Code s amended by nsert-
ng n the second provso foowng the word deposted a comma
and the words nor upon mere oans of stock .
Secton 3 81(a) of the Interna Revenue Code s amended by nsert-
ng after Provded the foowng: That upon any transfer of an
nterest n a partnershp ownng such nstruments, the ta sha be
mted to an amount equa to that percentage of a ta computed on
the transfer of a of such nstruments owned by the partnershp as the
nterest transferred bears to the tota nterests n the partnershp of
a the partners: Provded further .
pproved ugust 8, 19 7.
19 7-18-12638
. R. 075. PU LIC L W 388, IG TI T CONGR SS
C PT R 519, FIRST S SSION .
n ct To reguate commerce among the severa States, wth the
Terrtores and possessons of the Unted States, and wth foregn
countres; to protect the wefare of consumers of sugars and of
those engaged n the domestc sugar-producng ndustry; to pro-
mote the e port trade of the Unted States; and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may be
cted as the Sugar ct of 19 8 .

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352
TITL M NDM NTS TO T INT RN L R NU COD .
Sec. 501. (a) Subsecton (b) of secton 3507 of the Interna Reve-
nue Code (reatng to the defnton of manufactured sugar ) s
amended by nsertng n the parentheses after the word added
theren the foowng: or deveoped n the product .
(b) Secton 3508 of the Interna Revenue Code (reatng to term-
naton of ta es) s amended to read as foows:
S C. 3508. T RMIN TION OP T S.
No ta sha be mposed under ths chapter on the manufacture, use, or m-
portaton of sugar or artces composed n chef vaue of sugar after une 30,1953.
Notwthstandng the provsons of secton 3 90 or 3500, no ta shaU be mposed
under ths chapter wth respect to unsod sugar hed by a manufacturer on
une 30, 1953, or wth respect to sugar or artces composed n chef vaue of
sugar hed n customs custody or contro on such date.
Wth respect to any sugar or artces composed n chef vaue of sugar upon
whch ta mposed under secton 3500 has been pad and whch, on une 30, 1953,
are hed by the mporter and ntended for sae or other dsposton, there sha
be refunded (wthout nterest) to such mporter, sub|ect to such reguatons as
may be prescrbed by the Commssoner of Customs wth the approva of the
Secretary, an amount equa to the ta pad wth respect to such sugar or artces
composed n chef vaue of sugar.
(c) The amendments to the Interna Revenue Code provded for n
ths secton sha become effectve upon the frst day of the second
month foowng the date of the enactment of ths ct.
pproved ugust 8,19 7.
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COMMITT R PORTS.
19 7-20-12655
T RMIN TION OF W RTIM T PRO ISIONS.
ouse of Representatves Report No. 802, ghteth Congress, Frst Sesson.
uy 7, 19 7.
Mr. nutson, from the Commttee on Ways and Means, submtted the foow-
ng report to accompany . R. 069 :
The Commttee on Ways and Means, to whom was referred the b ( . R.
069) to termnate certan ta provsons before the end of Word War II,
havng consdered the same, report favoraby thereon wthout amendment and
recommend that the b do pass.
G N R L ST T M NT.
The purpose of ths b Is to provde for the termnaton of a number of
war and emergency statutory provsons reated to Interna revenue and customs.
The b aso makes amendments to the Interna Revenue Code approprate n
connecton wth the termnaton of certan of the statutes.
INT RN L R NU S.
The Income ta e cusons of 1,500 of servce pay (as to offcers) and of a
servce pay (as to ensted personne) now aowed rmy and Navy personne
are termnated December 31, 19 7, and provson s made that servce pay of
such offcers and ensted personne after December 31, 19 7, w be brought
wthn the provsons of the Interna Revenue Code provdng for wthhodng
of ncome ta at source on wages.
The provson of secton 1621(a) of the Interna Revenue Code wth respect
to wthhodng of ta on remuneraton for servces outsde of the Unted States
s amended to reate such provson more cosey to sectons 116(a) and 251 of
the Code reatng, respectvey, to earned ncome from sources wthout the
Unted States and ncome from sources wthn possessons of the Unted States.
Ths amendment s not mted to servce personne but Incudes cvans
dervng ncome for servces performed outsde the Unted States.
The wartme provsons for speca treatment under the admssons ta for
members of the armed forces n unform admtted free or at reduced rates, and
whch e empt from ta admssons to theaters and other actvtes operated on
War and Navy Department reservatons, are termnated December 31, 19 7.
The transportaton ta e empton appcabe to members of the armed forces
traveng on furough tckets s termnated December 31, 19 7.
Severa provsons of aw (sectons 380 and 3805 of the Interna Revenue
Code and secton 13 of the Mssng Persons ct) whch permt, because of cr-
cumstances connected wth the war, postponement of the tme for performng
varous acts n connecton wth Federa ta abtes, such as fng of returns,
payment of ta es, etc., are termnated December 31, 19 7. owever, provson
s made, by amendment to secton 380 , for the grantng of further reef after
such date by the Commssoner of Interna Revenue n unusua cases.
The wartme provson aowng abatement or refund of ncome ta n the
case of members of the armed forces dyng whe n actve servce s amended
to mt ts operaton to the cases of such persons dyng before anuary 1, 19 8.
In the case of ta payers usng the ast-n frst-out nventory method for ncome
ta reportng, e stng aw makes speca provson for repacement of nven-
tores depeted by nvountary qudaton because of crcumstances reated to
the war. Ths provson has been amended to provde that the reef s aowabe
where the Invountary qudaton occurred n a ta abe year begnnng pror to
(353)
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ugust 1, 10 7 (nstead of pror to the termnaton of the war) and the repace-
ment occurred n a ta abe year endng pror to ugust 1, 1950 (nstead of not
more than three years after the termnaton of the war).
Percentage depeton was aowed certan mneras durng the war perod.
The mneras affected are ba and sagger cay, fuorspar, and rock asphat pro-
vded for under the Revenue ct of 19 2, and barte, bery, fedspar, fake
graphte, mca, epdote, spodumene, tac, and vermcute provded for under
the Revenue ct of 19 3. These aowances were termnated wth respect to
ta abe years begnnng after December 31, 19 6, the date procamed by the
Presdent as the date of termnaton of hosttes n Word War II.
Your commttee, after hearngs on the sub|ect, s of the opnon that such
aowances shoud be contnued for ta abe years begnnng after December
31. 19 0, and aso that percentage depeton shoud be aowed n the case of
chna cay, bentonte, gsonte, and thenardtte for ta abe years begnnng
after December 31, 19 6. ccordngy, the b emnates the e stng provsons
provdng for such termnaton and aows percentage depeton for the four
addtona tems ast mentoned for the years specfed.
The ffteenth day after the date of the enactment of the b s f ed as the
date of the termnaton of the present war for the purposes of the provso
of secton 511(h) of the Merchant Marne ct, 1936, whch provso permts,
for ta purposes, further e tenson by the Martme Commsson of the perod
for the performance of certan acts wth respect to shp constructon reserve
funds.
CUSTOMS.
The wartme suspenson of tarff dutes wth respect to certan meta scrap s
termnated une 30, 19 8, and the wartme suspenson of tarff dutes on coconuts
and coconut meat s termnated the thrteth dav foowng the enactment of the
h.
The wartme provsons permttng free entry of artces consgned to members
of the Unted Natons armed forces, prsoners of war and enemy cvan nternees,
and of artces made by certan prsoners of war and Internees detaned by the
enemy, s termnated une 30, 19 8. The wartme provson permttng free entry
of gfts In mted amounts from members of the armed forces, whch termnated
une 30, 19 7, s e tended to une 30, 19 9, but on and after September 1, 19 7,
free entry s dened uness the artce s purchased n or through authorzed agen-
ces of the armed forces of the Unted States or n accordance wth reguatons
prescrbed by the ma|or geographca commands of the Unted States armed forces.
Detaed Dscusson op the Technca Provsons of the .
S CTION I.
Secton 1 of the b woud amend the ct of March 13, 19 2 (Pubc Law 97,
Seventy-seventh Congress; 50 Stat., 171), whch e empts from duty or nterna
revenue ta , scrap ron, scrap stee, reayng and rerong ras, or nonferrous-
meta scrap, entered for consumpton or wthdrawn from warehouse for consump-
ton durng the perod begnnng March 1 , 19 2, and endng wth the termnaton
of the unmted natona emergency procamed by the Presdent on May 27,19 1.
The proposed amendment provdes that the perod of e empton sha termnate
wth the cose of une 30, 19 8. owever, by reason of the provsons of the ct
of pr 29, 19 7 (Pubc Law 2, ghteth Congress), copper scrap w contnue
to be e empt from the nterna revenue ta mposed under secton 3 25 of the
Interna Revenue Code unt the cose of March 31, 19 9.
S CTION 2.
Secton 2 of the b woud amend the |ont resouton of une 27, 19 2 (Pubc
Law 635, Seventy-seventh Congress; 56 Stat., 02), to termnate as of the cose of
une 30, 19 8, the prvege of mportaton free of dutes or nterna revenue
ta es of artces for members of the armed forces of the Unted Natons, of artces
for enemy prsoners of war aud enemy cvan nternees, and of artces made by
members of the armed forces of the Unted Natons whe detaned as prsoners of
war or by natonas of the Unted States detaned by the enemy, entered for con-
sumpton or wthdrawn from warehouse for consumpton begnnng une 27,19 2,
and unt the e praton of s months after the termnaton of the unmted
natona emergency procamed by the Presdent on May 27, 19 1. Secton 2 sub-
sttutes for the present termnaton cause the specfc date uy 1,19 8.
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S CTION 3.
The ct of December 5, 19 2 (Pubc Law 790, Seventy-seventh Congress; 56
Stat., 10 1), aowed, unt the e praton of s months after the termnaton of
hosttes as determned by procamaton of the Presdent, the entry free of
customs dutes or nterna revenue mport ta es of so much of any shpment as
dd not e ceed 50 n vaue f there was fed n connecton wth the entry satsfac-
tory evdence that the artces were bona fde gfts from a member of the armed
forces of the Unted States on duty outsde the contnenta mts of the Unted
States. Pursuant to the Presdent s procamaton, dated December 31, 19 6, such
e empton termnated on une 30, 19 7. Secton 3 of the b amends such act,
effectve as of une 30, 19 7, so as to e tend the perod for free entry through
une 30, 19 9. Secton 3 aso amends such act so as to deny free entry on or after
September 1, 19 7, uness the artce s purchased n or through authorzed
agences of the armed forces of the Unted States or n accordance wth reguatons
prescrbed by the ma|or geographca commands of the Unted States armed
forces.
S CTION .
The ct of December 20, 19 (Pubc Law 50 , Seventy-eghth Congress; 58
Stat, 817), provdes that no duty sha be coected under the Tarff ct of 1930,
as amended, wth respect to coconuts or coconut meat unt the termnaton of the
unmted natona emergency procamed by the Presdent on May 27, 19 1.
Secton of the b provdes that such ct sha be nappcabe wth respect to
artces entered for consumpton or wthdrawn from warehouse for consumpton
on or after the thrteth day after the date of the enactment of the b.
S CTION 5.
Secton 511 of the Merchant Marne ct of 1936 provdes among other thngs
for speca ta treatment wth respect to shp constructon, reserve funds, certan
percentages of whch must be e pended wthn perods of tme determned under
such secton. Subsecton (h) of secton 511 provdes a bass on whch e tensons
of such perods of tme may be granted, wth a 2-year mtaton, but unt the
termnaton of the present war further e tensons may be granted endng not
ater than s months after the termnaton of the present war.
Secton 5 of the h provdes that for the purpose of such subsecton (h) the
present war sha be consdered as havng termnated on the ffteenth day after
the date the b becomes aw.
S CTION 6. .
Secton 13 of the Mssng Persons ct provdes for deferment for a mted
perod of the due dates of ncome ta returns and payment of ncome ta n the
case of mtary and nava personne and cvan empoyees of the Government
hed as prsoners of war or mtary and nava personne on sea duty or outsde
the Unted States.
Paragraphs (1), (2), and (3) of subsecton (c) of secton 13 set forth rues for
determnng the earest due date,-dependng on the crcumstances, for fng return
and payment of ta . Under paragraph (2) no deferment under secton 13 can
e tend beyond the 15th day of the thrd month foowng the month n whch the
present war wth Germany, Itay, and apan s termnated, as procamed by the
Presdent. Secton 6 of the b woud substtute for the anguage of paragraph
(2) the specfc date December 31,19 7.
Whe the effect of the amendment s to make secton 13 of the Mssng Persons
ct noperatve after December 31, 19 7, reef n an approprate case may be
afforded after such date under secton 380 of the Interna Revenue Code as pro-
posed to be amended by secton 13 of the b, or under secton 513 of the
Soders and Saors Cv Reef ct of 19 0.
S CTION 7.
Ths secton woud termnate December 31, 19 7, the aowance under secton
22(b) (13) of the Interna Revenue Code to mtary and nava personne of certan
e cusons from gross ncome.
Under secton 22(b) (13) there are e cuded from gross ncome: (a) In the
case of compensaton receved durng ta abe years begnnng after December
31, 19 2, for actve servce as a commssoned offcer (or commssoned warrant
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offcer) of the mtary or nava forces of the Unted States or as a member (If a
ctzen or resdent of the Unted States) of the mtary or nava forces of any of
the other Unted Natons, so much of such compensaton as does not e ceed 1,500;
and (6) n the case of compensaton receved durng ta abe years begnnng after
December 31,19 0, for actve servce as a member beow the grade of commssoned
offcer (or commssoned warrant offcer) n the mtary or nava forces of the
Unted States, the entre amount of such compensaton.
Such e cusons are appcabe ony to compensaton receved pror to the
termnaton of the present war as procamed by the Presdent.
Secton 7 woud amend secton 22(b) (13) of the Code to mt the appcaton of
the e cusons to compensaton for actve servce receved pror to anuary 1,19 8,
rather than pror to the termnaton of the war as procamed by the Presdent.
S CTION 8.
In the case of ta payers usng the eectve-Inventory method of ncome-ta
reportng, secton 22(d) (6) ( ) of the Interna Revenue Code makes speca pro-
vson wth respect to repacement of base-stock nventores depeted by nvoun-
tary qudaton resutng from condtons prevang durng the war. Secton
8 of the b amends secton 22(d)(6)( ) to make ts provsons appcabe n
cases where the nvountary qudaton occurred n a ta abe year begnnng
pror to ugust 1, 19 7 (nstead of n a ta abe year begnnng pror to the
termnaton of the war), and the repacement occurred n a subsequent ta abe
year endng pror to ugust 1, 1950 (nstead of a ta abe year endng not more
than three years after the termnaton of the war).
S CTION 9.
Secton 9 woud amend secton 21 of the Interna Revenue Code, whch aows
abatement or refund of ncome ta n the case of members of the arned forces
dyng whe n actve servce, to mt Its operaton to cases of persons dyng pror
to anuary 1, 19 8. Secton 21 now provdes that where an ndvdua des on
or after December 7, 19 1, whe n actve servce as a member of the mtary or
nava forces of the Unted States or of any of the Unted Natons and pror to the
termnaton of the present war as procamed by the Presdent, there sha be no
ncome ta abty for the ta abe year n whch hs death occurred; that ncome
ta under the Interna Revenue Code and the correspondng provsons of pror
revenue aws for precedng ta abe years whch s unpad at death sha not be
assessed and f assessed the assessment sha he abated and f coected sha be
credted or refunded as an overpayment. The effect of the amendment Is to
mt the operaton of ths provson of aw to cases where the ndvdua ded
pror to anuary 1, 19 8.
S CTION 10.
Secton 10 amends secton 1621(a) of the Interna Revenue Code, whch secton
defnes the term wages for purposes of coecton of Income ta at the source
on wages and sts certan casses of remuneraton e cuded from such defnton.
Paragraph (1) of secton 1621(a) e cudes from the defnton of wages, and
hence from wthhodng of ncome ta at the source, remuneraton for servces
performed as a member of the mtary or nava forces of the Unted States other
than pensons and retred pay Incudbe n gross ncome. Secton 10(a) of the
b woud strke out paragraph (1), thus makng such remuneraton sub|ect
under secton 1022 of the Interna Revenue Code to wthhodng of ncome ta at
the source.
Secton 1621(a)(8) now e cudes from the defnnton of wages, and hence
from wthhodng of ncome tn at the source, remuneraton for servces for an
empoyer performed by a ctzen or resdent of the Unted States whe outsde
the Unted States (as defned n secton 3797(a)(9)) f the ma|or part of the
servces for such empoyer durng the caendar year s to be performed outsde
the Unted States.
Secton 10(a) of the b woud amend paragraph (8) to mt ts appcaton
to remuneraton for servces for an empoyer (other than the Unted States or any
agency thereof) performed by a ctzen of the Unted States, f t s reasonabe to
beeve that durng the entre caendar year the empoyee w be a bona fde res-
dent of a foregn country or countres, and to remuneraton for servces for an
empoyer performed wthn a possesson of the Unted States by a ctzen of the
Unted States, f t s reasonabe to beeve that at east 80 per cent of the
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remuneraton to be pad to the empoyee by such empoyer durng the caendar
year w be for such servces. Such amendment brngs paragraph (8) more
cosey n harmony wth the provsons of sectons 110(a) and 251 of the Interna
Revenue Code reatng, respectvey, to earned ncome from sources wthout the
Unted States and ncome from sources wthn possessons of the Unted States.
The amendment to paragraph (8) of secton 1620(a) requres the deeton of the
ast sentence of secton 1021(a) whch provdes that the e cepton of paragraph
(8), wth respect to servces performed outsde the Unted States, does not e tend
to wages pad for servces performed on an mercan vesse or on any vesse as
an empoyee of the Unted States empoyed through the War Shppng dmn-
straton. The tests provded n the proposed new paragraph (8) are con-
sdered adequate for the determnaton of any cases whch fa wthn the contem-
paton of such ast sentence and secton 10(a) of the b, accordngy, strkes
out such ast sentence.
Secton 10(b) of the b provdes that the amendments made to secton 1621(a)
sha be appcabe to wages pad on or after anuary 1, 19 8.
S CTION 11.
Ths secton woud amend secton 1700(a)(1) of the Interna Revenue Code
to termnate the speca treatment under the admssons ta wth respect to free
and reduced-rate admssons e tended to members of the mtary or nava forces
of the Unted States or of any of the Unted Natons when n unform, and mem-
bers of the Cvan Conservaton Corps when n unform. The amendment
woud aso termnate the e empton under the admssons ta of amounts pad
for admssons to theaters and other actvtes operated by or under the contro
of the War Department or the Navy Department wthn posts, camps, reserva-
tons, and other areas mantaned by the Mtary or Nava stabshment. The
amendments made by the secton, n so far as they are appcabe wth respect
to amounts pad for admsson, are appcabe to amounts pad after December
81, 19 7, and, n so far as appcabe to free admssons, are appcabe wth
respect to such admssons after December 31, 19 7.
S CTION 12.
Ths secton woud make nappcabe to amounts pad after December 31,
19 7, the provsons of secton 3 69(f) (2) of the Interna Revenue Code whch
aows an e empton from the ta on the transportaton of persons appcabe to
payments for transportaton or factes furnshed under speca tarffs provdng
for fares of not more than 1 cents per me for round-trp tckets sod to per-
sonne of the Unted States rmy, Navy, Marne Corps, and Coast Guard trave-
ng n unform of the Unted States, and to members of the mtary or nava forces
of any of the other Unted Natons traveng In unform of such naton, at ther
own e pense, when on offca eave, furough, or pass, ncudng authorzed
cadets and mdshpmen, Issued on presentaton of propery e ecuted certfcate.
S CTION 13.
Secton 13 woud amend secton 380 of the Interna Revenue Code to provde
that no perod of tme after December 31, 19 7, may be dsregarded under such
secton e cept, under certan mtatons, n cases n whch the Commssoner
makes a determnaton under secton 380 (b) after the enactment of the b.
Secton 380 s a wartme provson whch has for ts purpose the dsregardng
of a perod of tme n determnng whether certan acts affectng Federa ta
abtes are tmey performed and n determnng the amount of any credt or
refund (ncudng nterest). It s appcabe both n the case of acts to be per-
formed by the ta payer and n the case of acts to be performed by the Govern-
ment. Under subsecton (c) of secton 380 the perod of tme dsregarded sha
not e tend beyond whchever of the foowng dates s the earer:
(1) The 15th day of the thrd month foowng the month n whch the present
war s termnated, or
(2) In the case of an ndvdua wth respect to whom a perod of tme Is ds-
regarded under the secton, the 15th day of the thrd month foowng the month
n whch an e ecutor, an admnstrator, or a conservator of the estate of such
Indvdua quafes.
Secton 13 of the b amends secton 380 (c), n so far as t Is based on the
termnaton of the war, so as to provde a defnte cut-off date of December 31,
19 7, but permts a further perod to be dsregarded f the Commssoner so pre-
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scrtbes n any case n whch he makes a determnaton under secton 380 (b)
after the date of the enactment of ths b, and the determnaton s based on
the e stence pror to anuary 1, 19 8, of one or more of the three foowng
crcumstances:
(1) y reason of an ndvdua beng outsde the mercas,
(2) y reason of any ocaty (wthn or wthout the mercas) havng been
an area of enemy acton or havng been an area under the contro of the enemy, or
(3) y reason of an ndvdua n the mtary or nava forces of the Unted
States beng outsde the States of the Unon and the Dstrct of Coumba.
The effect of the amendment s that no perod of tme whch s beng dsre-
garded under subsecton (a), or beng dsregarded under subsecton (b) of sec-
ton 380 pursuant to reguatons prescrbed or determnatons made by the
Commssoner pror to the enactment of the b, may e tend beyond December
31, 19 7. Nor may any perod after December 31, 19 7, be dsregarded under
secton 380 e cept n the speca cases n whch the Commssoner makes a
determnaton under secton 380 (b) after the enactment of the b. That s,
no perod after December 31, 19 7, may be dsregarded under the secton, e cept
In the reatvey few cases where, by reason of crcumstances comng wthn
the scope of subsecton (b) and e stng pror to unuary 1. 19 8, the Comms-
soner determnes, after the enactment of the b, that t s proper to e tend the
benefts of the secton on behaf of ether the ta payer or the Government wth
respect to a perod after December 31, 19 7.
For such cases t s consdered desrabe to use the mechansm of subsecton
(b) of e stng aw whch provdes a bass for dsregardng perods of tme whch
may not be dsregarded under subsecton (a) or for dsregardng a perod ot
tme n addton to that dsregarded under subsecton (a), and whch s broader
n scope than subsecton (a).
It s contempated that any perod after December 31, 19 7. dsregarded under
subsecton (b), w be a reasonabe one n the crcumstances, and that f an
e ceptona case arses where the crcumstances whch make performance of
an act mpossbe or mpractcabe are such that they w not be cured by the
passage of tme, a reasonabe perod may be dsregarded under subsecton (b)
after whch no perod of tme w be dsregarded wth respect to such act.
n e ampe of the type of case n whch the Commssoner s authorzed under
the amendment to dsregard a perod of tme after December 31, 19 7, s that of
a member of the armed forces who returns to ths country on, for e ampe, March
1, 19 8, after havng been outsde the mercas contnuousy for severa years
and by reason of havng been outsde the mercas pror to anuary 1, 19 8, hs
crcumstances are such that t s mpossbe or mpractcabe for hm to fe on
March 15. 19 8, hs ncome-ta return for the caendar year 19 7. In such case
an approprate perod of tme may be dsregarded wth respect to both the due
date for fng such return and the due date of the ta .
S CTION 1 .
Secton 1 woud amend secton 3S05 of the Interna Revenue Code to termnate
as of December 31, 19 7, the wartme e tenson n the case of Chna Trade ct
corporatons of the due dates for fng ncome-ta returns and payment of ta .
stng aw provdes as to such corporatons that for ta abe years begnnng
after December 31, 19 0, no ncome-ta return or payment of ta sha become
cue unt the 15th day of the s th month foowng the month n whch the
present war wth Germany, Itay, and apan s termnated, as procamed by the
Presdent. Secton 1 substtutes for the war-termnaton cause the specfc date
December 31, 19 7.
S CTION 15 P RC NT G D PL TION.
Secton 15 by amendment to secton 11 of the Interna Revenue Code and by
repea of secton 12 (e) of the Revenue ct of 19 3 contnues n effect, as perma-
nent egsaton, the wartme aowance of percentage depeton at the rate of 15
per cent n the case of the foowng mneras: Fuorspar, fake graphte, vermc-
ute, bery, fedspar, mca, tac, epdote, spodumene, barte, ba and sagger
cay, and rock asphat. Secton 15 aso adds chna cay, bentonte, gsonte, and
thenardte.
Pursuant to the provsons of secton 12 (e) of the Revenue ct of 19 3 and the
Presdent s procamaton of December 31, 19 6, decarng hosttes n Word
War II termnated, the provsons of secton 11 of the Code regardng percentage
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359
depeton as to the tems named above (e cept chna cay, bentonte, gsonte, and
thenardte) ceased to be appcabe wth respect to ta abe years begnnng after
December 31, 19 6. Secton 15 repeas secton 12 (e) of the Revenue ct of
19 3 as of the date of ts enactment and further provdes that the amendments
made to secton 11 of the code sha be appcabe wth respect to ta abe years
begnnng after December 31, 10 6. The effect of ths s that the percentage
depeton rues as to the mneras named n e stng aw contnue wthout change,
and percentage depeton s aowabe n the case of chna cay, bentonte, g-
sonte, and thenardte for ta abe years begnnng after December 31, 19 6.
19 7-20-12656
T RMIN TION OF W RTIM T PRO ISIONS.
Senate Report No. 693, ghteth Congress, Frst Sesson. Caendar No. 730.
uy 23 (egsatve day, uy 16), 19 7.
Mr. Mkn, from the Commttee on Fnance, submtted the foowng report
(to accompany . R. 069) :
The Commttee on Fnance, to whom was referred the b ( . R. 069) to
termnate certan ta provsons before the end of Word War II, havng con-
sdered the same, report favoraby thereon wth amendments and recommend
that the b as amended do pass.
Wth the e cepton of commttee amendments to sectons 5, 7, 8, and 15 of
the b, and the addton by your commttee of a secton 16 to the b, the b
s the same as passed by the ouse. The report of the Commttee on Ways and
Means on the b s attached hereto as append . See ouse Report No. 802,
ghteth Congress, frst sesson, pages 353-359, ths uetn. detaed e -
panaton of the b (whch, e cept wth respect to the commttee amendments,
Is equay appcabe to the b as reported by your commttee) s ncuded n the
ouse report.
The frst amendment In your commttee b s an amendment to secton 5 of
the b. The commttee amendment provdes that for the purposes of the
provso cause of secton 511(h) of the Merchant Marne ct, 1936, the present
war sha be consdered as havng termnated on March 31, 19 8, nstead of on
the ffteenth day after the date of the enactment of the b as provded n the
ouse b.
Secton 7 of the ouse b amended secton 22(b) (13) of the Interna Revenue
Code so as to termnate on December 31, 19 7, the ncome-ta e cusons of 1,500
of servce pay (as to offcers) and of a servce pay (as to ensted personne) now
aowed rmy and Navy personne. Your commttee has amended secton 7 to
provde that the ncome-ta e cuson of a servce pay aowed to personne
servng n the armed forces of the Unted States beow the grade of commssoned
offcer (or commssoned warrant offcer) sha not termnate unt December 31,
19 8. The b as reported by your commttee retans the provson of the ouse
b termnatng on December 31, 19 7, the ncome-ta e cuson of 1,500 of
servce pay now aowed to commssoned offcers or commssoned warrant
offcers servng n the armed forces of the Unted States and to ctzens or resdents
of the Unted States servng n the armed forces of any of the other Unted
Natons.
Secton 8 of the ouse b amended secton 22(d) (6) ( ) of the Code whch
makes speca provson, n the case of ta payers usng the ast-n frst-out
nventory method for ncome-ta reportng, for repacement of Inventores de-
peted by nvountary qudaton because of crcumstances reated to the war.
Your commttee amends secton 8 of the b to provde that the reef under
secton 22(d) (6) ( ) of the Code s aowabe where the nvountary qudaton
occurred n a ta abe year begnnng pror to anuary 1, 19 8 (nstead of pror
to ugust 1,19 7, as provded n the ouse b), and the repacement of nventory
occurred n a ta abe year endng pror to anuary 1, 1951 (nstead of pror to
ugust 1, 1950, as provded n the ouse b).
Secton 15 of the ouse b provded that the wartme provson for per-
centage depeton In the case of certan mneras shoud be contnued as perma-
nent egsaton, and further provded for percentage depeton n the case of
chna cay, bentonte, gsonte, and thenardte for ta abe years begnnng after
December 31, 19 6. Your commttee amendment to ths secton of the b adds
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360
pyrophyte and trona to the st of mneras for whch percentage depeton s
aowabe for ta abe years begnnng after December 31,19 6.
Your commttee further amended the ouse b by addng secton 16, for
whch the re s no correspondng provson n the b as passed by the ouse.
Secton 23(q) (2) of the Code provdes that contrbutons or gfts (for regous,
chartnbe, educatona, etc., purposes) made by a corporaton to an unncorpo-
rated organzaton (trust, chest, fund, or foundaton) are not deductbe f made
wthn a ta abe year begnnng after December 31, 19 6 (the date of the cessa-
ton of hosttes n the present war, as procamed by the Presdent) uness
such contrbutons or gfts are to be used wthn the Unted States or any of ts
possessons. Secton 16 of the b as reported by your commttee amends sec-
ton 23(q)(2) so that the requrement that such gfts or contrbutons must be
used wthn the Unted States or any of ts possessons s appcabe ony to
ta abe years begnnng after December 31,19 8.
19 7-20-12657
T RMIN TION OF W RTIM T PRO ISIONS.
ouse of Representatves Report No. 1097, ghteth Congress, Frst Sesson.
uy 25, 19 7.
Mr. nutson, from the commttee of conference, submtted the foowng
conference report to accompany . R. 069 :
The commttee of conference on the dsagreeng votes of the two ouses on
the amendments of the Senate to the b ( . R. 0G9) to termnate certan ta
provsons before the end of Word War II, havng met, after fu and free
conference, have agreed to recommend and do recommend to ther respectve
ouses as foows:

ST T M NT OF T M N G RS ON T P RT OF T OUS .
The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendments of the Senate to the b ( . R. 069)
to termnate certan ta provsons before the end of Word War II, submt the
foowng statement n e panaton of the effect of the acton agreed upon by the
conferees and recommended n the accompanyng conference report:
mendment No. 1: The ouse b provded that for the purposes of the
provso of secton 511(h) of the Merchant Marne ct, 1936, the present war
sha be consdered as havng termnated on the ffteenth day after the date of
the enactment of the b. The Senate amendment provdes that for such pur-
poses the present war sha be consdered as havng termnated on March 31,
19 8. The ouse recedes.
mendment No. 2: The ouse b amended secton 22(b) (13) of the Interna
Revenue Code so as to termnate on December 31, 19 7, the ncome-ta e cu-
son of 1,500 of servce pay now aowed to commssoned offcers or comms-
soned warrant offcers servng n the armed forces of the Unted States and to
ctzens or resdents of the Unted States servng n the armed forces of any of the
other Unted Natons. The Senate amendment provdes that such ncome-ta
e cuson sha not termnate unt December 31, 19 8. The ouse recedes.
mendment No. 3: The ouse b amended secton 22(b) (13) of the Code
so as to termnate on December 31, 19 7, the Income-ta e cuson of a servce
pay aowed under e stng aw to personne servng n the armed forces of the
Unted States beow the grade of commssoned offcer (or commssoned war-
rant offcer). The Senate amendment provdes that such ncome-ta e cuson
sha not termnate unt December 31, 19 8. The ouse recedes.
mendments Nos. and 5: The ouse b amended secton 22(d)(6)( ) of
the Code whch makes speca provsons, n the case of ta payers usng the
ast-n frst-out method for ncome-ta reportng, for repacement of nventores
depeted by nvountary qudaton because of crcumstances reated to the war.
Secton 8 of the ouse b provded that the reef under secton 22(d) (6) ( )
of the Code s aowabe f the nvountary qudaton occurred n a ta aton year
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3G1
begnnng pror to ugust 1, 19 7 (nstead of pror to the termnaton of the
war), and the repacement occurred n a ta abe year endng pror to ugust 1,
1950 (nstead of not more than three years after the termnaton of the war).
mendment No. substtutes for the date ugust 1, 19 7, the date anuary 1,
19 8; and amendment No. 5 substtutes for the date ugust 1, 1950, the date
anuary 1,1951. The ouse recedes.
mendment No. 6: The ouse b amended secton 1621(a) of the Code by
strkng out paragraph (1) thereof, whch e cudes from the defnton of wages,
and hence for wthhodng of ncome ta at source, remuneraton for servces
performed as a member of the mtary or nava forces of the Unted States.
The ouse b provded that the amendment strkng out paragraph (1) shoud
be appcabe wth respect to wages pad on or after anuary 1,19 8. The Senate
amendment provdes that such amendment sha be appcabe wth respect to
wages pad on or after anuary 1, 19 9. The ouse recedes.
mendment No. 7: Ths s a cerca amendment and the ouse recedes.
mendment No. 8: Ths s a cerca amendment and the ouse recedes.
mendment No. 9: Ths s a cerca amendment and the ouse recedes.
mendment No. 10: Ths amendment provdes for percentage depeton at
the rate of 15 per cent n the case of bau te for ta abe years begnnng after
December 31, 19 6. The ouse recedes.
mendment No. 11: Ths amendment provdes for percentage depeton at
the rate of 15 per cent n the case of pyrophyte for ta abe years begnnng
after December 31, 19 6. The ouse recedes.
mendment No. 12: Ths amendment provdes for percentage depeton at the
rate of 15 per cent n the case of phosphate rock for ta abe years begnnng after
December 31, 19 0. The ouse recedes.
mendment No. 13: Ths amendment provdes for percentage depeton at the
rate of 15 per cent In the case of trona for ta abe years begnnng after Decem-
ber 31, 19 6. The ouse recedes.
mendment No. 1 : Ths amendment provdes, wth respect to percentage
depeton, that
In the case of potash and thenardte, whether e tracted from a mne or from
a brne or other depost, there sha be ncuded n gross and net ncome from the
property the ncome from other mneras or mnera sats e tracted therefrom.
The Senate recedes.
mendment No. 15: Ths s a technca amendment and the ouse recedes.
mendment No. 16: Ths s a technca amendment and the ouse recedes.
mendment No. 17: Ths s a technca amendment and the ouse recedes.
mendment No. 18: Ths s a technca amendment and the ouse recedes.
mendment No. 19: The Senate amendment adds a secton 16 to the b, for
whch there s no correspondng provson n the b as passed by the ouse.
Secton 23(q) (2) of the Code provdes that contrbutons or gfts (for regous,
chartabe, educatona, etc., purposes) made by a corporaton to an unncorpo-
rated assocaton (trust, chest, fund, or foundaton) are not deductbe f made
wthn a ta abe year begnnng after December 31, 19 0 (the date of cessaton
of hosttes n the present war, as procamed by the Presdent) uness such
contrbutons or gfts are to be used wthn the Unted States or any of ts pos-
sessons. The Senate amendment addng secton 16 to the b amends secton
23(q) (2) so that the requrement that such gfts or contrbutons must be used
wthn the Unted States or any of ts possessons Is appcabe ony to ta abe
years begnnng after December 31, 19 8, nstead of December 31, 19 6, as pro-
vded under e stng aw. The ouse recedes.
arod nutson,
Dane . Reed,
Rot O. Woodruff,
ere Cooper,
Wb r D. Mn s,
Managers on the part of the ouse.
77338 8 2
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IND .
.
ccountng perod, corporaton revved after years of nactvty.
ccrua, for ncome ta purposes, of varous amounts asserted as
addtona ta abty
ffated corporatons:
Consodated returns fed n 19 6, eecton to fe separate
returns n 19 7
Fng consodated returns, fsca year 19 6, eecton to fe
separate returns for fsca year 19 7
coho:
Deaers n quors, whoesae and reta, Reguatons 20
amended.
Industra, Reguatons 3 amended
coho ta , wne, Reguatons 7 (19 5) amended
en ndvduas, etc., nonresdent, ta aton of, conventon,
Unted States and Unted ngdom, reguatons
en, nonresdent ndvdua, ta aton under conventon be-
tween Unted States and Unted ngdom
mony payments made by husband, Me can dvorce nvad
n Connectcut, deductbty
mendments:
Federa Insurance Contrbutons ct, sectons 1 00, 1 10-.
Federa Unempoyment Ta ct, secton 1602
Interna Revenue Code
Sectons 22(b) (13), 22(d) (6) ( ), 23(q) (2), 21, 1621 (a),
1700(a)(1), 3 69(f)(2), 380 (c), 3805
Secton 115
Secton 351--
Secton 1607(c)
Sectons 1802(a), 1802(b), 3 81(a)__
Secton 2801(e)
Seetons 2801(e)( ), 30 3(a), 30 (b), 3015
Secton 3179(b)
Sectons 3507, 3508
Mssng Persons ct, secton 13(c)(2)
Pubc Debt ct of 19 1, as amended
Reguatons 111
Secton 29.22(a)-2U _
Sectons 29.22(b)(9)-, 29.22(b)(10)-1
Secton 29.23(k)-
Sectons 29.1 3-1, 29.1 3-3, 29.1 -2, 29.211-7,
29.231-1
Secton 29.20 -2
Reguatons 107
Reguatons 107, sectons 03.201, 03.202, 03,203,
03.206, 03.211, 03.213, 03.226b (added), 03.227(a),
03.228(a)
Reguatons 106
Reguatons 106
Sectons 02.201, 02.227(a), 02.228(a), 02.302,
02. 02, 02.705
Sectons 02.302 and 02. 02
Reguatons 105, secton 81.2 (b)
Reguatons 100, artces 1, 2(f), 3, 5, 6, 7, 201, 202, 203,
301, 302, 01, 02, 806(c)
Rung No.
1262
12608
12611
12695
12631
12602
12603
126 2
12597
12682
12630
12635
12627
12636
12606
12628
12585
12637
12618
12617
12616
12638
12636
12591
12589
126 7
12716
12698
12715
12625
1 2585
12625
12585
12712
12666
12625
(363)
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36
mendments Contnued.
Reguatons 71, sectons 113.35, 113.35 -
Reguatons 29, sectons 197.2, 197.3, 197.5, 197.8 (re-
voked), 197.17, 197.18, 197.21, 197.22. 197.23(d),
197.2 (c)(2) (revoked), 197.2 (rf), 197.2 (e), 197.25,
197.26 (revoked), 197.28, 197.33, (revoked), 197.3
(revoked)
Reguatons 28, sectons 176.5, 176.69
Reguatons 2 , sectons 180.1, 180.2, 180.1 6-180.179,
ncusve (revoked)
Reguatons 23
Sectons 181.9, 181.10, 181.13(a), 181.13(a) (added),
181.1 (a), 181.1 (c), 181.19
Secton 181.18
Reguatons 21, secton 191.1
Reguatons 20, sectons 19 .27, 19 .75, 19 .76, and 19 .78
Reguatons 18, secton 192.192
Reguatons 15, sectons 190.9a (added), 190. 2, 190.153,
190.203, 190.279, 190.280, 190.281, 190. 1 , 190. 16
Reguatons 10
Sectons 185.19, 185.30a (added), 185.31, 185.39,
185.51, 185.1 2, 185.155, 185.156, 185.157, 185.18 ,
185.198, 185.205, 185.258, 185.271, 185.272, 185.273,
185.275a (added), 185.276a (added), 185.299,
185.316, 185.3 , 185. 38, 185. 6 , 185. 6 a (added),
185. 65, 185. 66, 185. 67, 185. 68, 185. 69, 185. 71,
185. 72, 185. 80, 185. 81, 185.51 to 185.526, ncu-
sve (added) .. |.
Sectons 185. 09, 185. 12, 185. 13
Reguatons 7 (19 5)
Sectons 178.5, 178.8(c), 178.10, 178.12, 178.21,
178.2 , 178.27, 178. 5(c), 178.57a (added), 178.82,
178.87, 178.129, 178.136, 178.136a (added), 178.137,
178.1 3, 178.1 , 178.1 5, 178.1 9, 178.150,
178.152, 178.153, 178.157, 178.159, 178.160, 178.161,
178.162, 178.182, 178.183, 178.18 , 178.185, 178.186,
178.187, 178.199, 178.200, 178.211, 178.21 a (added),
178.215, 178.238, 178.263, 178.26 , 178.310, 178.370,
178.375, 178.377, 178.378, 178.382, 178.383, 178.398,
178. 01
Secton 178.283
Reguatons 3
Sectons 182.6,182.9 ,182.99,182.102,182.175,182.179,
182.182, 182.183, 182.229, 182.371, 182.377, 182.383,
182.389, 182.51 , 182.706, 182.728, 182.731, 182.738,
182.750, 182.752, 182.75 , 182.785, 182.786, 182.798,
182.802, 182.811, 182.812, 182.813, 182.816, 182.908,
182.99 , 182.995, 182.997, 182.1006
Sectons 182.619, 182.768, 182.970, 182.971, 182.972...
Revenue ct of 19 3, secton 12 (e)
Soca Securty ct, secton 90
Soca Securty ct mendments of 19 6, secton 50
Treasury Decsons
359 (C. . I-2, 305 (1932)), paragraph 16 revoked.
5 38 (C. . 19 5, 509)
5532 (C. . 19 6-2, 73)
mercan Red Cross, e empton from manufacturers and re-
taers e cse ta es
rmed forces, abatement of ta of members dyng n the servce-
ssets, capta, determnaton of perod for whch hed, gan or
oss
Rung No.
12667
12612
12708
12707
12700
12706
12705
12602
1270
12613
12699
12703
126 2
12702
12603
12701
12636
12635
12635
12709
12601
12698
12600
1263
12596
G
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1
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1
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2
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8

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3G5
ttorneys and agents, reguatons governng recognton to prac-
tce before Treasury Department (revsed to May 29, 19 7)
ttorneys or agents, practce before Treasury Department,
cards enttng
.
ad debts, Reguatons 111 amended
anks, reserve method of accountng for bad debts, reguatons
amended
randes, bendng of certan beverage (P. L. 187)
ureau of Interna Revenue:
Changes n capacty for producton or operaton, secton 722
cases
Pocy as to postponement, by reason of war, of due dates
for fng ndvdua ncome ta returns
Pocy reatng to ta abty of ncome of certan trusts
Saary Stabzaton Unt dssoved; functons transferred
to Income Ta Unt
usness e penses, Connectcut saes and use ta es pad by pur-
chaser
C.
Caforna, amount pad for transfer of quor cense, treatment
for Federa ncome ta purposes
Capta e pendtures:
mount pad for transfer of quor cense n Caforna
Saes ta , Connectcut, property purchased for use n
trade or busness
Cgarettes:
Statement of remova of, for consumpton
May, 19 7 and 19 6
une, 19 7 and 19 6
uy, 19 7 and 19 6
ugust, 19 7 and 19 6
September, 19 7 and 19 6
October, 19 7 and 19 6
Cgars, ta -free wthdrawas from customs bonded warehouses,
reguatons amended
Commttee on Practce:
Cards enttng attorneys or agents to practce before
Treasury Department, rues for securng
Reguatons governng recognton of attorneys and agents
to practce before Treasury Department (revsed to May
29, 19 7)
Commttee reports:
ghteth Congress
Conference ( ouse Report No. 1097)
ouse of Representatves Report No. 802
Senate Report No. 693
Communty property:
state ta
Idaho, survvng spouse takes haf as matter of rght
rather than as matter of descent
Lousana
Lousana, sae by e ecutor, bass for determnng gan or
oss
Mchgan, husband and wfe, separate returns after uy
1, 19 7
Nebraska, husband and wfe, separate returns after Septem-
ber 7, 19 7
Rung No.I
12632
1268
12716
12717
12716
12717
12618
126 6
12675
12590
12670
12710
12673
12673
12710
12587
12615
126 5
1265
12690
1271
12601
1268
12632
12657
12655
12656
12687
12609
12651
12610
126 9
12660
G
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1
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366
Rung No.
Communty property Contnued.
Oregon, husband and wfe, separate returns after uy 5,
19 7
Pennsyvana
usband and wfe, separate returns fed after Sep-
tember 1, 19 7
Income derved from separate property of husband
and wfe after September 1, 19 7
Compensaton, prsoners of war and nternees, treatment
Connectcut, amony payments by husband, Me can dvorce
nvad, deductbty
Consodated returns, eecton to fe separate returns for 19 7
by affated corporatons fng consodated returns n 19 6,
treatment
Contrbutons, vountary, secton 1602, Federa Unempoy-
ment Ta ct, amended
Conventon:
Ta , between Unted States and Unted ngdom, Regua-
tons 111 amended
Unted States and Unted ngdom, ta aton of nonres-
dent aen ndvduas, etc., reguatons
Corporaton, revved after years of nactvty, accountng
perod
Corporatons:
ffated
vodance of dupcaton n credts
ecton to fe separate returns for fsca years endng
n 19 7
Separate returns fed n 19 6, eecton to fe conso-
dated returns n 19 7, treatment
empton from ta , quafcaton
Operatons ceased, reef from fng Federa ncome ta
returns
Raroad, successor, aowed benefts of certan carry-overs
of a predecessor corporaton, etc
Court decsons:
dams v. Commssoner
mercan Coast Lnes, Inc., v. Commssoner
azey v. Commssoner
ares e a. v. rmngham
rmngham; ares e a. v
Commssoner; dams v
Commssoner; mercan Coast Lnes, Inc., v
Commssoner; azey v
Commssoner v. Gray
Commssoner; McWams v
Commssoner v. Natona Reserve Insurance Co
Commssoner v. Pohatcong osery Ms, Inc
Gray; Commssoner v
Greyvan Lnes, Inc.; arrson v
arrson v. Greyvan Lnes, Inc
Lavno Co. v. Unted Sates
McWams v. Commssoner
Natona Reserve Insurance Co.; Commssoner v
Pohatcong osery Ms, Inc.; Commssoner v
Sk; Unted States v
Unted States; Lavno Co. v
Unted States v. Sk.
Credts, affated corporatons, avodance of dupcaton n.
Credts, deductons and, when taken
12650
12711
12661
1269
12628
12630
12695
12627
12698
12597
1262
12658
12631
12695
1259
12662
12619
12595
1262
12595
12599
12599
12595
1262
12595
12651
12582
12663
12679
12651
12598
12598
12681
12582
12663
12679
12598
12681
12598
12658
12608
12611
G
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367
D.
Deductons:
ccrua of amounts asserted as addtona ta abty
mony payments by husband, Me can dvorce nvad
n Connectcut
Connectcut saes and use ta es, treatment for purposes of
Federa ncome ta
Interest, defcences assessed aganst transferees
Losses, saes or e changes of property between members of
a famy
Saes ta es mposed by Tennessee Retaers Saes Ta ct
acaton pay granted empoyees by empoyer, when ac-
cruabe
Dependent, chd of dvorced parents, amounts pad by father
for beneft of
Depeton, computaton of, based on percentage of ncome n
case of coa mnes, etc
Deprecaton, chromte ore usod for refractory purposes, bass
for aowance
Dsted sprts:
cohoc favorng matera sub|ect to drawback, Regua-
tons 15 amended
Dstng apparatus, ta -free for e portng, Reguatons
23 amended
Drawback of ta upon e portaton, etc. (P. L. 185)
Nonbeverage products, manufacture of, drawback of ta ,
Reguatons 29 amended
Phppne Isands became foregn government uy ,
19 6
Reguatons 10 amended
Reguatons 21 amended
Reguatons 28 amended
Warehousng of, Reguatons 10 amended
Dstrbutons to benefcares of empoyees trust whch meets
requrements of secton 165(a), ta abty
Dvdends, e changes of stock or securtes n reorganzaton,
gan or oss
Drawback:
Procedure for fng cams, etc., ta on dsted sprts used
n manufacture of nonbeverage products, Reguatons 29
amended
Rectfers usng acohoc favorng materas, Reguatons
15 amended
.
mpoyees trusts, benefcary under trust whch meets requre-
ments of secton 165(a), dstrbuton, ta abty
mpoyment ta es:
Federa Insurance Contrbutons ct, change n ta rates,
19 8 and subsequent years, reguatons amended
Interna Revenue Code
mpoyees
Muscans
Orchestra eaders and members
Truck owner-drvers
Unoaders
mpoyment
Fshng actvtes.
Martme servces.
Rung No.
12608
12611
12630
12710
12672
12582
12623
126 0
12719
12681
12681
12613
12700
12616
12612
12703
12705
1270S
12699
12652
12595
12612
12613
12652
12712
12677
12599
12598
12598
12585
12585
G
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1
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368
Rung No.
mpoyment ta es Contnued.
Interna Revenue Code Contnued.
Raroad Retrement Ta ct
Speca refunds
Wages n e cess of 3,000
Wages
3,000 mtaton
Reguatons 100 amended
Reguatons 106 amended
Reguatons 107 amended
state ta :
Communty property or nterests
Powers of appontment, reease of, Reguatons 105 amend-
ed
stmated ta , etc., decaratons, e tenson of tme for fng
cess profts, nson ct, reports requred on contracts of nava
vesses and arcraft
cess Profts Ta Counc:
Capacty for producton or operaton, changes n
Corporatons, affated, avodance of dupcaton n credts.
Push-back rue
Capacty n reaton to appcaton of
Ta payer entted to use of, norma earnngs not m-
ted to capacty e stng December 31, 1939
Use of the four caendar years 1936-1939 as base perod n
secton 722(c) cases
cse ta e emptons, termnaton of certan governmenta, and
contnuaton of others
empton certfcate, use of, Reguatons 71 amended
empton from ta , status of corporatons organzed for pur-
pose of hodng tte to ta -e empt property
emptons:
Contnuaton of certan governmenta
Payments made by dvorced father for beneft of chd,
treatment
Termnaton of certan governmenta e cse ta e emptons
and contnuaton of others
tenson of tme:
ffated corporatons fng consodated returns for fsca
years ended n 19 6, eecton to fe separate returns for
fsca years endng n 19 7
nnua reports of profts under nson ct, fng
Fng appcaton for permsson to change methods of
treatng bad debts
For fng returns, decaratons of estmated ta , etc
Reease, free of estate and gft ta , of certan powers
F.
Fgure to be used n determnng reserve and other pocy
abty credt, fe nsurance companes, ta abe year 19 7
Frst n, frst out rue, appcabty n purchase or sae of
securtes
Forms and records, ncome ta , acceptabty of mcrofm
reproductons thereof for ureau purposes
Form W-2 (Wthhodng statement for 19 8), rues for repro-
ducng
12625
180
12686
1 5
12585
1 8
12712
165
12686
1 5
12585
1 8
12625
180
12712
165
12585
s
12625
180
12585
1 8
12625
180
12687
207
12666
208
12593
6
1266
217
126 6
132
12658
135
12668
136
12669
137
12685
139
12678
210
12667
213
1259
70
12588
205
12719
38
12678
210
12631
86
1266
217
12716
25
12717
26
12593
6
12605
33
12721
96
12583
71
126 1
68
12683
G
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1
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369
Rung; No.
Page.
G.
Gan or oss:
Corporate dstrbutons n redempton, etc., of stock ta -
abe as dvdends
Lousana, sae of communty property by e ecutor
Perod for whch capta assets hed, determnaton
Securtes, when ssued bass, purchase and sae
Gross ncome:
d|usted, saes and use ta es, Connectcut, deductbty..
cusons from, ncome from dscharge of ndebtedness,
Reguatons 111 amended
Insurance companes other than fe or mutua, etc., Regu-
tons 111 amended
Interest on Unted States obgatons, ta abty
Pensons receved by former members of poce and fre
departments of New York Cty, ta abty
Saes ta , Tennessee, pad by vendee, deductbty
Trust ncome ta abe to grantor, Reguatons 111 amended-.
.
usband and wfe:
Idaho, survvng spouse, rght to haf of communty prop-
erty
Lousana, communty or separate ncome
Mchgan, communty property, separate returns after
uy 1, 19 7..
Nebraska, communty property, separate returns after
September 7, 19 7
Nonresdent aen wfe s share of communty ncome, ta -
abty
North Carona, rea property hed as tenant by the
entrety, renta ncome from, treatment
Oregon, ncome derved from separate property after
uy 5, 19 7, treatment
Pennsyvana
Communtv propertv, separate returns after Septem-
ber 1, 19 7 _
Income receved from separate property after Septem-
ber 1, 19 7, treatment

I.
Idaho, husband and wfe, survvng spouse s rght to haf of
communty property
Income, profts, estate, and gft ta es, pubc decsons reatng
to aowance of overassessments n e cess of 20,000, regua-
tons amended
Income ta returns, ndvdua, fng of, postponed by reason of
war, ureau pocy
Income Ta Unt, functons of dssoved Saary Stabzaton
Unt transferred to
Indebtedness, ncome from dscharge of, Reguatons 111
amended
Industra acoho, Phppne Isands became foregn govern-
ment uy , 19 0, Reguatons 3 amended
Insurance companes other than fe or mutua, etc., Reguatons
111 amended
Insurance company, hodng reserve fund for fufment of
contracts s not a fe
12595
12610
12596
12583
12710
120 7
12715
12622
12692
12623
12589
12609
12651
126 9
12660
1258
12693
12650
12711
12661
1269
12609
12709
12675
12670
126 7
12701
12715
12663
G
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370
Insurance company, fe:
Corporaton ssung pocy on assessment pan s not a..
Fgure to be used n determnng reserve and other pocy
abty credt, ta abe year 19 7
Insurance Contrbutons ct, Federa, amended
Interest:
Defcences assessed aganst transferees, deductbty
Receved by Unted States ctzen from obgatons of
Phppne Isands, ta abty
L.
Legsaton:
ghteth Congress
Pubc Law No. 112
Pubc Law No. 113
Pubc Law No. 116
Pubc Law No. 185
Pubc Law No. 186
Pubc Law No. 187
Pubc Law No. 189
Pubc Law No. 226
Pubc Law No. 310
Pubc Law No. 356
Pubc Law No. 367
Pubc Law No. 379
Pubc Law No. 38
Pubc Law No. 387 -
Pubc Law No. 388
Seventv-nnth Congress
Pubc Law No. 321 .
Lfe nsurance company, corporaton ssung pocy on assess-
ment pan not a
Lquor cense, Caforna, amount pad for transfer of, con-
sttutes capta nvestment -
Lquors, fermented mat, Phppne Isands became foregn
government uy , 19 6, Reguatons 18 amended
Lquors, whoesae and reta deaers n, reguatons amended...
Losses:
Saes or e changes of property between members of a
famy, deductbty s
Securtes of reorganzed corporaton, contract to buy or
se when ssued
Lousana:
Communty or separate property
Communty property, sae of, by e ecutor, gan or oss,
bass
M.
Manufacturers e cse ta , e empton, mercan Red Cross
Mchgan, husband and wfe, communty property, separate
returns after uy I, 19 7
Mcrofm reproductons of forms and records, acceptabty for
Federa ncome ta purposes
Mnes, coa, meta, etc., depeton, computaton of, based on
ncome
Msceaneous e cse ta es, termnaton of certan governmenta
e emptons, contnuaton of others
Msceaneous ta es:
state ta , communty nterests
emptons from ta , contnuaton of certan governmenta.
Stamp ta es, e empt on certfcate, snge, smpfed, use
of, permtted, Reguatons 71 amended
Rung No.
12663
12721
12635
12672
12622
12605
12606
12591
12616
12617
12618
12619
12627
12628
12633
1263
12635
12636
12637
12620
12663
12673
1270
12602
125S2
12583
12651
12610
12600
126 9
126 1
12681
12678
126S7
12588
12667
G
e
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3
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1
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2
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371
N.
Nebraska, husband and wfe, communty property, separate
returns after September 7, 19 7
New York Cty, pensons receved by former members of poce
and fre departments, ta abty
Nonresdent aen ndvduas, ta on, under conventon between
Unted States and Unted ngdom
North Carona, tenants by the entrety, rea property hed by
husband and wfe, renta ncome from, treatment
O.
Oeomargarne:
Schedue of producton and materas used
May, 16 7 and 19 6
une, 19 7 and 19 6
uy, 19 7 and 19 6
ugust, 19 7 and 19 6
September, 19 7 and 19 6
October, 19 7 and 19 6
Oregon, husband and wfe, communty property, separate re-
turns after uy 5, 19 7
P.
Pay, vacaton, granted by empoyer to empoyees, when accru-
abe and deductbe for ncome ta purposes
Pennsyvana:
usband and wfe
Income from separate property after September 1,
19 7, treatment
Communty property, separate returns after Septem-
ber 1, 19 7
Pensons receved by former members of poce and fre depart-
ments of New York Cty, ta abty
Persona hodng companes, dstrbutons by, secton 115 of
Code amended
Phppne Isands:
Foregn government after uy , 19 6
Reguatons 3 amended
Reguatons 7 amended
Reguatons 10 amended
Reguatons 18 amended
Reguatons 21 amended
Reguatons 23 amended
Reguatons 2 amended
Reguatons 28 amended
Interest receved by Unted States ctzen on obgatons of,
when ta abe
Pocy of ureau reatng to ta abty of certan trusts
Postponement of due dates for fng ndvdua ncome ta re-
turns by reason of war, ureau pocy
Powers of appontment, reease of, Reguatons 105 amended--.
Property, corporaton organzed for purpose of hodng tte to,
status
Property, persona, determnng source of ncome attrbutabe
to sae of
Pubc Laws:
ghteth Congress
No. 112, e tendng tme for reease of certan powers,
free of estate and gft ta es
No. 113, amendng Code n respect of dstrbutons by
persona hodng companes
Rung No.
12660
12692
12682
12693
1260
12626
126 3
12665
12696
12720
12650
12711
126 0
1269
12661
12692
12606
12701
12702
12703
1270
12705
12706
12707
1270S
12622
12590
12675
12666
1259
1267
12676
12605
12606
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372
Rung No
Pubc Laws Contnued.
ghteth Congress Contnued.
No. 116, amendng further secton of the Pubc Debt
ct of 19 1
No. 185, amendng secton 3179(b) of the Code
No. 186, amendng sectons 2801(e)( ), 30 3(a),
30 (b), and 30 5 of the Code
No. 187, amendng secton 2801(e) of the. Code
No. 189, to aow a successor raroad corporaton the
benefts of certan carry-overs of a predecessor cor-
poraton, etc
No. 226, amendng secton 1602 of the Federa
Unempoyment Ta ct
No. 310, amendng secton 251 of the Interna Revenue
Code -
No. 356, e tenson of tme for camng credt or refund
of war osses
No. 367, reatng to ncome ta abty of members
of armed forces dyng n the servce
No. 379, amendng the Federa Insurance Contrbu-
tons ct as to rates of ta , etc
No. 38 , termnatng certan ta provsons before the
end of Word War II
No. 387, amendng sectons 1802 and 3 81, Interna
Revenue Code
No. 388, amendng sectons 3507 and 3508, Interna
Revenue Code
Seventy-nnth Congress
No. 321, provdng for the sae of surpus war-but
vesses, etc
Puerto Rco:
cohoc compounds from, Reguatons 2 amended
Sts and dstng apparatus, Reguatons 23 amended
Push-back rue, cess Profts Ta Counc:
Capacty n reaton to appcaton of
Ta payer entted to use of, norma earnngs not mted to
capacty e stng December 31, 1939
Rea propertv hed by husband and wfe as tenants by the
entrety, North Carona, renta ncome from, treatment
Red Cross, mercan, e empton from manufacturers and
retaers e cse ta es
Reguatons:
Conventon, Unted States and Unted ngdom, reatng
to ta aton of nonresdent aen ndvduas, etc ...
Recognton of attorneys, agents, and others to practce
before Treasury Department, revsed to May 29, 19 7_.
Reproductons, mcrofm, of records and forms, ureau requre-
ments
Reproducton of Form W-2 (Wthhodng statement for 19 8),
rues for
Reserve and other pocy abty credt, fe nsurance com-
panes, fgure to be used, 19 7 ta abe year
Retaers e cse ta , e empton, mercan Rod Cross
Returns, corporaton, ceased busness, reef from fng
Returns, e tenson of tme for fng
Rues of practce, Ta Court of the Unted States, revsed to
November 3, 19 7
12591
12616
12617
12618
12619
12627
12628
12633
1263
12635
12636
12637
12638
12620
12707
263
12706
262
12668
136
12669
137
12693
57
12600
205
12597
100
12632
288
126 1
68
12683
1 0
12721
96
12600
205
12662
62
12593
6
12697
312
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373
s.
Saary Stabzaton Unt dssoved, functons transferred
to Income Ta Unt
Sae of persona property, determnng source of ncome at-
trbutabe to
Secton 722 cases:
ase perod, use of years 1936-1939 as .
Changes n capacty for producton or operaton
Securtes, when ssued bass, purchase and sae
Stamp ta es. (See Msceaneous ta es: Stamp ta es.)
Sts and dstng apparatus, Phppne Isands, Reguatons
23 amended
Stock:
change for new, n reorganzaton, ta abe gan or oss..
Losses on sae or e change between members of a famy,
deductbty
T.
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences
Revew of abnormates by
Rues of practce, revsed to November 3. 19 7
Ta es, ncome, profts, estate, and gft, aowance of over-
assessments n e cess of 20,000, reguatons amended
Teephone, teegraph, cabe, etc., servces furnshed Unted
States Government, e empton from ta es
Tennessee, saes ta es mposed by, deductbty
Tobacco, cgars, etc.:
Statement of manufactured, produced, by casses
pr, 19 7 and 19 6
Nav, 19 7 and 19 6
une, 19 7 and 19 6
uy, 19 7 and 19 6
uv, 19 7 and 19 6 (revsed statement)
ugust, 19 7 and 19 6
September, 19 7 and 19 6.
Transportaton:
Persons on Unted States Government transportaton
request, e empton from ta
Property, to or from Unted States, shpped on Govern-
ment b of adng, e empton from ta
Treasury Department, Commttee on Practce, cards enttng
attorneys or agents to practce before
Trusts, ta abty of certan
Trusts, empoyees benefcary under trust whch meets requre-
ments of secton 165(a), dstrbuton, ta abty
U.
Unted ngdom, conventon wth Unted States reatng to
ta aton of nonresdent aens, etc., reguatons
Unted States and Unted ngdom, ta conventon, Regua-
tons 111 amended ..
Rung No.
12670
1267
12676
12685
126 6
12583
12706
12595
12582
12718
1262
12697
12709
12588
12623
12586
1261
126
12653
12688
12689
12713
12588
12588
1268
12589
12590
12652
12597
12698 I
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37
.
acaton pay, amounts pad empoyees by empoyers n wage
agreement, when accruabe and deductbe for ncome ta
purposes
esses, surpus war-but, sae of
nson ct, reports requred under proft-mtng provsons
rgn Isands, acohoc compounds from, Reguatons 2
amended
W.
War osses, e tenson of tme to cam credt or refund
Wfe, nonresdent aen, ta abty of share of communty In-
come
Wne:
Phppne Isands became foregn government uy ,
19 6
Reguatons 7 amended
Reguatons 28 amended
Reguatons 7 (19 5) amended
Wthdrawas, cgars, ta -free, from customs bonded warehouses,
reguatons amended
Wthhodng statement for 19 8 (Form W-2), rues for repro-
ducng
Wthhodng ta , husband s abty, nonresdent aen wfe s
share of communty ncome
Rung No.
126 0
12620
1266
12707
12C33
1258
12702
12708
126 2
12601
12683
1258

3 0
217
263
3 5
98
270
26
221
277
1 0
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