Treasury Department : : : ureau of Interna Revenue

Interna Revenue uetn

Cumuatve uetn 19 9-1
NU RY- UN 19 9
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SP CI L TTI
of Treasury Decsons
Trf u rv Dpn
TT NTION s drected to the cautonary notce on ths page that pub-
, shed rungs of the ureau do not have the force and effect
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 9-1
NU RY- UN 19 9
IN T IS ISSU
Pago
Introductory Notes I
Contents
Rungs Nos. 12999-13119
Ta Court of the Unted States, The, formery Unted
States oard of Ta ppeas 1-7
Income Ta
Part I (Interna Revenue Code) 9-16
Part II (Revenue ct of 1938 and pror Revenue
cts) 16 -177
mpoyment Ta es 179-180
Msceaneous Ta es
state and Gft Ta es 181-2 0
cse Ta es, Stamp Ta es, etc 2 1-260
Msceaneous Rungs 261-298
299-300
301-309
The rungs reported n the Interna Revenue uetn are for the nformaton o ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue; the rung other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of fads upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, tbere 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 case
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 facts n each case. These rungs shoud be used
as ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons pre-
vousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
cvenue to pubsh a rungs aud decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to be of genera nterest It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons
ounse for the ureau of Interna Revenue are not of genera nterest because they announce no
new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of Interna
__e not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer or
of the urean of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
y ndcated, a pubshed rungs and decsons hare receved the consderaton and approva of the
Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 1M9
For sae by Superntendent of Documents, U. S. Government Prntng Offce, Washngton 2 , D. C.
See back of tte for prces
LI R RY
UNI RSITY OF C LIFORNI
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The Interna Revenue uetn servce conssts of buetns ssued
every other week and semannua cumuatve buetns.
The buetns contan the rungs and decsons whch are made
pubc and a Treasury Department decsons (known as Treasury
Decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns 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 2 , D. C, for 2. 0 per year; foregn, 3.7 . Snge
copes of the uetn, 10 cents each.
Certan ssues of cumuatve buetns are out of prnt and are,
therefore, not avaabe. Persons desrng avaabe cumuatve bue-
tns may obtan them from the Superntendent of Documents at prces
as foows:
. .
Cumuatve uetn
Year
Frst 6 months
Second 6 mo
ths
1920
2
0. 2
3
0. 30
1928 ,
II-1
. 3
I1-2
. 0
1929
III-1
. 0
I11-2
.
1930
I -1
. 0
I -2
. 0
1932
I-1
. 30
1936
-1
.
-2
.
1939
1939-1
1939-2
.60
Part 1
. 0
Part 2
L 00
19 0
19 0-1
. 30
19 0-2
. 60
19 1
19 1-1
.
19 1-2
. 60
19 2
19 2-1
. 0
19 2-2
. 60
19 32
L 2
19 2
2. 2
1. 0
19
19 6-1
. 0
19 6 2
.7
19 7
19 7-1
. 0
19 7-2
.7
19 8
19 8-1
. 7
19 8-2
1. 00
19 9-1
. 7
Contans ony ncome ta rungs.
ouse, Senate, and conference reports on revenue bs enacted as the ct of October 3,
1918, the ct of October 22, 191 , and the Revenue cts of 1916 to 1938, ncusve, and on
amendments to such cts.
1 Prnted n one voume.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 19 (ncome ta rungs ony, pr, 1919,
to December, 1921, ncusve), 0 cents; Dgest No. 13 (1922-2 ), 60
cents; Dgest No. 22 (192 -27), 3 cents; and Dgest (ncome ta
rungs ony, pr, 1919, to December, 1930, ncusve), 1. 0.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 2 , D. C.
(II)
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INTRODUCTORY NOT S
The Interna Revenue Cumuatve uetn 19 9-1, n addton to
a decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the Chef
Counse for the ureau of Interna Revenue, and rungs and decsons
pertanng to ncome, estate, gft, saes, 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, pub-
shed n the uetns (19 9, Nos. 1 to 13, ncusve) for the perod
anuary 1 to une 30, 19 9. It aso contans a cumuatve st of
announcements reatng to decsons of The Ta Court of the Unted
States, formery the Unted States oard of Ta ppeas, pubshed n
the Interna Revenue uetn Servce from anuary 1 to une 30,
19 9.
Income ta rungs are prnted n two parts. The rungs under
the Interna Revenue Code are prnted as Part I, the aw headngs
correspondng wth the sectons of the Code, as amended, and the
reguatons headngs correspondng wth the secton headngs of Regu-
atons 111 or 103. Rungs under the Revenue ct of 1938 and pror
revenue acts are prnted as Part II, the aw headngs correspondng
wth the secton headngs of those revenue acts and the reguatons
headngs correspondng wth the artce headngs of the appcabe
reguatons.
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 Subchapters
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 for perods pror to anuary 1,
19 9, are pubshed under the artce headngs of Reguatons 100, and
rungs under Subchapter , Chapter 9, of the Code for perods subse-
quent to December 31, 19 8, w be pubshed under the secton head-
ngs of Reguatons 11 .
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.
. 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.
(n)
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I
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, accordng
to conte t.
Mn. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. (Mce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
SU 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 S, 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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9U I- I-6WI
I - I-Sf I
ZOI -ZI- MI
90I t- -6WI
0I I-ZI-6WI
WI 1- 1-8WI
8O I-8-fWI
080 I-8- t8I
8O I- -8 6
Z90 I-8-6 I
990 I-S-6W
990 I- -6WI
0SO I-9-8WI
I 0 I-9-6 SI
9 0CI-9-8WI
Z 0 I-9-6WI
0 0SI-9-6WI
0e-t-8MI
8I0 I-8-8WI
0 I- -8WI
800 I-Z- 8t
U0 I-S-8WII
ZI0 I-8-6WI
S00 I-I-6 )I
I0O I-I-6WI
0 8u| na
I
8 II
9 III
wo
osoo
81001
8100
Z86
ZIM
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ow
8MM
8 U
8(U8
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9I9
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WZ9
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6699
8699
99
9699
099
8899
1699
0699
8899
8899
899
9899
9899
W9S
899
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I
Rung
Unted States Ta Court
Contnued
16 68
1661
1661 .
16616.
16617
16618
1666
16718
16728
16731.
16732
1673
16771
16772
16773
1677
16780
16829
171
1719
1731
1760
1773
18613
30
10
108 82
Offce decsons (I. T.):
393
393
3936
3937
3938 --
3939
39 0
39 1
39 2
39 3
39
39
39 6
39 7
39 8
39 9
39 0
39 1
39 2
39 3
39
39
Rung No.
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-11-13091
19 9-10-13083
19 9- -13029
19 9-10-13083
19 9-11-13091
19 9-8-13060
19 9-13-13109
19 9-2-13007
19 9-7-130 2
19 9-10-13083
19 9-1-13000
19 9-2-13008
19 9-2-13010
19 9-3-1301
19 9-3-13016
19 9-3-13017
19 9- -13023
19 9- -13031
19 9-6-13039
19 9-6-130 0
19 9-7-130 3
19 9-7-130
19 9-8-13061
19 9-8-1306
19 9-8-13069
19 9-9-13071
19 9-9-13072
19 9-9-13073
19 9-10-1308
19 9-11-13092
19 9-11-13093
19 9-11-13098
19 9-12-13102
Page
,6
6

,6
6
6,7
6
7
7

,6

3
6
7
9
60
113
M
6
ss
81
262
f.
61
6
8
61
3
82
163
78
Rung
Offce decsons Contnued
39 7
39 8
39 9
Offce decsons ( . P. C.):
3 .-
36
37
38
39
0
1
2
Offce decson (8. T.):
936
Offce decsons (M. T.):
33
3
3
36
37
Offce decsons (MS.):
330
331
332
333
33
33
Offce decsons (T.):
227.
228
229
230
231
232
233
23
23
236
237
238
Mmeographs:
63 0
6361
6366...
6367
6381
639
Legsaton
Rung No.
19 9-13-13110
19 9-13-13111
19 9-13-13112
19 9-1-13002
19 9-6-130 3
19 9-6-130
19 9-6-130
19 9-0-130 6
19 9-11-1309
19 9-11-13096
19 9-11-13097
19 9-1-1300
19 9-6-130 7
19 9-6-130 8
19 9-7-130 7
19 9-N-1UOIU
19 9-9-13077
19 9-1-13006
19 M-13027
19 9-6-130 1
19 9-8-13068
19 9-10-13090
19 9-12-13108
19 9-3-13020
19 9- -13028
19 9- -1303
19 9- -13036
19 9-7-130 8
19 9-7-130 9
19 9-10-13088
19 9-10-13089
19 9-11-13099
19 9-11-13100
19 9-13-13118
19 9-13-13119
19 9-1-13003
19 9-6-130 2
19 9-6-130 9
19 9-6-13038
19 9-9-13076
19 9-13-13113
19 9-9-13081
I 19 9-9-13082
19 9-12-13106
19 9-13-13117
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CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 to 6; S. T. FOR 1920 ND 1921; INT RN L
R NU 1-1,1-2, II-, II-2. m-1, m-2. I -1.1 -2, -, -2, M. I-2, IM, vn-2, I1M, n-2,
I -1. I -2, -, -2, I-1. I-2, II-1, n-2, II1-1, III-2, I -1, I -2, -1, -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; N-
NU L ULL TINS FOR 19 3. 19 , ND 19 ; S MI NNU L ULL TINS 19 6-1, 19 6-2, 19 7-1.
19 7-2.19 8-1,19 8-2. ND 19 9-1.
Cumuatve uetn
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. )
uy-December, 1921 (No. )
Saes Ta :
1920 (S.T. 1-20) -
anuary- une, 1921.
uy-December, 1921
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2)
anuary- une, 1923 (No. II-)
uy-December, 1923 (No. 11-2)
anuary- une, 192 (No. II1-1)
uy-December, 192 (No. III-2)
anuary- une, 192 (No. I -1)..
uy-December, 192 (No. 1 -2)
anuary- une, 1926 (No. -)
uv-December, 1926 (No. -2)
anuary- une, 1927 (No. I-1)
uy-December, 1927 (No. I-2)
anuary- une, 1928 (No. II-1)
uy-December, 1928 (No. II-2)
anuarv- une, 1929 (No. III-1)
uy-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)
uy-December, 1930 (No. I -2)
anuary- une, 1931 (No. -)
uy-December, 1931 (No. -2)
anuary- une, 1932 (No. I-1)
uy-December, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uy-December, 1933 (No. I1-2)
anuary- une, 193 (No. III-1)
uy-December, 193 (No. III-2)
anuary- une, 193 (No. I -1)
uy-December, 193 (No. I -2)
anuary- une, 1936 (No. -1)
uv-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uv-December, 1937 (1937-2)
anuary- une, 1938 (1938-1)
uy December, 1938 (1938-2) ---------
unuary- une, 1939 (1939-1 Part 1 and Part 2)
uy-December, 1939 (1939-2) -
anuary- une, 19 0(19 0-1) -
uy-December, 19 0 (19 0-2)
anuary- une, 19 1 (19 1-1)
uy-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 (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)
anuary- une, 19 8 (19 8-1)
uv-December, 19 8 (19 8-2). -
anuary- une, 19 9 (19 9-1)
( 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
PU LIS D IN T INT RN L R NU ULL TIN S R -
IC FROM NU RY 1, 19 9, TO UN 30, 19 9, INCLUSI
19 9-13-13109
The Commssoner acquesces n the foowng decsons:
Ta payer
Docket No.
Report
oume Page
bercrombe Co., . S.1
eampo Wnery Dsteres,
dda, Inc.2
Inc.
en, amton, transferee
rmored Tank Corporaton (N. Y.).
verbuch, Sam
echhod, Ma , transferee.
echhod, Segfred, transferee
everdge, Catherne S.
dde, r., et u ., nthony . Dre eL
um, rthur N
umberg, Isaac
rown, . L
ryant Trust, arret M
Campbe, ames
Campbe, ohn bert
Campbe, ncent C
Cty ank Farmers Trust Co.. e ecutor of estate of
oes C. art
Commodores Pont Termna Corporaton
Davs, Monte
Dean, Mar|ore N
Dempsey s Punch ow, Inc., ack.
Drew, N.
6168
7637
8883
9771
11916
9768
93 9
9772
11927
9770
11920
12919
9 26
12739
1610
12 19
1 08
1 709
1 710
1 707
13 1
1 21
1719
10018
1 1 3
16 18
16 19
7
7
9
11
11
12
11
11
10
II
11
11
11
11
11
11
11
11
11
11
10
11
12
1 Nonacquescence pubshed n Cumuatve uetn 19 6-2, page 6, wthdrawn.
Parta nonacquescence pubshed n Cumuatve uetn 19 7-2, page 6, wthdrawn.
Gft ta decson.
Nonacquescence pubshed n Interna Revenue uetn 19 8-22, page 1, wthdrawn.
120
629
199
6
6
32
6
6
91
868
101
663
7
37
10
10
10
16
11
38
19
1030
(1)
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cquescences Contnued
Ta payer
F
Farr, Merton
Federa Machne Weder Co., The
Frst Natona ank of Chcago, The, e ecutor of
estate of m . Stake 1
a
Genesee aey Trust Co., e ecutor of estate of za-
beth . arper 1
Gfford- Co., Inc.2
Goodman Furnture Co., The . L
Grant-Lawson, rgna Dean

ardng.Wam arcay 3
arper, zabeth ., estate of 1
art, oes C, estate of
art, ose Grayston
erberts, Curts
nds, rnest, estate of 1
nds, Mnne . M., e ecutr of estate of rnest
nds 1
ooway, . M., estate of
ooway, arvey S., e ecutor of estate of . M.
ooway
ooway, Mary L.s
owe, Frances N., admnstratr d. b. n. c. t. a. of
estate of Wam L. Nevn 1
udson, dward .6
unt, . W., estate of
unt, oa, e ecutr of estate of . W. unt 1
utson et a., Dors, e ecutors of estate of Grace G.
Mc dow
Imer, oseph W_
Israe, abette .
udson Ms.
enny, nna Fney, estate of 1
enny, Frankn ., e ecutor of estate of nna Fney
enny 1
ser et a., Lucy Pee, e ecutors of estate of W. .
ser
ser et a., W. ., estate of
Docket No.
1172
1371
1 191
1 9 8
138 1
13 2
10019
6098
1 9 8
13 1
13 1
111 9
9707
9707
11 26
11 26
11 28
1 218
16380
126 9
126 9
1 789
1 670
12976
9926
1 62
1 62
12717
12717
oume Page
state ta decson.
1 cquescence reates ony to tbe ssue whether the ta payer, on the accrua bass, n computng ts e cess
profts credt under the nvested capta method for the ta abe year 19 3, may Incude as a part of ts accumu-
ated earnngs and profts the amount of ts postwar credt to be refunded for the year 19 2.
1 cquescence reates ony to the resut.
1 Gft ta decson.
1 cquescence reates ony to the ssue nvovng the decedent s nterest n the homestead property whch
s ncudbe n gross estate and the vaue of such nterest.
f cquescence reates ony to the ssue nvovng the ncuson n gross ncome for the year 19 of the
face vaue ofcertun promssory notes receved n thut year.
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cqubtscences Contnued
Ta payer
no , Wam F
oepf, oseph ake.
oppers Co
uzmck, Pau L
Leach et u ., . G.
M
Manton, va M
Maverck-Carke Ltho Co
Mc dow, Grace G., estate of
Mc dow, Rchard C , estate of
Mc dow, r., Rchard C, e ecutor of estate of
Rchard C. Mc dow
Mc rde, Maron
Mc rde, T.
Mchaes, aron
Moorer, Wam D
Mvers, va L
Myers, R. T
N
Nevn, Wam It., estate of1
Newha et a., C. Stevenson, survvng and succeedng
trustees of Trustees Common Stock ohn Wan-
amaker Phadepha under w of Rodman Wan-
amaker 2
Newton et u ., ert P
Northern Coa Dock Co., The
Northup, the
Ode, R. F.
Rosebaut, Chares ., estate of1
Rosebaut, Laura D., e ecutr of estate of Chares .
Rosebaut1
S
Schmdt, rthur T
Schutz et a., Dr. Car ryant, trustees of arret M.
ryant Trust
Smawood, bert DeCaen, estate of1
Smawood et a., Thomas ., e ecutors of estate of
bert DeCaen Smawood 1
Stake, m ., estate of1
Stanard-Tton Mng Co.
Stecker, Php ., transferee
Sturman, manue, estate of
Sturman, Leon ., e ecutor of estate of manue
Sturman
Docket No.
Report
oume
Page
1113
11682
6232
12887
10
11
11
11
0
3 2
89
288
1773
12
20
78
1 083
1 789
1 799
11
831
1087
311
311
11
12
12
1 799
1 819
1 820
9708
16272
1 162
1 1
12
11
11
12
12
11
11
311
961
961
17
270
9
9
1 218
11
9
1 06
1 177
127 6
10020
11
11
12
10
36
12
2
19
171
12
201
1 393
12
1
1 393
12
1
9398
10
7 6
1 08
13 6
11
11
37
7 0
13 6
1 191
108 82
/ 9769
11919
1 2
11
11
7 0
817
1026

3
6
11
890
1 2
11
890
1 state ta decson.
1 cquescence reates ony to the Issue whether the fducary s entted to deduct amounts of current
ncome retaned by t to remburse tsef for nhertance ta advances on behaf of the benefcary.
Nonacqnescence pubshed n Cumuatve uetn 19 , page 8, wthdrawn.
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cquescences Contnued
Ta payer
Docket No.
Report
oume Page
T
Thorney et u ., George .1
Tobn, dgar G
Tobn, Margaret atts
Trustees Common Stock ohn Wanamaker Phade
pha under w of Rodman Wanamaker 2_..

eenstra de aan Coa Co

W
Wa Products, Inc
Y
Youghogheny Oho Coa Co., The
10
2
220
13612
11
928
13611
11
928
1 06
11
36
1 18
11
96
10277
11
1
127 7
12
2
1 Nonacqucscence pubshed n Cumuatve uetn 19 , page 0, wthdrawn.
cquescence reates ony to the ssue whether the fducary s entted to deduct amounts of current
ncome retaned by t to remburse tsef for nhertance ta advances on behaf of the benefcary.
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The Commssoner does NOT acquesce n the foowng decsons:
Ta payer

egheny roadcastng Corporaton, transferee

mherst Coa Co

ard, ohn
ard, Mdred ennett
urgher, aard
urns et a., Roy, e ecutors of estate of ames .
Frzze1
C
Cark, Ws W
Cook, M. M. (Mrs. W. L), estate of1
I)
Daas Downtown Deveopment Co. (dssoved)
Daas Natona ank, ndependent e ecutor and
trustee of estate of Ivor zabeth O Connor Morgan.
Daas Natona ank, trustee of trust under w of
ames Chares O Connor
Dowres, . R
Dowres, Mary
F
Frst Natona ank of Daas, trustee of Cec .
eatng Trust
Frzze, ames ., estate of
Docket No.
Gfford- Co., Inc .
II
nds, rnest, estate of 1
nds, Mnne . M., e ecutr of estate of rnest
nds
udson, dward .s
ahn, . M., estate of.
eatng Trust, Cec .

Report
18 13
1267
16382
16383
1661
670
13686
30
16618
16 68
16 67
1638
1638
16829
670
138 1
9707
9707
16380
16718
16829
1673
1673
oume
12
11
11
11
12
11
11
27
12
12
12
11
11
12
11
11
11
11
11
12
12
12
12
L
Lang, Otto ., estate of
Lang, W. ., ndependent e ecutor of estate of Otto
. Lang
oard of Ta ppeas.
1 state ta decson.
cquescence pubshed n Cumuatve uetn II-1 (1933), pages 3 and 9, wthdrawn.
Nonacquescence reates ony to the ssue whether, n determnng nonta abe ncome from e empt
e cess output under secton 73 ,1. R. C, each mne operaton of a partcuar depost s to be treated as one
depost of mnera property or as many mnera deposts or propertes as there are tracts of and contaned
theren.
Nonacquescence reates ony to the ssue Invovng ncuson In gross estate of decedent s communty
nterest n certan securtes transferred by hm to a trust on December 31, 19 0.
Nonacquescence reates ony to the Issue nvovng a depeton aowance for the year 19 wth respect
to Income receved from operaton of a processng pant n the North ouston ed.
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6
Nonacquescences Contnued
Ta payer
M
Maracabo O poraton Corp
McCarty, ustn
Mc unkn Trust, Mna G. and Fred, r
McLean, dward .1
McReynods, . O., estate of
Meador, arry L
Morgan, Ivor zabeth O Connor, estate of
Motch, r., et u ., dwn R
N
Na et a., R. ., ndependent e ecutors of estate of
M. M. (Mrs. W. I.) Cook
Newha et a., C. Stevenson, survvng and succeedng
trustees of Trustees Common Stock ohn Wana-
maker Phadepha under w of Rodman Wana-
maker
O
O Connor, ames Chares, trust under w of
Overton, r., W. W
Overton, r., et a., W. W., qudatng trustees of
Daas Downtown Deveopment Co. (dssoved)
R
Repubc Natona ank of Daas, trustee of Mna G.
Mc unkn and Fred Mc unkn, r., trust under w
of Fred Mc unkn
Revere Land Co
Saafed Pubshng Co., The
Samon, Chares Schofed
Seay, Chares
Seay, George
Seay, ohn M
Seav, Paune ----
Seay et a., Paune ., trustees of Paune . Seay
Trust under w of Dero . Seay
Seay Trust, Paune .
Sharon, Ove
Sharon, Robert
Suenger, .
Suenger, Lea
Taurog, Norman 1
Te as ank Trust Co. of Daas.
Trout-Ware, Inc
Docket No.
1731
16616
1666
1 07
1622
16729
16 68
1 621
30
1 06
oume Page
16 67
12
11
16617
12
11
16618
12
11
1666
12
11
6967
7
1061
1 3
11
7 6
7 1
12
0
16773
12
11
1677
12
11
16772
12
11
16771
12
11
16780
12
11
16780
12
11
1 68
10
1177
1 67
10
1177
1 631
11
1076
1 630
11
1076
11 29
11
1016
1661
12
11
1 910
11
0
oard of Ta ppeas.
1 Gft ta decson.
cquescence pubshed In Cumuatve uetn II-1 (1933), pages 3 and 9, wthdrawn.
1 Nonacquescence reates ony to the ssue whether the surrender for cash of shares of ohn Wanamaker
Phadepha consttutes a ta abe dvdend transacton under secton 11 (g) of the Interna Revenue Code.
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Nonacque8Cence8 Contnued
Ta payer
Docket No.
I oume
Trust under w of ames Chares O Connor
Trustees Common Stock ohn Wanamaker Phade-
pha under w of Rodman Wanamaker 1
U
Unon us Termna, Inc
W
Wash, Mram Cooper
Wesberg et a., e , trustees of estate of . M. ahn
Wtche, Frank O
Wtche, Frank O., ndependent e ecutor of estate of
Moe I. Wtche
Wtche, Moe I., estate of
Wozencraft, Mary ctora McReynods
Wozencraft, Mary ctora McReynods, ndependent
e ecutr and soe her of estate of . O. McRey-
nods
16 67
1 06
1 967
16277
16718
16731
16732
16732
1760
1622
1 Nonacquescence reates ony to the Issue whether the surrender for cash of shares of ohn Wanamaker
Phadepha consttutes a ta abe dvdend transacton under secton 11 (g) of the Interna Revenue Code.
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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 I. R T S OF T
S CTION 11. NORM L T ON INDI IDU LS
Secton 29.11-1: Income ta on ndvduas. 19 9- -13030
T. D. 687
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 31, 19 1
Reguatons 111 amended to conform to the Revenue ct of 19 8
(Pubc Law 71, ghteth Congress) C. . 19 8-1, 211 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. 0.
To Coectors of Interna Revenue and Others Concerned:
On October 27, 19 8, notce of proposed rue makng, regardng
amendments to the ncome ta reguatons made necessary by the
Revenue ct of 19 8 (62 Stat. I), enacted pr 2,19 8 C. . 19 8-
1. 211 , was pubshed n the Federa Regster (13 F. R. 6289). No
ob|ecton to the rues proposed havng been receved, the amendments
set forth beow are hereby adopted. The amendments are made n
order to conform Reguatons 111 26 CFR, Part 29 , reatng to the
ncome ta , to the amendments made to Chapter 1 of the Interna
Revenue Code by the Revenue ct of 19 8.
Paragraph 1. There s nserted mmedatey precedng secton
29.11-1 the foowng:
TITL I INCOM T R DUCTION (R NU CT OF 19 8)
S C. 101. R DUCTION OF NORM L T ND SURT .
Secton 12(c) of the Interna Revenue Obde s hereby amended to read
as foows:
(c) Reducton or Tentatve Norma Ta and Tentatve Suet at.
(1) The combned norma ta and surta under secton 11 and
subsecton (b) of ths secton sha be the aggregate of the tenta-
tve norma ta and tentatve surta , reduced as foows:
If the aggregate Is: The reducton sha be:
Not over 00 17 of the aggregate.
Over 00 but not over
100,000 68 pus 12 of e cess over 00.
Over 100,000 12,020 pus 9.7 of e cess over
100,000.
8 6616 9 2 (9)
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29.11-1.
10
(2) In no event sha the combned norma ta and surta e -
ceed 77 per centum of the net ncome.

S C. 10 . T C NIC L M NDM NTS.
(a) Secton 11 of the Interna Revenue Code (reatng to the norma
ta on ndvduas) s hereby amended by strkng out by per centum
thereof and nsertng n eu thereof as provded n secton 12(c) .

(c) Subsectons (d), (e), (f), (g), and (h) of secton 12 of the
Interna Revenue Code are amended to read as foows:
(e) Computaton of Ta Wthout Regard to Credts ganst
Ta . In the appcaton of ths secton, the combned norma ta and
surta sha be computed wthout regard to the credts provded (n sec-
tons 31, 32, and 3 .
(f) scertanment of Norma Ta and Surta Separatey. When-
ever t s necessary to ascertan the norma ta and the surta separatey,
the surta sha be an amount whch s the same proporton of the
combned norma ta and surta as the tentatve surta s of the ag-
gregate of the tentatve norma ta and tentatve surta ; and the norma
ta sha be the remander of such combned norma ta and surta .

S C. 10 . T L T RS TO W IC M NDM NTS PPLI-
C L .
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
S C. 301. SPLITTING OP INCOM . (R NU CT OF 19 8,
TITL III.)
Secton 12 of the Interna Revenue Code (reatng to surta of n-
dvduas) s hereby amended by addng after subsecton (c) of such
secton the foowng new subsecton:
(d) Ta n Case of ont Return. In the case of a |ont return of
husband and wfe under secton 1(b), the combned norma ta and
surta under secton 11 and subsecton (b) of ths secton sha be
twce the combned norma ta and surta that woud be determned
If the net ncome and the appcabe credts aganst net ncome provded
by secton 2 were reduced by one-haf.
S C. 30 . T L T RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL III.)
The amendments made by sectons 301, sha be appcabe
wth respect to ta abe years begnnng after December 31, 19 7.
For treatment of ta abe years begnnng n 19 7 and endng n 19 8,
see secton 601.
Par. 2. Secton 29.11-1, as amended by Treasury Decson 17
C. . 19 6-2, 8 , approved une 12,19 6 26 CFR 29.11-1 , s further
amended by strkng out the ast two sentences and nsertng n eu
thereof the foowng:
For ta abe years begnnng after December 31, 19 , and before anuary 1,
19 8, the norma ta on ndvduas s determned by computng a tentatve
norma ta of 3 percent of the amount of the net ncome n e cess of the credts
aganst net Income provded n secton 2 for such years an by reducng such
tentatve norma ta by percent thereof. For ta abe years begnnng after
December 31, 19 7, the norma ta on ndvduas s determned by computng
a tentatve norma ta of 3 percent of the amount of the net ncome n e cess
of the credts aganst net ncome provded n secton 2 and by reducng such
tentatve norma ta as provded n secton 12(c). See secton 29.12-2. For
computaton of ta n the case of a |ont return of husband and wfe for a
ta abe year begnnng after December 31, 19 7, see secton 29.12- .
For treatment of ta abe years begnnng n 19 and endng n 19 6, see
secton 29.108-2. For treatment of ta abe years begnnng n 19 7 and endng
n 19 8, see secton 29.108-3.
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11
29.11-1.
Par. 3. There s nserted mmedatey precedng secton 29.12-1
the foowng:
TITL I INCOM T R DUCTION (R NU CT OF 19 8)
S C. 101. R DUCTION OF NORM L T ND SURT .
Secton 12(c) of the Interna Revenue Code Is hereby amended to
read as foows:
(c) Reducton or Tentatve Norma Ta and Tentatve Surta .
(1) The combned norma ta and surta under secton 11 and
subsecton (b) of ths secton sha be the aggregate of the tentatve
norma ta and tentatve surta , reduced as foows:
If the aggregate s: The reducton sha be:
Not over 00 17 of the aggregate.
Over 00 but not over
100,000 68 pus 12 of e cess over 00.
Over 100,000 12,020 pus 9.7 of e cess over 100,000.
(2) In no event sha the combned norma ta and surta e ceed
77 per centum of the net ncome.
S C. 102. R DUCTION IN SUPPL M NT T T .
For reducton n the ta under Suppement T of Chapter 1 of the
Interna Revenue Code (ta tabe whch may be used by ta payer at hs
eecton f hs ad|usted gross ncome s ess than ,000), see secton 01.
S C. 103. INCOM OF US ND ND WIF .
For ta n case of |ont return of husband and wfe (the so-caed
spttng of ncome ), see secton 301.
S C. 10 . T C NIC L M NDM NTS.

(b) Secton 12(b) of the Interna Revenue Code (reatng to the rate
of surta on ndvduas) s hereby amended by strkng out by per
centum thereof and Insertng n eu thereof as provded n subsecton
(c) of ths secton .
(c) Subsectons (d), (e), (f), (g), and (h) of secton 12 of the
Interna Revenue Code are amended to read as foows:
(e) Computaton of Ta Wthout Regard to Credts ganst
Ta . In the appcaton of ths secton, the combned norma ta and
surta sha be computed wthout regard to the credts provded n
sectons 31, 32, and 3 .
(f) scertanment of Norma Ta and Surta Separatey. When-
ever t s necessary to ascertan the norma ta and the surta sep-
aratey, the surta sha be an amount whch s the same proporton of
the combned norma ta and surta as the tentatve surta s of the
aggregate of the tentatve norma ta and tentatve surta ; and the
norma ta sha be the remander of such combned norma ta and
surta .
(g) Cross References.
(1) ternatve ta . For aternatve ta whch may be eected
f ad|usted gross ncome s ess than ,000, see Suppement T.
(2) Ta n case of capta gans. For rate and computaton
of aternatve ta n eu of norma ta and surta n the case of
capta gan from the sae or e change of capta assets hed for more
than 6 months, see secton 117(c).
(3) Ta on persona hodng companes. For surta on per-
sona hodng companes, see secton 00.
( ) vodance of surta es by ncorporaton. For surta on
corporatons whch accumuate surpus to avod surta on share-
hoders, see secton 102.
( ) Sae of o or gas propertes. For mtaton of surta
attrbutabe to the sae of o or gas propertes, see secton 10 .
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29.11-1.
12
S C. 10 . T L Y RS TO W IC M NDM NTS PPLI-
C L .
The amendments made by ths tte sha be appcabe wth respect
to ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng In 19 8, see secton 601.
S C. 301. SPLITTING OF INCOM (R NU CT OF 19 8,
TITL III.)
Secton 12 of the Interna Revenue Code (reatng to surta of nd-
vduas) s hereby amended by addng after subsecton (c) of such sec-
ton the foowng new subsecton:
(d) Ta n Case of ont Return. In the case of a |ont re-
turn of husband and wfe under secton 1(b), the combned norma
ta and surta under secton 11 and subsecton (b) of ths secton sha
be twce the combned norma ta and surta that woud be determned
f the net ncome and the appcabe credts aganst net ncome pro-
vded by secton 2 were reduced by one-haf.
S C. 30 . T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OP 19 8, TITL III.)
The amendments made by sectons 301, sha be appcabe
wth respect to ta abe years begnnng after December 31,19 7.
For treatment of ta abe years begnnng n 19 7 and endng n 19 8,
see secton 601.
Par. . Secton 29.12-1, as Umended by Treasury Decson 17
26 CFR 29.12-1 , s further amended by strkng out paragraph (c)
and nsertng n eu thereof the foowng:
(c) Ta abe years begnnng after December SI, 19 , and before anuary 1,
19 8. For ta abe years begnnng after December 31, 19 , and before anu-
ary 1, 19 8, there s mposed, n addton to the norma ta , a surta de-
termned as specfed n secton 12 upon the surta net ncome of every n-
dvdua, resdent or nonresdent, e cept nonresdent aen ndvduas sub-
|ect to the ta mposed by secton 211(a). The surta net ncome for such years
s the net ncome mnus the credts provded n secton 2 (b) pror to ts amend-
ment by the Revenue ct of 19 8. Secton 12 provdes wth respect to such
ta abe years that the surta sha be percent ess than the amount of the ten-
tatve surta computed n accordance wth the tentatve surta tabe contaned
theren. For treatment of ta abe years begnnng n 19 and endng n 19 6,
see secton 29.108-2.
( f) Ta abe years begnnng after December 31, 19 7- For ta abe years be-
gnnng after December 31,19 7, there s mposed, n addton to the norma ta ,
a surta determned as specfed n secton 12, upon the surta net ncome of
every ndvdua, resdent or nonresdent, e cept nonresdent aen ndvduas
sub|ect to the ta Imposed by secton 211(a). The surta net ncome s the net
ncome mnus the credts provded n secton 2 (b). Secton 12 specfes that
the surta sha be determned by computng a tentatve surta n accordance
wth the tentatve surta tabe contaned theren and by reducng such tenta-
tve surta as provded n secton 12(c). For treatment of ta abe years be-
gnnng n 19 7 and endng n 19 8, see secton 29.108-3.
Par. . Secton 29.12-2, as amended by Treasury Decson 17
26 CFR 29.12-2 , s further amended by strkng out the ast sentence
and nsertng n eu thereof the foowng:
For ta abe years begnnng after December 31, 19 , and pror to anuary 1,
19 8, secton 12 provdes that the surta sha be percent ess than the tenta-
tve surta . ccordngy, the surta for any of such ta abe years upon a surta
net Income of 63,128 woud be 33,122.70, computed as foows:
Tentatve surta on 63,128 3 ,866.00
Less: percent of 3 ,866 1, 7 3. 30
Surta 33,122. 70
For ta abe years begnnng after December 31, 19 7, secton 12 provdes that
the combned norma ta and surta sha be determned by reducng the ag-
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13
29.11-1.
gregate of the tentatve norma ta and tentatve surta as provded n the fo-
owng tabe:
If the aggregate of the tentatve
norma ta and the tentatve sur-
ta s: The reducton sha be:
Not over 00 17 of the aggregate.
Over 00 but not over 100,000 68 pus 12 of the e cess over 00.
Over 100,000 12,020 pus 9.7 of the e cess over
100,000.
ccordngy, f the norma ta net Income and the surta net Income each
amounts to 1 0,000 the combned norma ta and surta w be 98,6 7. , com-
puted as foows:
Tentatve norma ta : 3 percent of 1 0,000 , 00
Tentatve surta on 1 0,000 from tabe 107,320
ggregate of tentatve norma ta and tentatve surta 111, 820
Reducton of tentatve ta :
12,020 pus 9.7 percent of 11,820 (e cess of the aggregate
tentatve ta over 100,000) 13,172.
Combned norma ta and surta 98, 6 7.
Secton 12(f), as amended by the Revenue ct of 19 8, provdes that, whenever
t s necessary to ascertan the norma ta and the surta separatey for a ta -
abe year begnnng after December 31, 19 7, the surta sha be an amount whch
s the same proporton of the combned norma ta and surta as the tentatve
surta s of the aggregate of the tentatve norma ta and tentatve surta and
the norma ta sha be the remander of such combned norma ta and surta .
Such computaton, for e ampe, s necessary for the purpose of secton 10 , re-
atng to ta on the gan from the sae of o or gas propertes and for the purpose
of secton 106, reatng to ta on amounts receved wth respect to cams aganst
the Unted States nvovng acquston of property. The surta on the net
ncome of 1 0,000 nvoved n the above e ampe woud under secton 12(f) be
98,6 7. (combned norma ta and surta ) mutped by
107,320 (tentatve surta )
111,820 (tentatve tota ta )
or 9 ,677.6 , and the norma ta woud be 98,6 7. mnus 9 ,677.6 , or
3,969.90.
For computaton of ta n the case of a |ont return of husband and wfe for a
ta abe year begnnng after December 31, 19 7, see secton 29.12- .
Par. 6. Secton 29.12-3, as amended by Treasury Decson 17 26
CFR 29.12-3 , s hereby further amended as foows:
( ) y nsertng mmedatey after December 31, 19 , n the
second sentence and before anuary 1,19 8, .
( ) y nsertng at the end thereof the foowng:
For ta abe years begnnng after December 31, 19 7, the combned norma
ta and surta , computed before the appcaton thereto of the credt provded
n secton 31 (reatng to the credt for foregn ncome ta ), secton 32 (reatng
to the credt for ta wthhed at the source under secton 1 3 or secton 1 ),
and secton 3 (reatng to the credt for ta wthhed on wages), cannot e ceed
an amount equa to 77 percent of the ta payer s net ncome for the ta abe year.
For treatment of ta abe years begnnng n 19 7 and endng n 19 8, see secton
29.108-3.
Par. 7. There s nserted mmedatey after secton 29.12-3 the fo-
owng secton:
Sec. 29.12- . Combned Norma Ta and Subta n Case of ont Retubn of
usband and Wfe fob Ta abe Years egnnng fter December 31, 19 7.
In the case of a |ont return of husband and wfe (see secton 1 (b)) for a ta abe
year begnnng after December 31, 19 7, the combned norma ta and surta
under secton 11 and secton 12(b) sha be twce the combned norma ta and
surta that woud be determned If the net ncome and the appcabe credts
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29.11-1.
1
aganst net ncome provded by secton 2 were reduced by one-haf. (Secton
12(d).) For method of computng gross ncome and ad|usted gross ncome on
a ont return, see secton 29. 1-1.
The method of computng, under secton 12(d), the ta of husband and wfe,
In the case of a |ont return, s as foows:
Frst, the net ncome and appcabe credts aganst net ncome are reduced
by one-haf. Second, the tentatve norma ta and tentatve surta are deter-
mned as provded n secton 11 and secton 12(b), by usng the net ncome and
appcabe credts so reduced. Thrd, the tentatve norma ta and tentatve
surta so determned are aggregated and ths aggregate tentatve ta s then
reduced as provded n secton 12(c). Fourth, ths reduced aggregate, whch
s the combned norma ta and surta that woud be determned f the net
ncome and the appcabe credts aganst net ncome provded by secton 2
were reduced by one-haf, s then mutped by two, to produce the ta Imposed
n the case of the |ont return.
The mtaton under secton 12(c) of the combned norma ta and surta
to an amount not n e cess of 77 percent of the net ncome s to be apped before
the fourth step above, that s, the mtaton s to be apped upon the combned
norma ta and surta determned under secton 12(c) as 77 percent of one-haf
of the net ncome (such one-haf of the net ncome beng the actua aggregate
net ncome of the spouses reduced by one-haf). fter such mtaton s apped,
then the combned norma ta and surta so mted are mutped by two as
provded n secton 12(d).
The foowng computaton ustrates the method of appcaton of secton
12(d) n the determnaton of the ta of a husband and wfe fng a |ont return
for the caendar year 19 8. If the |ont net ncome s 8,200 and the ony aow-
abe credts under secton 2 are the two e emptons of the ta payers under
secton 2 (b) (1) ( ), the ta on the |ont return for 19 8 s 1,2 .80, determned
as foows:
1. Net ncome 8,200.00
2. Net ncome reduced by one-haf ,100. 00
3. Credts aganst net ncome under secton 2 (2 e emptons under
secton 2 (b)(1)( )) 1,200.00
. Credts n tem 3 reduced by one-haf 600.00
. Net Income reduced by one-haf (tem 2) mnus credts reduced by
one-haf (tem ) 3, 00.00
6. Tentatve norma ta computed under secton 11 on amount n
tem (3 percent of 3, 00). 10 . 00
7. Tentatve surta computed under secton 12(b) on amount n tem
( 3 0 pus 19 percent of e cess of 3, 00 over 2,000) 62 . 00
8. ggregate of the tentatve norma ta and tentatve surta 730. 00
9. Combned norma ta and surta determned under secton 12(c)
( 730 reduced by 68 pus 12 percent of the e cess of 730 over
00) 622. 0
10. Twce the combned norma ta and surta determned n tem 9 1, 2 . 80
If the aternatve ta s computed under secton 117(c)(2), reatng to the
aternatve ta where a ta payer (other than a corporaton) has a net ong-term
capta gan n e cess of a net short-term capta oss, the parta ta sha be
computed under sectons 11 and 12 as stated above but wthout ncuson of such
e cess n net ncome, and the tota ta sha be such parta ta pus 0 percent
of such e cess as provded n secton 117(c) (2).
For computaton of ta under Suppement T n the case of a ont return, see
sectons 29. 00-1 and 29. 01-1.
For treatment of ta abe years begnnng n 19 7 and endng In 19 8, see
secton 29.108-3.
Par. 8. Secton 29.22(m)-, as added by Treasury Decson 2
C. . 19 , 10 , approved December 29, 19 26 CFR 29.22(m)- ,
s amended as foows:
( ) y strkng out the second sentence and nsertng n eu thereof
the foowng:
Such compensaton, therefore, sha be Incuded n the gross Income of the chd
and refected n the return rendered by or forsuch chd tf the gross ncome for
the tasaWeyear amounts to 00 or more, rn the case of a ta abe;yenr begnnng
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1
29.11-1.
after December 31, 19 3, and before anuary 1, 19 8, or to 600 or more n the
case of a ta abe year begnnng after December 31, 19 7. See secton 29. 1-3.
( ) y strkng from the thrd sentence , whether more or ess
than 00, .
Par. 9. There s nserted mmedatey precedng secton 29.23( )-
the foowng:
S C. 30 . D DUCTION FO M DIC L P NS S. (R NU
CT OF 19 8, TITL III.)
Secton 23 ( ) of the Interna Revenue Code (reatng to deducton of
medca, etc., e penses) s hereby amended by strkng out the second
and thrd sentences thereof and nsertng n eu thereof the foowng:
The deducton sha not be n e cess of 1,2 0 mutped by the number
of e emptons aowed under secton 2 (b) for the ta abe year (e -
cusve of e emptons aowed under secton 2 (b)(1) ( ) or (C)),
wth a ma mum deducton of 2, 00, e cept that the ma mum deducton
sha be ,000 n the case of a |ont return of husband and wfe under
secton 1(b).
S C. 30 . T L T RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL III.)
The amendments made by sectons 30 sha be appcabe
wth respect to ta abe years begnnng after December 31, 19 7.
For treatment of ta abe years begnnng n 19 7 and endng
n 19 8, see secton 601.
Par. 10. Secton 29.23 ( )-, as amended by Treasury Decson 17
26 CFR 29.23 ( )- , s further amended as foows:
( ) y strkng from the frst sentence of the second paragraph
secton 29.2 -3 and nsertng n eu thereof sectons 29.2 -3 and
29.2 -6 .
( ) y strkng out the ffth sentence of the second paragraph and
nsertng n eu thereof the foowng:
If the deducton for the pror year woud have been greater but for the mtatons
on the ma mum amount of such deducton provded by secton 23( ), then, for
purposes of the two precedng sentences, the amount of the compensaton receved
n a subsequent year or years sha be reduced by an amount equa to the amount
by whch the deducton for the pror year woud, but for the appcabe ma mum
mtatons, have been ncreased. For the computatons ustratng ths rue,
see e ampes (3) and ( ) at the end of ths secton.
(C) y strkng out the thrd sentence of the ffth paragraph and
nsertng n eu thereof the foowng:
The ma mum deducton aowabe for medca e penses pad n any one ta -
abe year begnnng after December 31, 19 3, and before anuary 1, 19 8, s
1,2 0 n the case of a ta payer havng ony one e empton under secton 2 (b)
(pror to Its amendment by the Revenue ct of 19 8), and 2, 00 n the case of a
ta payer entted to more than one e empton under secton 2 (b) (pror to ts
amendment by the Revenue ct of 19 8). The ma mum deducton aowabe for
medca e penses pad n any one ta abe year begnnng after December 31,19 7,
s 1,2 0 mutped by the number of e emptons aowed under secton 2 (b)
(e cusve of e emptons aowed under secton 2 (b)(1)( ) for ta payer or
spouse attanng the age of 6 years or secton 2 (b) (1) (C) for bnd ta payer
or bnd spouse) but not n e cess of 2, 00 n the case of a snge ndvdua or a
marred ndvdua makng a separate return and not In e cess of ,000 n the
case of a |ont return of husband and wfe.
(D) y addng at the end of such secton after e ampe ( ) the fo-
owng new e ampe:
ampe ( ). and W make a ont return for the caendar year 19 8, on
whch fve e emptons are aowed (e cusve of e emptons under secton 2 (b)
(1) ( ) or (C)), one for each ta payer and three for ther dependent mnor
chdren. The ad|usted gross ncome of and W n 19 8 s 0,000. They pay
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29.11-1.
16
durng that year 9,000 for medca care, no part of whch Is compensated for by
nsurance or otherwse. The deducton aowabe under secton 23 ( ) for the
caendar year 19 8 s ,000, computed as foows:
Payment for medca care n 19 8 9, 000
Less: percent of 0,000 (ad|usted gross ncome) 2, 000
cess of medca e penses In 19 8 over percent of ad|usted gross n-
come 7,000
owabe deducton for 19 8 ( 1,2 0 mutped by e emptons aowed
under secton 2 (b) (1) ( ) and (D) but not n e cess of ,000) ,000
Par. 11. There s nserted mmedatey precedng secton 29.23(y)-
the foowng:
S C. 202. T C NIC L M NDM NTS. (R NU CT OF 19 8,
TITL II.)

(e) Repea of Deducton fob nd Indvduas. ffectve wth
respect to ta abe years begnnng after December 31,19 7, secton 23 (y)
of such Code (reatng to speca deducton for bnd ndvduas) s re-
peaed.
Par. 12. Secton 29.23 (y)-, as amended by Treasury Decson
1 C. . 19 ,120 , approved pr 17,19 26 CFR 29.23(y)- ,
s further amended as foows:
( ) y nsertng mmedatey after December 31, 19 3, n the
frst sentence the words and before anuary 1, 19 8, .
( ) y addng at the end of such secton the foowng:
For addtona e emptons aowed for ta abe years begnnng after Decem-
ber 31,19 7, for bnd ta payer or bnd spouse, see secton 2 (b) (1), as amended
by the Revenue ct of 19 8, and secton 29.2 -3(d).
Par. 13. There s nserted mmedatey precedng secton 29.23
(aa)- the foowng:
S C. 302. ST ND RD D DUCTION. (R NU CT OF 19 8,
TITL III.)
(a) Increase of Standard Deducton n Case of ont Return or
Return by Unmarred Person. Secton 23(aa) (1) ( ) of the Interna
Revenue Code (reatng to the standard deducton) s hereby amended
to read as foows:
( ) d|usted Gross Income ,000 or More. If hs ad-
|usted gross ncome s ,000 or more, the standard deducton
sha be 1,000 or an amount equa to 10 per centum of the ad-
|usted gross ncome, whchever s the esser, e cept that n the
case of a separate return by a marred ndvdua, the standard
deducton sha be 00.
(b) ecton by usband and Wfe. Secton 23(aa) ( ) of such
Code s hereby amended to read as foows:
( ) usband and wfe. In the case of husband and wfe, the
standard deducton sha not be aowed to ether f the net ncome
of one of the spouses s determned wthout regard to the standard
deducton.
(c) Determnaton of Status. Secton 23(aa) of such Code s
hereby amended by addng at the end thereof the foowng new para-
graph :
(6) Determnaton of status. For the purposes of ths subsec-
ton
( ) the determnaton of whether an ndvdua s marred
sha be made as of the cose of hs ta abe year, uness hs
spouse des durng hs ta abe year, n whch case such determ-
naton sha be made as of the tme of such death; and
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17
29.11-1.
( ) an ndvdua egay separated from hs spouse under a
decree of dvorce or of separate mantenance sha not be con-
sdered as marred.
S C. 30 . T L Y RS TO W IC M NDM NTS PPLIC -
L . (R NU CT OF 19 8, TITL III.)
The amendments made my sectons 302, sha be
appcabe wth respect to ta abe years begnnng after December 31,
19 7. For treatment of ta abe years begnnng In 19 7 and
endng n 19 8, see secton 601.
Par. 1 . Secton 29.23 (aa)-, as added by Treasury Decson 2
26 CFR 29.23(aa)- , s amended as foows:
( ) y strdng out the thrd and fourth sentences of paragraph
(a) and nsertng n eu thereof the foowng:
In the case of ta payers whose ad|usted gross ncome s ,000 or more, the stand-
ard deducton for ta abe years begnnng after December 31, 19 3, and before
anuary 1, 19 8, s 00. In the case of such ta payers, the standard deducton
for ta abe years begnnng after December 31,19 7, s 1,000 or 10 percent of ad-
|usted gross ncome, whchever Is the esser, e cept that n the case of a separate
return by a marred ndvdua, the standard deducton s 00. For the purpose
of the precedng sentence, the determnaton of whether an ndvdua s marred
sha be made as of the dose of hs ta abe year uness hs spouse des durng hs
ta abe year, n whch case such determnaton sha be made as of the tme of
such death; and an ndvdua sha be consdered as marred even though vng
apart from hs spouse uness egay separated under a decree of dvorce or separate
mantenance. In the case of ta payers whose ad|usted gross ncome s ess than
,000, the standard deducton s about 10 percent of the ad|usted gross ncome
upon whch the ta s determned n the tabe provded n secton 00. ta payer
havng ad|usted gross ncome of ess than ,000, who does not eect to pay the
ta mposed by Suppement T, may not take the standard deducton.
In the case of a |ont return, there Is ony one ad|usted gross ncome and ony
one standard deducton. For e ampe, f a husband has an ncome of 1 ,000 and
hs spouse has an ncome of 12,000 for the ta abe year for whch they fe a |ont
return, and they have no deductons aowabe for the purposes of computng ad-
|usted gross Income, the ad|usted gross ncome s 27,000, and the standard deduc-
ton, f the ont return s for a ta abe year begnnng before anuary 1, 19 8, s
00 (and not 1,000) and f the ont return s for a ta abe year begnnng after
December 31,19 7, s 1,000 (and not 2,000).
( ) y strkng out the second sentence of subparagraph (1) of
paragraph (b) and nsertng n eu thereof the foowng:
Such ta payer sha so sgnfy on hs return by camng thereon the deducton
n the amount provded for In secton 23(aa) nstead of Itemzng the deductons
aowabe under secton 23 other than those specfed n secton 22(n). The
amount to be camed on the return by such ta payer for ta abe years begnnng
after December 31, 19 3, and before anuary 1, 19 8, s 00 and for ta abe
years begnnng after December 31, 19 7, s 1,000 or 10 percent of the ad|usted
gross ncome, whchever s esser (e cept that n the case of a separate return by
a marred ndvdua, the amount s 00).
(C) y strkng from the frst sentence of paragraph (c) the e pres-
son vng together and nsertng n eu thereof the foowng
(e cept as quafed beow) .
(D) y strkng out the ast two sentences of the thrd paragraph
of (c) and nsertng n eu thereof the foowng:
For ta abe years begnnng before anuary 1, 19 8, the restrcton appes ony
In the case of a husband and wfe vng together and for such purpose the spouses
are consdered as vng together uness they are permanenty separated. For
ta abe years begnnng after December 31, 19 7, the restrcton appes uness
the spouses are egay separated under a decree of dvorce or separate mante-
nance. The determnaton of whether an ndvdua s marred and vng wth
hs spouse for the purpose of the standard deducton for ta abe years begnnng
before December 31, 19 7, sha be made as of the ast day of such ndvdua s
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29.11-1.
18
ta abe year uness hs spouse des durng such ta abe year, n whch event
the determnaton sha be made as of the date of death of such spouse. Sm-
ary, the determnaton of whether an ndvdua s marred (whether or not vng
wth hs spouse uness egay separated under a decree of dvorce or separate
mantenance) for the purpose of the aowance of the standard deducton for
ta abe years begnnng after December 31, 19 7, sha be made as of the ast
day of such ndvdua s ta abe year uness hs spouse des durng such ta abe
year, n whch event the determnaton sha be made as of the date of death
of such spouse.
( ) y addng at the end of such secton the foowng:
ampe (S). Ta payer and hs wfe both make ther returns on a caendar
year bass. In uy, 19 8, they enter nto a separaton agreement and thereafter
ve apart but no decree of dvorce or separate mantenance s ssued unt March,
19 9. If temzes and cams hs actua deductons on hs return for the caendar
year 19 8 may not eect the standard deducton on her return for such year
snce s consdered as marred to (athough permanenty separated by agree-
ment) on the ast day of 19 8.
Par. 1 . There s nserted mmedatey precedng secton 29.2 -1
the foowng:
S C. 201. DDITION L CR DITS G INST N T INCOM FOR
NORM L T ND SURT . (R NU CT OF 19 8,
TITL II.)
Paragraphs (1) and (2) of secton 2 (b) of the Interna Revenue
Code are hereby amended to read as foows:
(1) Credts. There sha be aowed for the purposes of both
the norma ta and the surta , the foowng credts aganst net
ncome:
( ) n e empton of 600 for the ta payer; and an add-
tona e empton of 600 for the spouse of the ta payer f a
separate return s made by the ta payer, and f the spouse, for
the caendar year n whch the ta abe year of the ta payer
begns, has no gross ncome and Is not the dependent of another
ta payer;
( ) () n addtona e empton of 600 for the ta payer
f he has attaned the age of 6 before the cose of hs ta abe
year; and
() n addtona e empton of 600 for the spouse of the
ta payer f a separate return s made by the ta payer, and f
the spouse has attaned the age of 6 before the cose of such
ta abe year, and, for the caendar year n whch the ta abe
year of the ta payer begns, has no gross ncome and s not
the dependent of another ta payer;
(C) () n addtona e empton of 600 for the ta payer
f he Is bnd at the cose of hs ta abe year; and
() n addtona e empton of 600 for the spouse of the
ta payer f a separate return s made by the ta payer, and f
the spouse s bnd and, for the caendar year n whch the ta -
abe year of the ta payer begns, has no gross ncome and s
not the dependent of another ta payer. For the purposes of
ths cause the determnaton of whether the spouse s bnd
sha be made as of the cose of the ta abe year of the ta -
payer, uness the spouse des durng such ta abe year, n whch
case such determnaton sha be made as of the tme of such
death;
( ) For the purposes of ths subparagraph an ndvdua
Is bnd ony f ether: hs centra vsua acuty does not e -
ceed 20/200 n the better eye wth correctng enses, or hs
vsua acuty s greater than 20/200 but s accompaned by a
mtaton n the feds of vson such that the wdest dameter
of the vsua fed subtends an ange no greater than 20 degrees;
(D) n e empton of 600 for each dependent whose gross
ncome for the caendar year n whch the ta abe year of the
ta payer begns s ess than 00, e cept that the e empton
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19
29.11-1.
sha not be aowed In respect of a dependent who has made
a |ont return wth hs spouse under secton 1 for the ta abe
year begnnng n such caendar year.
(2) Determnaton of status. For the purposes of ths sub-
secton
( ) the determnaton of whether an ndvdua s marred
sha be made as of the cose of hs ta abe year, uness hs
spouse des durng hs ta abe year, n whch case such determ-
naton sha be made as of the tme of such death; and
( ) an ndvdua egay separated from hs spouse under
a decree of dvorce or of separate mantenance sha not be
consdered as marred.
S C. 203. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect
to ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
Par. 16. Secton 29.2 -3, as amended by Treasury Decson 17
26 CFR 29.2 -3 , s hereby amended by strkng out that porton des-
gnated as (c) and nsertng n eu thereof the foowng:
(c) Ta abe years begnnng after December 31, 191) , and before anuary 1,
19 8. For the purpose of the norma ta and surta on ndvduas for ta abe
years begnnng after December 31, 19 , and before anuary 1, 19 8, there are
aowed as credts aganst net ncome the e emptons aowed by secton 2 (b)
pror to ts amendment by the Revenue ct of 19 8. cept that such e emptons
are not desgnated surta e emptons for such years and that they are aow-
abe for the purpose of the norma ta as we as the surta for such years, the
provsons of (6) above are appcabe thereto.
(d) Ta abe years begnnng after December 31, 19 7 (1) In genera. For
the purposes of the norma ta and the surta on ndvduas for ta abe years be-
gnnng after December 31, 19 7, there are aowed as credts aganst net Income
the e emptons specfed n secton 2 (b) as amended by the Revenue ct of 19 8.
Such credts ncude () the e emptons for an ndvdua ta payer and spouse
(the so-caed persona e emptons), () the addtona e emptons for a ta payer
attanng the age of 6 years and spouse attanng the age of 0 years (the so-caed
od-age e emptons), ( ) the addtona e emptons for a bnd ta payer and a
bnd spouse, and (v) the e emptons for dependents of the ta payer.
(2) emptons for ndvdua ta payer and spouse (so-caed persona e -
emptons). There are aowed by secton 2 (b)(1)( ) an e empton of 600
for the ta payer and an addtona e empton of 600 for the spouse of the ta -
payer f a separate return s made by the ta payer, and f the spouse, for the
caendar year n whch the ta abe year of the ta pyer begns, has no gross
ncome and s not the dependent of another ta payer. Snce, n the case of a
|ont return, there are two ta payers (athough under secton 1(b) there s
ony one ncome for the two ta payers on such return . e. ther aggregate n-
come), two e emptons of 600 are aowed on such return, one for each tu -
payer spouse. If n any case a |ont return s made by the ta payer and hs spouse,
no e empton s aowed any other person for such spouse even though such
other person woud have been entted to cam an e empton for such spouse
as a dependent f such ont return had not been made.
(3) emptons for ta payer attanng the age of 6 and spouse attanng the
age of 6 (so-caed od-age e emptons). Secton 2 (b) (1) ( ) provdes an ad-
dtona e empton of 000 for the ta payer f he has attaned the age of 6 be-
fore the cose of hs ta abe year. n addtona e empton of 600 s aso a-
owed to the ta payer for hs spouse If a separate return s made by the ta -
payer and f the spouse has attaned the age of 0 before the cose of the ta -
abe year of the ta payer and, for the caendar year In whch the ta abe year
of the ta payer begns, the spouse has no gross ncome and s not the dependent of
another ta payer. If a husband and wfe make a ont return, an od-age e -
empton of 600 w be aowed as to each ta payer spouse who has attaned the
age of 6 before the cose of the ta abe year for whch the |ont return s made.
The e emptons under secton 2 (b)(1)( ) are n addton to the e emptons
for the ta payer and spouse under secton 2 (b) (1) ( ).
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29.11-.
20
In determnng the age of an ndvdua for the purposes of the e empton
for od age, the ast day of the ta abe year of the ta payer s the controng
date. Thus, n the event of a separate return by a husband, no addtona e -
empton for od age may be camed for hs spouse uness such spouse has at-
taned the age of 6 on or before the cose of the ta abe year of the hus-
band. In no event sha the addtona e empton for od age be aowed on a
separate return of the ta payer wth respect to a spouse who des before attan-
ng the age of 6 even though such spouse woud have attaned the age of 6
before the cose of the ta abe year of the ta payer. For the purposes of the
od-age e empton, an Indvdua attans the age of 6 on the frst moment of
.the day precedng hs s ty-ffth brthday. ccordngy, an ndvdua whose
s ty-ffth brthday fas on anuary 1 n a gven year attans the age of 6 on
the ast day of the caendar year mmedatey precedng.
( ) emptons for the bnd. Secton 2 (b)(1)(C) provdes an addtona
e empton of 600 for the ta payer f he s bnd at the cose of hs ta abe
year. n addtona e empton s aso aowed to the ta payer for hs spouse
If the spouse s bnd and, for the caendar year In whch the ta abe year of
the ta payer begns, has no gross ncome and s not the dependent of another
ta payer. The determnaton of whether the spouse s bnd sha be made as
of the cose of the ta abe year of the ta payer, uness the spouse des durng
such ta abe year, n whch case such determnaton sha be made as of the tme
of such death.
The e emptons for the bnd, appcabe to ta abe years begnnng after
December 31, 19 7, repace the speca deducton for the bnd provded n sec-
ton 23(y) pror to ts repea by the Revenue ct of 19 8. The e emptons are n
addton to the e emptons for the ta payer and spouse under secton
2 (b)(1)( ) and are aso n addton to the e emptons under secton
2 (b)(1)( ) for ta payers and spouses attanng the age of 6 years. Thus,
a snge Indvdua who has, before the cose of hs ta abe year, attaned the
age of 6 years and who s bnd at the cose of hs ta abe year s entted, n
addton to the so-caed persona e empton of 600, to two further e emptons,
each of 600, one by reason of hs age and the other by reason of hs bndness.
If a husband and wfe make a |ont return, an e empton of 600 for the bnd
w he aowed as to each ta payer spouse who s bnd at the cose of the
ta abe year for whch the |ont return s made.
ta payer camng an e empton aowed by secton 2 (b)(1)(C) for a
bnd ta payer or a bnd spouse sha, f the ndvdua for whom the e empton
s camed s not totay bnd as of the ast day of the ta abe year of the ta payer
(or n the case of a spouse who des durng such ta abe year as of the tme of such
death), attach to hs return a certfcate from a physcan sked n the dseases
of the eye or a regstered optometrst statng that as of the appcabe status de-
termnaton date n the opnon of such physcan or optometrst (1) the centra
vsua acuty of the ndvdua for whom the e empton s camed dd not e ceed
20/200 n the better eye wth correctng enses or (2) such ndvdua s vsua
acuty was accompaned by a mtaton n the feds of vson such that the
wdest dameter of the vsua fed subtends an ange no greater than 20 degrees.
If such ndvdua s totay bnd as of the status determnaton date there sha
be attached to the return a statement by the person or persons makng the
return settng forth such fact.
( ) emptons for dependents. Secton 2 (b)(1)(D) aows to a ta payer
an e empton of 600 for each dependent whose gross Income for the caendar
year n whch the ta abe year of the ta payer begns s ess than 00, who
receves more than one-haf of hs support from the ta payer for such caendar
year and who does not fe a ont return wth hs spouse. For the purposes of
ths credt a dependent s a person who s reated to the ta payer wthn one of
the foowng reatonshps: chd; the descendants of such chd; stepchd;
brother; sster; brother or sster by the haf bood; stepbrother or stepsster;
parent; the ancestors of such parent; stepfather or stepmother; son or daughter
of the ta payer s brother or sster; brother or sster of the ta payer s father or
mother; son-n-aw; daughter-n-aw; father-n-aw; mother-n-aw; brother-n-
aw ; or sster-n-aw. In the case of a ont return It s not necessary that the
prescrbed reatonshp e st between the person camed as a dependent and the
spouse who furnshes the support; It s suffcent f the prescrbed reatonshp
e sts wth respect to ether spouse. Thus, a husband and wfe makng a ont
return may cam as a dependent a daughter of the wfe s brother (wfe s nece)
even though the husband s the one who furnshes the chef support. The
reatonshp of affnty once e stng w not termnate by dvorce or the death
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21
29.11-1.
of a spouse. egay adopted chd of a person sha be consdered a chd
of such person by bood. ctzen or sub|ect of a foregn country may not be
camed as a dependent, uness he s a resdent of the Unted States, Canada,
or Me co at some tme durng the caendar year n whch the ta abe year
of the ta payer begns. Whether or not over haf of a person s support, for the
caendar year In whch the ta abe year of the ta payer begns, was receved
from the ta payer sha be determned by reference to the amount of e pense
ncurred by the ta payer for such support. payment to a wfe whch s n-
cudbe under secton 22 (k) or secton 171 n the gross Income of such wfe
sha not be consdered a payment by her husband for the support of any
dependent
The ony e empton aowed for a dependent of the ta payer Is that provded
by secton 2 (b)(1)(D). The e emptons provded by secton 2 (b)(1)( )
(od-age e emptons) and secton 2 (b) (1) (C) (e emptons for the bnd) are
aowed ony for the ta payer or hs spouse. Thus, f a ta payer provdes the
entre support of hs father, who meets a the requrements of a dependent under
secton 2 (b) (3) and who s over the age of 6 years, the ta payer s entted
ony to the one e empton under secton 2 (b) (1)(D) of 600 for hs father as
a dependent, and s not entted to any addtona e empton because of hs
father s age.
(6) Determnaton of husband, and wfe status. For the purpose of deter-
mnng the rght of an ndvdua to cam an e empton for hs spouse under
secton 2 (b) the determnaton of whether such ndvdua s marred sha be
made as of the cose of hs ta abe year, uness hs spouse des durng such year,
n whch case such determnaton sha be made as of the tme of such death.
n ndvdua egay separated from hs spouse under a decree of dvorce or of
separate mantenance sha not be consdered as marred.
Par. 17. There s nserted mmedatey precedng secton 29. 1-1
the foowng:
S C. 202. T C NIC L M NDM NTS. ( NT CT OF
19 8, TITL II.)

(c) Requrement or Returns.
(1) Indvdua returns. Secton 1(a) of the Interna Revenue
Code (reatng to the requrement of Indvdua returns) Is hereby
amended by strkng out 00 and nsertng n eu thereof 600 .

S C. 203. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect
to ta abe years begnnng after December 31, 19 7. For treatment
of ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
S C. 303. OINT R TURNS OF US ND ND WIF (R NU
CT OF 19 8, TITL III.)
Secton 1(b) of the Interna Revenue Code (reatng to |ont returns)
s hereby amended to read as foows:
(b) USR ND ND WIF .
(1) In genera. husband and wfe may make a snge return
|onty. Such a return may be made even though one of the spouses
has nether gross Income nor deductons. If a |ont return s made
the ta sha be computed on the aggregate ncome and the abty
wth respect to the ta sha be ont and severa.
(2) Nonresdent aen. No |ont return may be made f ether
the husband or wfe at any tme durng the ta abe year Is a non-
resdent aen.
(3) Dfferent ta abe tears. No |ont return sha be made
If the husband and wfe have dfferent ta abe years; e cept that
f such ta abe years begn on the same day and end on dfferent
days because of the death of ether or of both, then the |ont return
may be made wth respect to the ta abe year of each. The above
e cepton sha not appy f the survvng spouse remarres before
the cose of hs ta abe year, nor f the ta abe year of ether spouse
Is a fractona part of a year under secton 7(a).
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29.11-1.
22
( ) ont betubn afteb death. In the case of the death of
one spouse or both spouses the |ont return wth respect to the
decedent may be made ony by hs e ecutor or admnstrator;
e cept that n the case of the death of one spouse the |ont return
may be made by the survvng spouse wth respect to both hmsef
and the decedent f ( ) no return for the ta abe year has been
made by the decedent, ( ) no e ecutor or admnstrator has been
apponted, and (C) no e ecutor or admnstrator s apponted before
the ast day prescrbed by aw for fng the return of the survvng
spouse. If an e ecutor or admnstrator of the decedent s apponted
after the makng of the |ont return by the survvng spouse, the
e ecutor or admnstrator may dsaffrm such |ont return by mak-
ng, wthn one year after the ast day prescrbed by aw for fng
the return of the survvng spouse, a separate return for the ta abe
year of the decedent wth respect to whch the |ont return was
made, n whch case the return made by the survvor sha consttute
hs separate return.
( ) Determnaton of status. For the purposes of ths
secton
( ) the status as husband and wfe of two ndvduas
havng ta abe years begnnng on the same day sha be
determned
() f both have the same ta abe year as of the cose
of such year; and
() f one des before the cose of the ta abe year of
the other as of the tme of such death; and
( ) an ndvdua who s egay separated from hs spouse
under a decree of dvorce or of separate mantenance sha not
be consdered as marred.
(6) Ta n case of |ont betubn. For determnaton of com-
bned norma ta and surta under secton 11 and secton 12(b)
n case of |ont return under ths subsecton, see secton 12(d).
For ta n case of |ont return of husband and wfe eectng to pay
the ta under Suppement T, see secton 00.
S C. 30 . T L T S TO W IC M NDM NTS PPLIC -
L . (R NU CT OF 19 8, TITL III.)
The amendments made by sectons 303, sha
be appcabe wth respect to ta abe years begnnng after December
31, 19 7. The amendment made by secton 303 sha aso be appcabe
to ta abe years of both husband and wfe begnnng on the same day
n 19 7 f at east one of such ta abe years ends n 19 8. For treatment
of ta abe years begnnng n 19 7 and endng n 19 8, see secton 801.
Par. 18. Secton 29. 1-1, as amended by Treasury Decson 600
C. . 19 8-1, , approved February 2, 19 8 26 CFR 29. 1-1 , s
further amended as foows:
( ) y nsertng before the perod n the headng of subparagraph
(3) of paragraph (a) the foowng: , and before anuary 1,19
( ) y nsertng n subparagraph (3) of paragraph (a) after
December 31, 19 , the foowng: and before anuary 1, 19 8, .
(C) y nsertng after subparagraph (3) of paragraph (a) a new
subparagraph ( ) to read as foows:
( ) Ta abe years begnnng after December SI, 19 7. For each ta abe year
begnnng after December 31, 19 7, a return of ncome sha be made by each
ctzen of the Unted States, whether resdng at home or abroad, and every nd-
vdua resdng wthn the Unted States though not a ctzen thereof, regardess
of famy or marta status, f such ctzen or resdent has for such ta abe year
a gross ncome of 600 or more, or a gross ncome n e cess of the credt aowed
by secton 2 (b) prorated as provded n secton 7(e).
(D) y strkng out paragraph (6) and nsertng n eu thereof
the foowng:
(6) ont return (1) In genera. ;For ta abe years begnnng pror to
anuary 1,19 , a husband and wfe, f vng together at the cose of the ta abe
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23
29.11-1.
year, may eect to make a |ont return (see secton 1(b)) even though one has
no gross Income. For ta abe years begnnng after December 31, 19 3, a hus-
band and wfe occupyng the marta status as of the ast day of the ta abe year
may eect to make a |ont return even though one of the spouses has no gross
ncome or deductons, and even though the spouses are not vng together at any
tme durng the ta abe year. owever, for the purpose of fng a |ont return
for ta abe years wth respect to whch the amendments made to secton 1(b) by
secton 303 of the Revenue ct of 19 8 are appcabe (ta abe years begnnng
after December 31, 19 7, and ta abe years of both husband and wfe begnnng
on the same day n 19 7 f at east one of such ta abe years ends n 19 8), an
ndvdua egay separated from hs spouse under a decree of separate man-
tenance sha not be consdered as marred.
|ont return may not be made by a husband and wfe for a ta abe year f
a separate return has been fed by one of the spouses and the tme for fng
the return of such spouse has e pred. Smary, f a |ont return s fed, sep-
arate returns may not be made by the spouses after the tme for fng the return
of ether has e pred. See, however, subparagraph (2) for the rght of an
e ecutor to fe a ate separate return for a deceased spouse and thereby ds-
affrm a tmey |ont return made by the survvng spouse.
If a |ont return s made, the gross Income and ad|usted gross ncome of hus-
band and wfe on the |ont return are computed n an aggregate amount and the
deductons aowed and the net Income are kewse computed on an aggregate
bass. Deductons mted to a percentage of the ad|usted gross ncome, such
as the deducton for chartabe contrbutons under secton 23(o), w be aowed
wth reference to such aggregate ad|usted gross Income. Smary, n the case
of a |ont return, osses of husband and wfe from saes or e changes of capta
assets are combned and such combned osses are aowed under secton 117(d) (2)
ony to the e tent of the combned gans of the spouses from such saes or e -
changes, pus the net ncome (or ad|usted gross ncome f ta s computed under
Suppement T) or 1,000 whchever s smaer. The net ncome referred to
n secton 117(d)(2) s the net ncome computed before reducton by one-haf
for the purposes of ncome spttng under secton 12(d) and s such net ncome
computed wthout regard to gans and osses from saes or e changes of capta
assets. though there are two ta payers on a |ont return, there s ony one
net ncome. The ta on the |ont return sha be computed on the aggregate n-
come and the abty wth respect to the ta sha be |ont and severa. |ont
return may not be made f ether the husband or wfe at any tme (urng the
ta abe year s a nonresdent aen. For computaton of ta on the bass of the
spttng of ncome n the case of a |ont return for ta abe years begnnng after
December 31, 19 7, see secton 29.12- . For ta n the case of a |ont return
of husband and wfe eectng to pay the ta under Suppement T, see sectons
29. 00-1 and 29. 01-1.
|ont return of a husband and wfe (f not made by an agent) sha be
sgned by both spouses. n oath s not necessary, but both spouses sha verfy
the return as provded In secton 1. If sgned by one spouse as agent for the
other, authorzaton for such acton must accompany the return. The spouse
actng as agent for the other sha, wth the prncpa, assume the responsbty
for makng the return and ncur abty for the penates provded for erroneous,
fase, or frauduent returns. See secton 29. 1-2.
(2) ont return after death. Snce n genera a |ont return may not be made
f husband and wfe have dfferent ta abe years, and snce the ta abe year of
an ndvdua coses as of the date of hs death (see secton 29. 7-1), no |ont re-
turn may be made for any ta abe year, e cept as provded by secton 1(b), as
amended by the Revenue ct of 19 8, n the case of the death of one or both
spouses pror to the ast day of such ta abe year. Secton 1(b), as amended
by the Revenue ct of 19 S, provdes wth respect to ta abe years of spouses
begnnng after December 31, 19 7 (and wth respect to ta abe years of spouses
begnnng on the same day n 19 7 f at east one of such ta abe years ends n
19 8), that a |ont return may be made for the survvor and the deceased spouse
or for both deceased spouses f the ta abe years of such spouses begn on the same
day and end on dfferent days ony because of the death of ether or both. Thus,
f a husband and wfe make ther returns on a caendar year bass, and the wfe
des on ugust 1, 19 8, a |ont return may be made wth respect to the caendar
year 19 8 of the husband and the ta abe year of the wfe begnnng on anuary
1, 19 8, and endng wth her death on ugust 1, 19 8. Smary, f husband and
wfe both make ther returns on the bass of a fsca year begnnng on uy 1 and
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29.11-1.
2
the wfe des on October 1, 19 7, a ont return may be made wth respect to the
fsca year of the husband begnnng on uy 1,19 7, and endng on une 30, 19 8.
and wth respect to the ta abe year of the wfe begnnng on uy 1, 19 7, and
endng wth her death on October 1,19 7. For the purposes of ths subparagraph
the status of two ndvduas as husband and wfe, If one des pror to the cose of
the ta abe year of the other, sha be determned as of the tme of such death.
The provson aowng a ont return to be made for the ta abe year In whch
the death of ether or both spouses occurs Is sub|ect to two e ceptons. The frst
e cepton s that If the survvng spouse remarres before the cose of hs ta abe
year, he may not make a ont return wth the frst spouse who ded durng the
ta e year. In such a case, however, the survvng spouse may make a ont
return wth hs new spouse provded that the other requrements of secton 1(b)
are met. The second e cepton s that the survvng spouse may not make a ont
return wth the deceased spouse f the ta abe year of ether spouse Is a frac-
tona part of a year under secton 7(a) resutng from a change of accountng
perod. For e ampe, f a husband and wfe make ther returns on the cnendnr
year bass and the wfe des on March 1,19 8, and thereafter the husband receves
permsson to change hs accountng perod to a fsca year begnnng uy 1,19 8,
no ont return may be made for the short ta abe year endng une 30, 19 8.
Smary, f a husband and wfe who make ther returns on a caendar year bass
receve permsson to change to a fsca year begnnng uy 1, 19 8, and the wfe
des on une 1.19 8, no ont return may be made for the short ta abe year end-
ng une 30, 19 8.
Secton 1 (b) ( ), as added by the Revenue ct of 19 8, provdes for the method
of makng a ont return n the case of the death of one spouse or both spouses
where the return s for ta abe years begnnng on the same day after December
31, 19 7, or for the ta abe years begnnng on the same day n 19 7 f at east
one of such ta abe years ends n 19 8. The genera rue s that, n the case of
the death of one spouse, or of both spouses, the ont return wth respect to the
decedent may be made ony by hs e ecutor or admnstrator. y the term e ecu-
tor or admnstrator s meant the person who s actuay apponted to such offce
and not merey a person who may be n charge of the property of the decedent.
n e cepton s made from ths genera rue whereby, n the case of the death of
one spouse, the ont return may be made by the survvng spouse wth respect
to both hm and the decedent f a the foowng condtons e st:
() No return has been made by the decedent for the ta abe year n re-
spect to whch the ont return s made.
() No e ecutor or admnstrator has been apponted at or before the
tme of makng such ont return.
() No e ecutor or admnstrator Is apponted before the ast day pre-
scrbed by aw for fng the return of the survvng spouse.
These condtons are to be apped wth respect to the return for each of the
ta abe years of the decedent for whch a ont return may be made f more than
one such ta abe year Is nvoved. Thus, n the case of husband and wfe on
the caendar year bass, f the wfe des In February, 19 9, a |ont return for the
husband and wfe for 19 8 may be made If the condtons set forth above are
satsfed wth respect to such return. ont return may aso be made by the
survvor for both hmsef and the deceased spouse for the caendar year 19 9
If t Is separatey determned that the condtons set forth above are satsfed
wth respect to the return for such year. If, however, the deceased spouse
shoud, pror to her death, make a return for 19 8, the survvng spouse may
not thereafter make a |ont return for hmsef and the deceased spouse for 19 8.
If an e ecutor or admnstrator s apponted at or before the tme of makng
the |ont return or before the ast day prescrbed by aw for fng the return of
the survvng spouse, the survvng spouse cannot make a |ont return for hmsef
and the deceased spouse whether or not a separate return for the deceased spouse
s made by such e ecutor or admnstrator. In such a case, any return made
soey by the survvng spouse sha be treated as hs separate return. The |ont
return, f one s to be made, must be made by both the survvng spouse and the
e ecutor or admnstrator. In determnng whether an e ecutor or admnstrator
s apponted before the ast day prescrbed by aw for fng the return of the
survvng spouse, an e tenson of tme for makng the return s ncuded.
If the survvng spouse makes the |ont return provded for above, and there-
after an e ecutor or admnstrator of the decedent s apponted, the e ecutor
or admnstrator may dsaffrm such |ont return. Ths dsaffrmance, n order
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2
29.11-1.
to be effectve, must be made wthn one year after the ast day prescrbed by
aw for fng the return of the survvng spouse (Incudng any e tenson of
tme for fng such return) and must be made n the form of a separate return
for the ta abe year of the decedent wth respect to whch the |ont return was
made. In the event of such proper dsaffrmance the return made by the survvor
sha consttute hs separate return, that s, the |ont return made by hm sha
be treated as hs return and the ta thereon sha be computed by e cudng
a tems propery Incudbe n the return of the deceased spouse. The separate
return made by the e ecutor or admnstrator sha consttute the return of the
deceased spouse for the ta abe year.
The tme aowed the e ecutor or admnstrator to dsaffrm the ont nurn
by the makng of a separate return does not estabsh a new due date for the
return of the deceased spouse. ccordngy, the provsons of sectons 291 and
29 , reatng to denquent returns and denquency n payment of ta , are ap-
pcabe to such return made by the e ecutor n dsaffrmance of the |ont return.
Par. 19. Secton 29. 1-3, as amended by Treasury Decson 2 26
CFR 29. 1-3 , s further amended as foows:
( ) y nsertng before the perod n the headng of paragraph
(b) the foowng: , and before anuary 1,19 )8
( ) y nsertng n paragraph (b) after December 31, 19 3, the
foowng: and before anuary 1, 19 8, .
(C) y nsertng after paragraph (b) a new paragraph (c) to read
as foows:
(c) Ta abe years begnnng after December SI, 19 7. For ta abe years be-
gnnng after December 31, 19 7, an ndvdua, athough a mnor, who s snge,
s requred to render a return of ncome f he has gross ncome (ncudng com-
pensaton for persona servces ncudbe n hs gross ncome under secton
22(n) (1)) of ( 00 or over for the ta abe year regardess of the amount of hs
net ncome. If the aggregate of the gross ncome of such a mnor from any
property whch he possesses and from any funds hed n trust for hm by a
trustee or guardan and from hs earnngs s at east 600, regardess of the
amount of hs net Income, a return, as n the case of any other ndvdua, must
be made by hm or for hm by hs guardan or other person charged wth the care
of hs person or property. See secton 29.1 2-2. If he s marred, see secton
29. 1-1.
Par. 20. There s nserted mmedatey precedng secton 29. 8-1
the foowng:
S C. 202. T C NIC L M NDM NTS. (R NU CT OF 19 8,
TITL II.)
(a) Decaraton of stmated Ta . Secton 8(a) of the Interna
Revenue Code (reatng to requrement of decaraton of estmated
ta ) s hereby amended to read as foows:
(a) Requrement of Decaraton. very ndvdua (other than an
estate or trust and other than a nonresdent aen wth respect to whose
wages, as defned n secton 1621(a), wthhodng under Subchapter D
of Chapter 9 Is not made appcabe) sha, at the tme prescrbed n
subsecton (d), make a decaraton of hs estmated ta for the ta -
abe year If
(1) hs gross ncome from wages (as defned n secton 1621)
can reasonaby be e pected to e ceed the sum of , 00 pus 600
wth respect to each e empton provded n secton 2 (b) ; or
(2) hs gross ncome from sources other than wages (as defned
In secton 1621) can reasonaby be e pected to e ceed 100 for the
ta abe year and hs gross Income to be 600 or more.

S C. 203. T L Y RS TO W IC M NDM NTS PPLIC -
L . (R NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31, 19 7. For treatment of ta -
abe years begnnng n 19 7 and endng In 19 8, see secton ( 01.
8 16 9 S
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29.11-1.
26
Par. 21. Secton 29. 8-2, as amended by Treasury Decson 17
26 CFR 29. 8-2 , s further amended as foows:
( ) y strkng out the headngs Decaratons of stmated
Ta Ta abe Years egnnng fter December 31, 19 . (a)
Genera. and nsertng n eu thereof the foowng: Decaratons
of stmated Ta . (a) Ta abe years begnnng after December SI,
19 - and before anuary 1,19 8. (1) Genera.
( ) y nsertng after December 31, 19 , n the frst sentence
thereof and before anuary 1, 19 8, .
(C) y strkng out the desgnatons (1), (2), and (3) where frst
appearng n the frst sentence and nsertng n eu thereof (), (),
and ().
(D) y strkng out the desgnatons (1) and (2) where ast ap-
pearng n the frst sentence and nsertng n eu thereof (a) and (b).
( ) y strkng out the desgnaton (b) precedng the headng
Short ta abe years. and nsertng n eu thereof (2) .
(F) y addng at the end of such secton the foowng paragraph:
(6) Ta abe years begnnng after December SI, 19 7 (1) Genera.
decaraton of estmated ta sha, for ta abe years begnnng after December
31, 19 7, be made by () every ctzen of the Unted States, whether resdng at
home or abroad, () every ndvdua resdng n the Unted States though not
a ctzen thereof, and () every nonresdent aen who s a resdent of Canada
or Me co and who has wages sub|ect to wthhodng at the source under secton
1622, f such ctzen or resdent or aen can reasonaby be e pected to have for
such ta abe year
(a) gross ncome from wages sub|ect to wthhodng under secton 1622
n e cess of the sum of , 00 pus 600 for each e empton aowabe as a
credt under secton 2 (b) ; or
(6) gross ncome of more than 100 from sources other than wages sub-
|ect to wthhodng under secton 1622 and tota gross ncome of 600 or more.
In the case of a husband and wfe, whether or not they are vng together, a
|ont decaraton of estmated ta may be made f the gross ncome of ether
spouse meets the requrements of secton 8(a). If the gross Income of each
spouse meets the requrements of secton 8(a), ether a |ont decaraton must
be made or a separate decaraton must be made by each. For the purpose of
determnng whether a decaraton of estmated ta s requred under the pro-
vsons of secton 8(a), a marred person may not take nto account the e -
empton of hs spouse, f hs spouse has, or s reasonaby e pected to have,
gross ncome.
In estmatng hs gross Income for the ta abe year a parent shoud not take
nto account the ncome of hs mnor chd. Such ncome s not ncudbe n
the gross ncome of the parent. See secton 22(m).
nonresdent aen who s a resdent of Canada or Me co, who enters nto
and eaves the Unted States at frequent ntervas, and who has wages sub|ect
to wthhodng under the provsons of secton 1622 s requred to fe a decaraton
of estmated ta f hs gross ncome meets the requrements of secton 8(a).
In the case of a nonresdent aen gross ncome means ony gross ncome from
sources wthn the Unted States. Secton 212(a). s to what consttutes gross
Income from sources wthn the Unted States, see secton 119 and the reguatons
thereunder. Thus, for e ampe, a nonresdent aen over the age of 6 years,
vng n Me co wth hs wfe and one dependent chd throughout 19 8, makes
hs return on a caendar year bass. s wfe and chd are aso nonresdent
aens. e s empoyed as an e ecutve n Paso, Te ., at a saary of 8,000
per annum and enters and eaves the Unted States at frequent ntervas n pur-
sut of such empoyment. Nether husband nor wfe has any reasonabe e pecta-
ton of any other ncome from Unted States sources. Snce hs wages derved
from sources wthn the Unted States n 19 8 can reasonaby be e pected to
amount to more than , 00 pus 2, 00 (the aggregate of four e emptons, ncud-
ng one e empton for od age), or 6,900, a decaraton of estmated ta must be
fed for such resdent of Me co for 19 8.
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27
29.11-1.
n estate or trust, though generay ta ed as an ndvdua, s not wthn the
scope of the system of current payment of the ta , and hence s not requred
to fe a decaraton.
The appcaton of these provsons may be ustrated by the foowng
e ampes:
ampe (1). , a ta payer makng hs return on the caendar year bass,
s marred and has two dependent chdren. Nether hs wfe nor chdren
have any source of ncome. s wfe has been bnd for severa years and t s
reasonabe to assume that she w not regan her sght n 19 8. s saary from
anuary 1 to une 30, 19 8, s at the annua rate of 7,000. owever, effectve
uy 1, 19 8, hs annua saary s ncreased to 9,000 and under the facts then
e stng t s reasonabe to assume that hs saary for the remanng porton of
19 8 w reman unchanged and that hs tota saary for the year w, therefore,
be 8,000. Snce such amount s n e cess of , 00 pus 3,000 (the aggregate of
fve e emptons, ncudng the two e emptons for the bnd spouse), or 7, 00,
s requred to fe a decaraton of estmated ta for 19 8. s to when such
decaraton s requred to be fed, see secton 29. 8-7(b).
ampe (2). P, a professona man engaged n the practce of hs professon
on hs own account, has gross ncome of 00 from such professon for the two
months of anuary and February, 19 8. It can reasonaby be e pected that he
w have no ncome durng 19 8 from any other source. Snce P has gross n-
come whch can for 19 8 reasonaby be e pected to e ceed 600 and such ncome
does not consttute wages sub|ect to wthhodng, he s requred to fe a decara-
ton of estmated ta regardess of hs marta status and regardess of the
number of e emptons to whch he may be entted for that year.
ampe (3). S has been reguary empoyed for many years pror to anu-
ary 1, 19 8, at whch date hs weeky wage s 0. S aso owns stock n a corpo-
raton from whch he has derved reguary for many years pror to 19 8 annua
dvdends rangng from 120 to 160. In vew of the fact that for 19 8 S can
reasonaby be e pected to receve gross ncome of 600 or more, whch ncudes
more than 100 of ncome from sources other than wages as defned n secton
1621(a), he s requred to make a decaraton of estmated ta for such year
regardess of hs marta status or the number of e emptons to whch he may be
entted.
ampe (). T, a marred ta payer, who makes hs return on the caendar
year bass, s empoyed at the begnnng of 19 8 at an annua saary of 7, 00,
whch, on the bass of facts then e stng, w, t s e pected, not undergo any
change throughout 19 8. s wfe owns stock upon whch dvdends rangng
from 7 to 100 have been pad reguary durng years pror to 19 8. T has two
dependent chdren, one of whom has no source of ncome n 19 8; the other chd,
however, s empoyed on a part-tme bass and may reasonaby be e pected to re-
ceve compensaton of 600 n 19 8. T aso contrbutes the ma|or porton of the
support of hs mother whose ony source of ncome s appro matey 100 per year
from a trust fund. Under these facts for the purpose of determnng whether
he s requred to fe a decaraton, T may take nto account ony three e emptons,
one for hmsef, one for hs mother, and one for the chd e pected to receve
ess than 00 gross ncome n 19 8. Snce hs e pected saary of 7, 00 e ceeds
the sum of , 00 pus 1,800 (three e emptons), or 0,300, T s requred to fe a
decaraton of estmated ta for 19 8. In computng hs estmated ta on a sepa-
rate decaraton, T may not take nto account any e empton for hs wfe snce
she s reasonaby e pected to have gross Income In 19 8. If, however, a |ont
decaraton s made and the ta s estmated on the bass of the aggregate net n-
come, account may be taken of an e empton for the wfe.
(2) Short ta abe years. For the purpose of determnng whether the antc-
pated Income for a short ta abe year necesstates the fng of a decaraton,
such ncome sha be paced on an annua bass n the manner prescrbed n
secton 7(c) (1). Thus, for e ampe, a ta payer who changes from a caendar
year bass to a fsca year bass begnnng uy 1,19 8, w have a short ta abe
year begnnng anuary 1, 19 8, and endng une 30, 19 8. If hs antcpated
gross ncome for such short ta abe year conssts soey of wages (as defned n
secton 1621(a)) n the amount of 3,000, hs tota gross ncome and hs gross
ncome from such wages for the purpose of determnng whether a decaraton s
requred s 6,000, the amount obtaned by pacng antcpated Income of 3,000
upon an annua bass. ence, assumng such ta payer s snge and has no
dependents, he s requred to fe a decaraton of estmated ta for the short
ta abe year snce hs antcpated gross ncome from wages when paced upon
an annua bass s n e cess of ,100 ( , 00 pus 600).
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29.11-1.
28
Par. 2y2. Secton 29. 8-3, as amended by Treasury Decson 19
C. . 19 , 17 , approved November 2 , 19 26 CFR 29. 8-3 , s
further amended as foows:
( ) y strkng from the second sentence of the thrd paragraph
of (a) the words vng together.
( ) y addng mmedatey after such second sentence the foow-
ng parenthetca sentence:
(See, however, secton 29.23(aa)-(c) for e ceptons where spouses are egay
separated or are not vng together.)
Par. 22. Secton 29. 8- , as amended by Treasury Decson 19 26
CFR 29. 8- , s further amended by addng at the end of the frst
paragraph thereof the foowng sentences:
owever, If It s reasonabe for a survvng spouse to assume that there w be
fed a |ont return for hmsef and the deceased spouse for ta abe years whch
ncude the ast ta abe year of the deceased spouse, he may, n makng a separate
decaraton for hs ta abe year whch ncudes the perod comprsng such ast
ta abe year of hs spouse, estmate net ncome on an aggregate bass and com-
pute hs estmated ta n the same manner as though a |ont decaraton had
been fed. For computaton of ta n case of a |ont return for ta abe years
to whch spttng of ncome s appcabe, see secton 29.12- .
Par. 23. Secton 29. 8-7, as added by Treasury Decson 19 26
CFR 29. 8-7 , s amended by strkng out the thrd sentence of para-
graph (/) and nsertng n eu thereof the foowng:
n amended decaraton may aso be made based upon a change n the number
of e emptons (or, for ta abe years begnnng before anuary 1, 19 6, a change
n the number of surta e emptons) to whch the ta payer may be entted
for the then current ta abe year. n amended decaraton may be fed |onty
by husband and wfe even though separate decaratons have prevousy been
fed.
Par. 2 . There s nserted mmedatey precedng secton 29.108-1
the foowng:
S C. 601. FISC L Y R T P Y RS. (R NU CT OF 19 8,
TITL I.)
Secton 108 of the Interna Revenue Code s hereby amended by strk-
ng out (d) at the begnnng of subsecton (d) and nsertng n eu
thereof (e), and by nsertng after subsecton (c) the foowng:
(d) Ta abe Yeaes of Indvduas egnnng n 19 7 and ndng n
19 8. In the case of a ta abe year of an Indvdua begnnng n 19 7
and endng n 19 8, the ta mposed by sectons 11, 12, and 00 sha be
an amount equa to the sum of
(1) that porton of a ta , computed as f the aw appcabe to
ta abe years begnnng on anuary 1,19 7, were appcabe to such
ta abe year, whch the number of days In such ta abe year pror
to anuary 1, 19 8, bears to the tota number of days n such ta -
abe year, pus
(2) that porton of a ta , computed as f the aw appcabe to
ta abe years begnnng on anuary 1,19 8, were appcabe to such
ta abe year, whch the number of days n such ta abe year after
December 31,19 7, bears to the tota number of days n such ta abe
year.
Par. 2 . There s added mmedatey after secton 29.108-2 the
foowng secton:
Sec. 29.108-3. Computaton of Ta of Indvduas foe Ta abe Yeabs
egnnng n 19 7 and ndng n 19 8. For a ta abe year begnnng n 19 7 and
endng n 19 8, the norma ta , surta , and optona ta mposed by sectons
11,12, and 00 upon ta payers other than corporatons sha be computed under
secton 108(d), as amended by the Revenue ct of 19 8, as foows:
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29.11-1.
( ) That porton of a tentatve ta computed under the aw appcabe to
ta abe years begnnng on anuary 1, 19 7, whch the number of days pror to
anuary 1, 19 8, n the ta abe year of the ta payer bears to the tota number
of days n such ta abe year, and
(6) That porton of a tentatve ta computed under the aw appcabe to
ta abe years begnnng on anuary 1, 19 8, whch the number of days after
December 31, 19 7, n the ta abe year of the ta payer bears to the tota number
of days n such ta abe year.
The provsons of secton 108(d) appy to estates, trusts, and nonresdent aen
ndvduas whose ta s computed under sectons 11 and 12.
The provsons of secton 108(d) appy to a ta abe year begnnng n 19 7
and endng n 19 8, whether or not such ta abe year Is one of ess than 12 months.
In the case of a ta payer who s sub|ect to the provsons of secton 108(d)
and who because of a change n accountng perod has a ta abe year of ess than
12 months, the net ncome sha be paced on an annua bass under the provsons
of secton 7(c) (1) for the purpose of both tentatve ta computatons under sec-
ton 108(d), or sha be computed under the e cepton n secton 7(c) (2) for the
purpose of both such tentatve ta computatons. Regardess of the method
adopted, the amounts of the tentatve norma ta and surta so computed upon
the bass of 12 mouths Income sha be propery reduced under secton 7(c)
In order to determne the tentatve ta es under secton 108(d). owever, n the
case of a ta payer who s sub|ect to the provsons of secton 108(d) and who
because of any reason other than a change In accountng perod has a ta abe
year of ess than 12 months, the net ncome sha not be paced on an annua bass
under secton 7(c) (1) and sha not be computed under the e cepton In secton
7(c)(2).
In any case n whch a ta payer sub|ect to the provsons of secton 108(d)
has an e cess of net ong-term capta gans over net short-term capta osses,
the aternatve ta under secton 117(c) sha be an amount equa to the sum
of the proper portons of the tentatve ta es determned under secton 108(d),
by computng each such tentatve ta pursuant to the aternatve ta computaton
provded n secton 117(c), regardess of whether ether tentatve ta so computed
on the aternatve bass s arger or smaer than the tentatve ta computed
wthout regard to secton 117(c).
In the case of a |ont return of husband and wfe for ta abe years begnnng
on the same day n 19 7 and endng on dfferent days because of the death of
ether spouse or both spouses (where at east one of such ta abe years ends n
19 8), the number of days to be taken nto account for the purpose of computng
the portons of the ta under secton 108(d) (1) and (2) sha be the number
of days pror to anuary 1, 19 8, n the ta abe year of the survvng spouse, the
number of days after December 31, 19 7, n the ta abe year of the survvng
spouse and the tota number of days n the ta abe year of the survvng spouse.
Par. 26. There s nserted mmedatey precedng secton 29.113(a)
( )- the foowng:
S C. 366. SIS OF SUR I ING SPOUS S INT R ST IN COM-
MUNITY PROP RTY. (R NU CT OF 19 8, TITL III.)
(a) Secton 113 (a)( ) of the Interna Revenue Code (reatng to bass
of property transmtted at death) s hereby amended by addng at the
end thereof the foowng new sentences: For the purposes of ths para-
graph the survvng spouse s one-haf share of communty property
hed by the decedent and the survvng spouse under the communty prop-
erty aws of any State, Terrtory or possesson of the Unted States or
any foregn country sha be consdered to be property acqured by be-
quest, devse, or nhertance from the decedent, f the death of the
decedent was after December 31, 19 7, and f at east one-haf of the
whoe of the communty Interest n such property was ncudbe n deter-
mnng the vaue of the decedent s gross estate under secton 811. In
the case of property hed by a decedent and hs survvng spouse under
the communty property aws of any State, Terrtory, or possesson of
the Unted States or any foregn country, f the vaue of any part of the
survvng spouse s one-haf share of such property was ncuded n deter-
mnng the vaue of the gross estate of the decedent and a ta under
chapter 3 was payabe upon the transfer of the net estate of the decedent,
then for the purposes of ths paragraph such part of such one-haf share
of the survvng spouse sha be consdered to be property acqured by
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29.11-1.
30
bequest, devse, or Inhertance from the decedent, If the death of the
decedent was after the date of the enactment of the Revenue ct of 19 2
and on or before December 31, 19 7; but nothng n ths sentence sha
reduce bass beow that whch woud e st If the Revenue ct of 19 8
had not been enacted.
(b) If the aowance of a credt or refund of any overpayment of ta
resutng from the appcaton of ths secton 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 secton 3761 of the
Interna Revenue Code, reatng to compromses), credt or refund of
such overpayment may, nevertheess, be aowed or made f cam there-
for s fed wthn one year from the date of the enactment of ths ct
No nterest sha be pad on any overpayment resutng from the app-
caton of the ast sentence of secton 113(a) ( ) of such Code, as
amended by ths secton, f such overpayment s for a ta abe year
begnnng before anuary 1, 19 8.
Par. 27. Secton 29.113(a) ( )- 26 CFR 29.113(a) ( )- s
amended as foows:
( ) y strkng out the word and at the end of subparagraph (1)
of paragraph (a).
( ) y strkng out the perod at the end of subparagraph (2) of
paragraph (a) and nsertng n eu thereof ; and .
(C) y addng at the end thereof the foowng subparagraph:
(3) to (1) the survvng spouse s one-haf share of communty property hed
by the decedent and the survvng spouse under the communty property aw of
any State, Terrtory, or possesson of the Unted States or any foregn country
If the death of the decedent s after December 31, 19 7, and f at east one-haf
of the whoe of the communty Interest n such property s ncudbe n determn-
ng the vaue of the decedent s gross estate under secton 811 (whether or not a
ta under chapter 3, reatng to the estate ta , s payabe upon the net estate of
the decedent) and () such part of the survvng spouse s one-haf share of
property hed by the decedent and survvng spouse as communty property as
was ncuded n computng the vaue of the decedent s gross estate f the death
of the decedent was after October 21, 19 2, and before anuary 1, 19 8. and f a
ta under chapter 3, reatng to the estate ta , was payabe upon the net estate
of the decedent. Secton 113(a)( ) sha not, however, be apped n cases
descrbed n () above so as to reduce the bass of any property beow that whch
woud e st wthout the appcaton of such secton.
(D) y addng at the end of such secton the foowng new para-
graph:
(ff) Credt or refund to survvng spouse n communty property States. If
on pr 2, 19 8, or wthn one year from such date, the aowance of credt or
refund of any overpayment of ta to a survvng spouse resutng from the
appcaton of the ast sentence of secton 113(a) ( ) to any part of the survvng
spouse s one-haf share of communty property s prevented by the operaton of
any aw or rue of aw (other than secton 3701, reatng to compromses), credt
or refund of such overpayment may nevertheess be aowed or made f cam
therefor s fed wthn one year after pr 2,19 8.
No nterest sha be pad on any overpayment resutng from the appcaton
of the ast sentence of secton 113(a) ( ) to any part of the survvng spouse s
one-haf share of communty property f such overpayment s for a ta abe year
begnnng before anuary 1, 19 8.
Par. 28. There s nserted mmedatey precedng secton 29.1 2-1
the foowng:
S C. 202. T C NIC L M NDM NTS. (R NU CT OF 19 8,
TITL II.)

(c) Reqotrement of Retukns.

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31
29.11-1.
(2) Fducary rf.tubns. Secton 1 2(a) of such Code (reatng
to the requrement of fducary returns) s hereby amended by strk-
ng out 00 wherever appearng theren and nsertng n eu
thereof 600 .

S C. 203. T L T RS TO W IC M NDM NTS PPLI-
C L . (It NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31,19 7. For treatment of ta -
abe years begnnng n 19 7 and endng n 19 8, see secton 601.
Par. 29. Secton 29.1 2-1, as amended by Treasury Decson 2
26 CFR 29.1 2-1 , s further amended as foows:
( ) y nsertng before the perod n the headng of paragraph
(b) the foowng: , and before anuary 1,19 f8 .
( ) y nsertng n paragraph (b) after December 31, 19 3, the
foowng: and before anuary 1, 19 8, .
(C) y changng the desgnaton of paragraph (c) from (c)
to (d) .
(D) y nsertng after paragraph (b) a new paragraph to read
as foows:
(c) Ta abe yearn begnnng after December SI, 19 7. very fducary, or at
east one of |ont fducares, for ta abe years begnnng after December 31, 19 7,
must make a return of ncome
(1) Returns for ndvduas. For the Indvdua whose ncome Is n hs
charge, f the gross ncome of such ndvdua s 600 or over.
(2) Returns for estates and trusts. or the estate for whch he acts If
the gross ncome of such estate s 600 or over, and for the trust for whch
he acts f the gross ncome of such trust s 600 or over, or the net ncome of
such trust, as computed under secton 162, s 100 or over, or f any bene-
fcary of such estate or trust Is a nonresdent aen.
The return n case (1) sha be on Form 10 0. In case (2) a return Is requred
on Form 10 1.
Par. 30. Secton 29.1 2-2, as amended by Treasury Decson 2
26 CF 29.1 2-2 , s further amended as foows:
( ) y nsertng before the perod n the headng of paragraph (ft1)
the foowng: , and before anuary 1,19 8 .
( ) y nsertng n paragraph (o) after December 31, 19 3, the
foowng: and before anuary 1, 19 8, .
(C) y addng after paragraph (b) the foowng new paragraph:
(c) Ta abe years begnnng after December SI, 19/(7. For ta abe years be-
gnnng after December 31, 19 7, a fducary actng as the guardan of a mnor,
or as the guardan or commttee of an nsane person, havng a gross Income of
600 or more for the ta abe year, must make a return for such person on Form
10 0, and pay the ta uness n the case of a mnor the mnor hmsef makes a
return or causes t to be made. s to the use of the optona return, see secton
29. 1-2(b).
Par. 31. Secton 29.1 3-3, as amended by Treasury Decson 607
C. . 19 8-1, 80 , approved March 12, 19 8 26 CFR 29.1 3-3 , s
further amended as foows:
( ) y strkng out the second sentence of the ne t to the ast
paragraph and nsertng n eu thereof the foowng:
nonresdent aen ndvdua who s engaged n trade or busness wthn the
Unted States at any tme durng the ta abe year s entted to the persona
e empton for ta abe years begnnng before anuary 1,19 , and to the norma-
ta e empton and the surta e empton aowed by secton 2 (b) (1) ( ) for ta -
abe years begnnng after December 31, 19 3, and before anuary 1, 19 6, and to
the e empton aowed for hmsef by secton 2 (b) (1) ( ) for ta abe years be-
gnnng after December 31, 19 .
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29.11-1.
32
( ) y addng before the perod at the end of the thrd sentence of
the ne t to the ast paragraph the foowng: , and before anuary 1,
19 8, and to the e emptons aowed by secton 2 (b)(1) ( ), (C),
and (D) for ta abe years begnnng after December 31,19 7 .
(C) y strkng out the ffth and s th sentences of the ne t to the
ast paragraph and nsertng n eu thereof the foowng:
owever, In the determnaton of the ta to be wthhed at the source under
secton 1 3(b) wth respect to remuneraton pad on or after uy 1, 19 3,
for abor or persona servces performed wthn the Unted States by a nonres-
dent aen, the beneft of the persona e empton for ta abe years begnnng
before anuary 1, 19 , or the norma-ta and surta e emptons or e empton
for both norma ta and surta for ta abe years begnnng after December 31,
19 3, sha be aowed, prorated upon a day bass for the perod of empoyment
durng any porton of whch abor or persona servces are performed wthn
the Unted States by such aen. Such proraton s on a bass of 1. 0 per day
for ta abe years begnnng pror to anuary 1, 19 8, and on a bass of 1.70 per
day for ta abe years begnnng after December 31, 19 7. Thus, f , a non-
resdent aen seaman empoyed by Shppng Corporaton, s pad n 19 8
upon the termnaton of the voyage and such voyage covers 100 days, and
performs persona servces wthn the Unted States durng, or ncdent to, such
voyage, the amount of 170 w be aocated as the porton of the e empton to be
aowed as a credt aganst the remuneraton of for persona servces performed
wthn the Unted States durng such voyage, and wthhodng sha be apped
aganst the baance, f any, of such remuneraton.
Par. 32. There s nserted mmedatey precedng secton 29.1 7-1
the foowng:
C. 202. T C NIC L M NDM NTS. (R NU CT OF
19 8, TITL II.)

(c) Requrement or Returns.
.
(3) Informaton returns. Secton 1 7(a) of such Code (re-
atng to returns of nformaton) s hereby amended by strkng out
0O wherever appearng theren and nsertng n eu thereof
600 .

S C. 203. T L Y RS TO W IC M NDM NTS PPLIC -
L . (R NU CT OP 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
Par. 33. Secton 29.1 7-1, as amended by Treasury Decson 313
C. . 19 , 308 , approved December 21, 19 3 26 CFR 29.1 7-1 ,
s further amended as foows:
( ) y amendng the headng thereof to read as foows:
Return or Informaton as to Payment of 600 ( 00 fob Tears Pror to 19 8).
( ) y strkng out the frst sentence and nsertng n eu thereof
the foowng:
persons makng payment to another person of f ed or determnabe Income
of 00 or more In any caendar year pror to 19 8, and a persons makng pay-
ment to another person of such ncome of 600 or more n any caendar year
after 19 7 must render a return thereof for such year on or before February
1 of the foowng year e cept as specfed n sectons 29.1 7-3 to 29.1 7- ,
ncusve.
(C) y strkng from the thrd sentence 260 ast One undred
and S ty-frst Street, New York 1, N. Y. and nsertng n eu
thereof C. C. Staton, ansas Cty 2, Mo.
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33
29.11-1.
Pab. 3 . Secton 29.1 7-2, as amended by Treasury Decson 80
C. . 19 , 23 , approved September 26,19 26 CFR 29.1 7-2 , s
amended so that such secton sha read as foows:
Seo. 29.1 7-2. Return of Informaton as to Payments to mpoyees. The
names of a empoyees to whom payments are made of 00 or more In any
caendar year pror to 19 8, or of 600 or more n any caendar year after 19 7,
whether such tota sum s made up of wages, saares, annutes, commssons,
or compensaton n any other form, must be reported. In the case of any such
payments of 00 or more pad durng the caendar year 19 or durng any sub-
sequent caendar year pror to 19 8, and n the case of any such payments of
600 or more made durng any caendar year after 19 7, f a porton thereof
consttutes wages sub|ect to wthhodng under secton 1622 and such porton,
s reported on Form W-2, the remander of such payments must be reported
on Form 1099. For e ampe, f such payments made to an empoyee by hs
empoyer n 19 8 amount to 700 and 00 thereof represents wages sub|ect to
wthhodng under secton 1622, and the remanng 300 represents compensa-
ton not sub|ect to wthhodng, for nstance, advances or rembursements for
traveng or other e penses, or Insurance premums whch n accordance wth
secton 29.16 -6 are Income to the empoyee for the year n whch the nsurance
s purchased, the 00 must be reported on Form W-2 and the 300 must be
reported on Form 1099. eads of branch offces and subcontractors empoyng
abor, who keep the ony compete record of payments therefor, shoud fe re-
turns of nformaton n regard to such payments wth the Commssoner of In-
terna Revenue, Processng Dvson, C. C. Staton, ansas Cty 2, Mo. When
both man offce and branch offce have adequate records, the return shoud be
fed by the man offce.
For years pror to 19 , amounts dstrbuted or made avaabe under an
empoyees trust governed by the provsons of secton 16 to any benefcary In
e cess of the sum of hs persona e empton and the amounts pad nto the fund
by hm must be reported by the trustee. For the caendar year 19 and sub-
sequent caendar yeurs amounts dstrbuted or made avaabe under an em-
poyees trust governed by the provsons of secton 16 , or under an annuty
pan to whch secton 29.22(b) (2)- reates, to a benefcary sha be reported
to the e tent such amounts are Incudbe n the gross ncome of such benefcary
where the amounts so ncudbe are 00 or more f dstrbuted or made avaabe
n a caendar year pror to 19 8 or 600 or more f dstrbuted or made avaabe
n a caendar year after 19 7.
In the case of payments made by the Unted States to persons n Its servce
(cv, mtary, or nava) of wages, saares, or compensaton n any other form,
the returns of nformaton sha be made by heads of the e ecutve departments
and other Unted States Government estabshments.
For cases where no returns of nformaton are requred, see secton 29.1 7-3.
(See aso secton 29.22(a)-3.)
Par. 3 . Secton 29.1 7-3, as amended by Treasury Decson 2
26 CFR 29.1 7-3 , s further amended by strkng from the frst
sentence 00 and nsertng n eu thereof 600 .
Par. 36. Secton 29.1 7-7, as amended by Treasury Decson 313
26 CFR 29.1 7-7 , s further amended by strkng therefrom 260
ast One undred and S ty-frst Street, New York 1, N. Y. and
nsertng n eu thereof C. C. Staton, ansas Cty 2, Mo.
Par. 37. Secton 29.1 7-8, as amended by Treasury Decson 313
26 CFR 29.1 7-8 , s further amended by strkng therefrom 260
ast One undred and S ty-frst Street, New York 1, N. Y. and
nsertng n eu thereof C. C. Staton, ansas Cty 2, Mo.
Par. 38. Secton 29.1 8-1, as amended by Treasury Decson 313
26 CFR 29.1 8-1 , s further amended as foows:
( ) y strkng from the ast sentence of the frst paragraph of (a)
260 ast One undred and S ty-frst Street, New York 1, N. Y.
and nsertng n eu thereof C. C. Staton, ansas Cty 2, Mo.
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29.11-1.
3
( ) y strkng from the frst sentence of paragraph (b) 200
ast One undred and S ty-frst Street, New York 1, N. Y. and
nsertng n eu thereof C. C. Staton, ansas Cty 2, Mo.
Par. 39. Secton 29.1 8-3, as amended by Treasury Decson 3 G
C. . 19 , 220 . approved pr 19, 19 26 CFR 29.1 8-3 , s
further amended by strkng from the second paragraph 260 ast
One undred and S ty-frst Street, New York 1, N. Y. and nsertng
n eu thereof C. C. Staton. ansas Cty 2. Mo.
Par. 0. There s nserted mmedatey precedng secton 29.163-1
the foowng:
S C. 202. T C NIC L M NDM NTS. (R NU CT OF 19 8,
TITL II.)

(d) Credt of state ganst Net Income. Secton 163(a)(1) of
such Code (reatng to credts aganst net ncome of an estate) s hereby
amended by strkng out 00 and nsertng n eu thereof 600 .

S C. 203. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
Par. 1. Secton 29.163-1, as amended by Treasury Decson 17
26 CFR 29.163-1 , s further amended by strkng out the second
sentence of paragraph (b) and nsertng n eu thereof the foowng:
For ta abe years begnnng after December 31, 19 , and before anuary 1, 19 S,
an estate s aowed a credt of 00 aganst net ncome or both norma ta and
surta purposes. For ta abe years begnnng after December 31, 19 7, an
estate Is aowed a credt of 600 aganst net ncome for both norma ta and
surta purposes.
Par. 2. Secton 29.217-2 26 CFR 29.217-2 s amended by strkng
out the second sentence of the frst paragraph of (b) and nsertng n
eu thereof the foowng:
return w not be requred, however, n the case of such a nonresdent aen
Indvdua, a resdent of Canada or Me co, whose soe ncome from sources
wthn the Unted States conssts of compensaton for persona servces and does
not e ceed 00 durng the ta abe year n the case of a ta abe year begnnng
before anuary 1, 19 8, or 600 durng the ta abe year n the case of a ta abe
year begnnng after December 31, 19 7.
Par. 3. There s nserted mmedatey precedng secton 29. 00-1
the foowng:
S C. 01. INDI IDU LS WIT D UST D GROSS INCOM S OF
L SS T N ,000. (R NU CT OF 19 8, TITL I .)
(a) In Genera. Secton 00 of the Interna Revenue Code (reatng
to optona ta on ndvduas wth ad|usted gross ncomes of ess than
,000) s hereby amended to read as foows:
S C. 00. IMPOSITION OF T .
In eu of the ta es mposed by sectons 11 and 12, there sha be
eved, coected, and pad for each ta abe year upon the net ncome of
each ndvdua whose ad|usted gross ncome for such year s ess than
,000, and who has eected to pay the ta mposed by ths suppement for
such year, a ta as foows:
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3
29.11-1.
If ad|usted
gross n-
come s
nd the number of
e emptons s
If ad|usted
gross n-
come s
nd the number of e emptons s
2
3
ut
ess
than
1
2
3
or
ut
ess
than
1
nd f
other
nd
f a
|ont
return
s fed
nd f
other
nd
f a
|ont
return
s fed

8 or
more
t
east
more
t
east
than a
|ont
than a
|ont

6
7
return
return
s fed
s fed
The ta sha be
The ta sha be
Sf
67
0
0
0
0
2,32
2,3 0
2 0
1 0
1 0
0
0
0
0
0
0
So
7
700
3
0
0
0
2.3 0
2,37
2 3
1
1


0
0
0
0
0
7(1(1
72
7
0
0
0
2,37
2, 00
2 7
1 7
167
68
8
0
0
0
0
0
72
7 0
11
0
0
0
2, 00
2. 2
261
161
161
62
62
0
0
0
0
0
7fn
77
1
0
0
0
2, 26
2, 0
26
16
166
6
6
0
0
0
0
0
776
800
18
0
0
0
2, 0
2, 7
268
169
169
69
69
0
0
0
0
0
800
82
22
0
0
0
2, 7
2, 00
272
172
172
73
73
0
0
0
0
0
82
8 0
26
0
0
0
2, 00
2, 2
276
176
176
77
77
0
0
0
0
0
Rsn
87
29
0
0
0
2, 2
2, 0
280
180
180
80
80
0
0
0
0
0
87
900
33
0
0
0
2, 0
2. 7
2S3
18
18
8
8
0
0
0
0
0
9 1
92
37
0
0
0
2, 7
2,600
287
187
187
88
88
0
0
0
0
0
92
9 0
0
0
0
0
2,600
2.62
291
191
191
92
92
0
0
0
0
0
(.r/
97

0
0
0
2,62
2,6 0
29
19
19
9
9
0
0
0
0
0
97
1,000
8
0
0
0
2,6 0
2,67
2.700
298
199
199
99
99
0
0
0
0
0
1.000
1,02
2
0
0
0
2,67
302
202
202
103
103
3
0
0
0
0
1.02
1,0 0

0
0
0
2,700
2,72
2,726
306
206
206
106
106
7
0
0
0
0
1.0 0
1.07
9
0
0
0
2,760
309
210
210
110
110
11
0
0
0
0
1.07
1,100
63
0
0
0
2,7 0
2,77
313
2)
21
11
11
1
0
0
0
0
1. 100
1,12
67
0
0
0
2, 776
2,800
317
217
217
118
118
18
0
0
0
0
1.12
1.1 0
70
0
0
0
2.800
2,82
321
221
221
121
121
22
0
0
0
0
1,1 0
1,17
7
0
0
0
2,82
2.8 0
32
22
22
12
12
26
0
0
0
0
1.17
1.200
78
0
0
0
2.8 0
2,87
328
228
228
129
129
29
0
0
0
0
1. 200
1,22
82
0
0
0
2,87
2,900
332
232
232
133
133
33
0
0
0
0
1.22
1, 2 0
8
0
0
0
2,900
2,92
336
236
236
136
136
37
0
0
0
0
1.2 0
1,27
89
0
0
0
2,92
2,960
3 0
2 0
2 0
1 0
1 0
0
0
0
0
0
1.27
1,300
93
0
0
0
2,9 0
2,97
3
2 3
2 3
1
1

0
0
0
a
1.300
1.32
96
0
0
0
2,97
3,000
3 9
2 7
2 7
1 8
1 8
8
0
0
0
a
1. 32
1.3 0
100
1
0
0
3,000
3,0 0
3 6
2 3
263
163
1 3
6
0
0
0
0
1,3 0
1,37
10

0
0
3,0 0
3,100
36
260
260
161
161
61
0
0
0
0
1,37
1, 00
108
8
0
0
3,100
3,1 0
373
268
268
168
168
68
0
0
0
0
1. 00
1, 2
111
12
0
0
3,1 0
3,200
3,200
382
27
276
176
176
76
0
0
0
0
1. 2
1, 0
11
16
0
o
3,2 0
391
283
283
183
183
83
0
0
0
0
1, 0
1. 7
119
19
0
0
3,2 0
3,300
399
290
290
190
190
91
0
0
0
a
1. 7
1, 00
123
23
0
0
3,300
3,3 0
08
298
298
198
198
98
0
0
0
0
1. 00
1, 2
126
27
0
0
3,3 0
3, 00
17
30
30
20
20
106
6
0
0
0
1, 2
1, 0
130
31
0
0
3, 00
3, 0
26
312
312
213
213
113
1
0
0
0
1, 0
1, 7
13
3
0
0
3, 0
3, 00
3
320
320
220
220
121
21
0
0
0
1, 7
1,600
138
38
0
0
3, 00
3, 0
3
327
327
228
228
128
29
0
0
0
1,600
1,62
1 1
2
0
0
3, 0
3,600
2
33
33
23
23
136
36
0
0
0
1,626
1,6 0
1
6
0
0
3,600
3,6 0
60
3
3 2
2 3
2 3
1 3

0
0
0
1,6 0
1,676
1 9
9
0
0
3,6 0
3,700
69
3 3
3 0
2 0
2 0
1 1
1
0
0
0
1,67
1,700
1 3
3
0
0
3,700
3,7 0
78
362
3 7
268
2 8
1 8
9
0
0
0
1,700
1,72
1 6
7
0
0
3,7 0
3,800
86
370
36
26
26
166
66
0
0
0
1,72
1,7 0
160
60
0
0
3,800
3,8 0
9
379
372
273
273
173
73
0
0
0
1,7 0
1,77
16
6
0
0
3,8 0
3,900
0
388
380
280
280
181
81
0
0
0
1,77
1,800
167
68
0
0
3,900
3,9 0
13
396
387
288
288
188
88
0
0
0
1.800
1, 826
171
72
0
0
3,9 0
,000
21
0
39
296
29
19
96
0
0
0
1, 82
1.8 0
176
7
0
0
,000
,060
30
1
02
303
303
203
103

0
0
1,8 0
1,876
179
79
0
0
,060
,100
39
23
10
310
310
210
111
11
0
0
1,87
1,900
182
83
0
0
,100
,1 0
,1 0
6 7
31
17
317
317
218
118
19
0
0
1,000
1,92
186
87
0
0
,200
6
0
26
32
326
22
126
26
0
0
1,92
1,9 0
190
90
0
0
,200
,260
6
9
32
332
332
233
133
3
0
0
1.9 0
1,97
19
9
0
0
,2 0
,300
7
7
39
3 1
3 0
2 0
1 1
1
0
0
1.97
2,000
197
98
0
0
,300
,3 0
82
66
7
3 0
3 7
2 8
1 8
9
0
0
2,000
2.02
201
101
2
0
,360
, 00
91
7
6
369
3 6
2
166
66
0
0
2. 02
2,0 0
20
106
6
0
, 00
, 60
600
83
62
367
362
263
163
63
0
0
2, 0 0
2,07
209
109
9
0
, 0
, 00
608
92
69
376
370
270
171
71
0
0
2,07
2.100
212
113
13
0
, 00
, 0
617
601
77
38
377
278
178
78
0
0
2.100
2,126
216
116
17
0
, 0
,600
626
10
8
393
38
28
186
86
0
0
2,12
2,1 0
220
120
21
0
,600
,6 0
63
18
92
02
392
293
193
93
0
0
2,1 0
2,17
223
12
2
0
,6 0
,700
6 3
27
99
11
00
300
200
101
1
0
2,17
2,200
227
128
28
0
,700
. 7 0
6 2
36
07
20
07
308
208
108
9
0
2,200
2,22
231
131
32
0
,7 0
,800
661

1
28
16
31
21
116
16
0
2,22
2,2 0
23
13
3
0
,800
,8 0
669
3
22
37
22
322
223
123
2
0
2.2 0
2,27
238
139
39
0
,8 0
,900
678
62
29
6
30
330
230
131
31
0
2,27
2,300
2 2
1 3
3
0
,900
,9 0
687
71
37
6
37
337
238
138
39
0
2,300
2,326
2 6
1 6
7
0
,9 0
,000
69
79

63

3
2
1 6
6
0
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29.11-1.
36
(b) Ta abe Years to Whch ppcabe. The amendment made
by ths secton sha be appcabe wth respect to ta abe years begnnng
after December 31, 19 7. For treatment of ta abe years begnnng In
19 7 and endng n 19 8, see secton 601.
Par. . Secton 29. 00-1, as amended by Treasury Decson 17
26 CFR 29. 00-1 , s further amended as foows:
( ) y strkng from the frst sentence of the thrd paragraph of
(b) begnnng wth the words n the case of husband and wfe the
words vng together .
( ) y strkng out the fourth paragraph of (b) begnnng wth
the words These restrctons and nsertng n eu thereof the
foowng:
These restrctons upon the rght of a marred person to eect to pay the ta
under Suppement T are appcabe wth respect to ta abe years begnnng
before anuary 1,19 8, ony f such person s marred and vng wth hs spouse
on the ast day of hs ta abe year or, n the event of the death of hs spouse
durng the ta abe year, upon the date of such death. For the purpose of the
precedng sentence, husband and wfe are consdered as vng together uness
they are permanenty separated. For ta abe years begnnng after December
31, 19 7, the restrctons upon the rght of a marred person to eect to pay the
ta under Suppement T are appcabe uness such person s egay separated
from hs spouse under a decree of dvorce or separate mantenance on the ast
day of hs ta abe year or, n the event of the death of hs spouse durng the
ta abe year, upon the date of such death. For rues reatve to the appcaton
of these restrctons, see secton 29.23(aa)- (c).
(C) y nsertng mmedatey before the ast paragraph of (b)
the foowng:
The ta tabe n secton 00, as amended by the Revenue ct of 19 8 and ap-
pcabe wth respect to ta abe years begnnng after December 31, 19 7, con-
tans, n certan areas, doube coumns, n one of whch s computed the ta f a
separate return s fed, and n the other of whch s computed the ta f a ont
return s fed. Snce the computatons of ta n the case of a |ont return refect
the ncome-spttng method provded n secton 12(d), as amended by the
Revenue ct of 19 8, the ta set forth In the |ont return coumn may be ower
than n the separate return coumn even though the amounts of ad|usted gross
ncome and the e emptons are the same. Thus, f , a marred man, has
ad|usted gross ncome of ,92 and hs wfe has no gross ncome and hs ony
e emptons under secton 2 (b) are the e emptons for hmsef and spouse under
secton 2 (b) (1) ( ), the ta on a |ont return under Suppement T, as set forth
n the second coumn appcabe to a person wth two e emptons, s 37. If
shoud fe a separate return, hs ta , as set forth n the frst coumn appcabe
to a person wth two e emptons, woud be 71. For treatment of ta abe years
begnnng In 19 7 and endng n 19 8, see secton 29.108-3.
Par. . Secton 29. 01-1, as amended by Treasury Decson 17
26 CFR 29. 01-1 , s further amended as foows:
( ) y nsertng n the frst paragraph of (6) mmedatey before
See secton 29.2 -3 the foowng:
For ta abe years begnnng after December 31, 19 7, addtona e emptons
are aowed under secton 2 (b)(1) ( ) and (C) for a ta payer or spouse
who has attaned the age of 6 years and for a bnd ta payer or bnd spouse.
( ) y addng after ampe (#) n paragraph (b) the foowng
e ampe:
ampe (3). D, a marred man wth no dependents, attans the age of 6
years on September 1, 19 8. The aggregate ad|usted gross ncome of D and hs
wfe for 19 8 s ,8 0. D and hs wfe fe a |ont return for 19 8 and are entted
to three e emptons, one for each ta payer and one addtona e empton for D
because of hs age. Snce the ad|usted gross Income of D and hs wfe fas
wthn the ta bracket ,800- ,8 0, the ta on a |ont return s 22.
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37
19.22(a)- .
Par. 6. Secton 29. 02-1, as amended by Treasury Decson 2
26 CFR 29. 02-1 s further amended as foows:
( ) y addng after December 31, 19 3, n paragraph (b) and
before anuary 1, 19 8, .
( ) y addng at the end of paragraph (b) the foowng:
n eecton under Suppement T once made for the ta abe year may not be
revoked by an amended return or otherwse, but a new eecton s aowed for
each subsequent ta abe year. If for any ta abe year the ta payer makes a
return wthout regard to Suppement T, he may not thereafter eect to have hs
ta computed under such Suppement for.that ta abe year.
The provsons of ths paragraph (6) are aso appcabe to ta abe years be-
gnnng after December 31, 10 7, e cept that wherever the prescrbed manner of
makng the eecton nvoves the fng of a return on Form W-2 (Rev.) the eec-
ton sha be made bv the fng of Form 10 0 nstead of Form W-2 (Rev.). See
secton 29. 1-2(b) (2).
(Ths Treasury Decson s ssued under the authorty of sectons
62 and 3791 of the Interna Revenue Code ( 3 Stat. 32, 67; 26 U. S. C.
62, 3791).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved February 16, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 23, 19 9, 8 : 6 a. m.)
P T II. COMPUT TION OF N T INCOM
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
Secton 19.22(a)-1: What ncuded n gross 19 9-10-1308
ncome. Ct. D. 1721
INCOM T INT RN L R NU COD D CISION OF COURT
1. Gross Income cusons O and Gas Lease Income and
penses ttrbutabe to Reserved Carred Workng
Interest.
The assgnors of an o and gas ease retaned a one-s teenth
workng nterest theren. The assgnees were to deveop and oper-
ate the property, advance a funds necessary therefor, were author-
zed to se the producton accrung to such workng nterest or to
purchase same themseves, and were to recoup ther advances ony
from ths source or from the sae of persona property n whch
the assgnors had aso retaned a one-s teenth nterest. The
assgnees were to account to the assgnors for one-s teenth of the
operatng profts as defned by the agreement, f, as, and when
reazed. Durng the ta abe year 19 1 there were no such profts.
ed: The fact that the assgnors receved no net operatng profts
as defned by the contract dd not estabsh that they receved no net
ta abe Income therefrom. The assgnors n effect mortgaged ther
Interest to the assgnees and acqured an undvded one-s teenth
nterest n the physca equpment paced upon the property, reserv-
ng to themseves a share n net profts that was not dsassocated
from ther retaned economc nterest but was derved therefrom.
Therefore, t was not the duty of the assgnees to return for ta es
the gross ncome from the one-s teenth nterest reserved by the as-
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19.22(a)- .
38
sgnors. Income s ta abe to the owner of the property producng
the same, and an assgnment n antcpaton of such ncome s n-
effectve to avod ta aton thereof to the rea owner.
2. Decson ffrmed.
Decson of The Ta Court of the Unted States (7 T. C. 120)
affrmed.
In the Unted States Cntcurr Court of ppeas fob the Ffth Crcut
Commssoner of Interna Revenue, pettoner, v. . 8. bercrombe Co., respondent
162 Fed. (2d) 338
Petton for revew of decson of The Ta Court of the Unted States
efore Sbey, omes, and Waer, Crcut udges
une 2 , 19 7
opnon
omes, Crcut udge: Ths appea nvoves ncome ta es for the caendar
year 19 1. The queston s whether the assgnees of an o and gas ease
the assgnors havng retaned a one-s teenth workng nterest are ta abe for
that porton of the gross ncome (ess proper deductons) whch s attrbutabe
to sad nterest notwthstandng, under the terms of the assgnment, there were
no net profts pad or payabe to sad assgnors and the atter were not personay
abe for any e penses.
The consderaton for the assgnment was 600,000 In cash, 2, 00,000 pay-
abe ony out of one-fourth of subsequent producton free of a costs and e penses
(nether of whch tems s n controversy here), and n addton a one-s teenth
carred workng nterest. The assgnees were put In contro of the deveop-
ment and operaton of the property, were to advance a funds necessary therefor,
were authorzed to se the producton accrung to sad workng nterest or to
purchase same themseves, and were to recoup ther advances ony from ths
source or from the sae of persona property; a one-s teenth nterest n the atter
aso havng been reserved by the assgnors.
The assgnees were requred to account to the assgnors from tme to tme
for one-s teenth of the operatng profts as defned by the agreement f, as, and
when reazed. Unt uy, 19 2, there were no such profts. The Ta Court hed
that, under the contract, one-s teenth of the gross proceeds from o producton
beonged to the assgnors, who were chargeabe wth the e pendtures attrbutabe
to sad nterest.
Pettoner s contenton, wth reference to the amount In controversy, s that
the assgnors retaned nothng more than a rght to share n one-s teenth of
the net profts. e agrees wth the Ta Court that the assgnors possessed
an economc nterest n the property to the e tent that they were entted to
share n the net operatng profts. Ths s n concurrence wth rby Petroeum
Co. v. Commssoner, 326 U. S. 99 Ct. D. 166 , C. . 19 6-1, 69 , and urton-
Sutton O Co. v. Commssoner, 328 U. S. 2 Ct. D. 167 , C. . 19 6-1, 237 ;
but he dsagrees wth the Ta Court as to the ta consequences of such nterest.
s poston, n substance, s that when there were no net profts and when
nothng was pad or payabe to the assgnors, as was true n the ta abe year
here nvoved, they receved no gross ncome from the property, there was nothng
to be depeted by them, and nothng that mght be e cuded or deducted from
the ncome of the assgnees.
It s true that anguage used by the partes In descrbng what was retaned
by them s not aways concusve as to the ta consequences of the transacton;
but the Ta Court dd not fnd any Inconsstency n ths case between what the
partes dd and the anguage used by them. It dd not gnore, but gave fu
effect to, the statement n the agreement that the assgnors dd not agree to
se, but reserved and retaned n themseves, as a carred ownershp and n-
terest, an undvded one-s teenth Interest n a mneras. Moreover, t does
not appear that the assgnors, under ther agreement wth the assgnees, were
entted to share operatng net ncome as defned by Federa aw and reguatons.
On the contrary, they were entted to share ony n accumuated net operatng
profts as defned n the contract between the assgnors and assgnees.
Snce net ta abe Income may dffer from operatng profts as defned by the
partes (due to the fact that capta tems not deductbe for Federa ncome
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39
29.22(a)- .
ta purposes do not enter nto the cacuaton of net ta abe ncome), there
s no necessary equvaence between net profts payabe to the assgnors and
ther ta abe ncome from the eased premses. ence t does not foow that,
because the assgnors receved no net operatng proft as defned by the agree-
ment, they aso receved no net ta abe ncome from the property. The ds-
trbutabe net operatng proft from the reserved one-s teenth workng nterest
was whoy sub|ect to the w of the partes; but the net ta abe ncome from
that nterest was governed by Federa statutes and reguatons. The dfference
between the net profts recevabe n cash and the net ta abe ncome recevabe
by the carred nterest arses by vrtue of the fact that capta tems, such as
physca equpment, are not deductbe for Federa ncome ta purposes, whe
n the nstant case the partes n ther contract gave the operators the rght to
recoup outays made by them for physca equpment.
In some nstances the aw may ook through form to substance to get to the
rght of a controversy, but n ordnary cases ta consequences under Federa
aw often depend upon property rghts under oca aw, whch In turn may be
f ed by agreements between owners of the property. In the present case there
Is no reason to gnore, and the Ta Court decned to gnore, the provsons of
the agreement reservng an undvded one-s teenth workng nterest n a
mneras, statng the reaton of the partes as that of ndependent contractors,
mtng the abty of the assgnors for any operatng oss, and otherwse
defnng the rghts and dutes of the contractng partes.
The practca queston n ths case s whether the assgnors or the assgnees
shoud have returned for the partcuar year the gross ncome from ths one-
s teenth nterest. oth sdes rey upon the rby and urton-Sutton cases,
supra; but we thnk our decson s controed by the fundamenta prncpe
that ncome s ta abe to the owner of the property producng the same, and that
an assgnment n antcpaton of such ncome s Ineffectve to avod ta aton
thereof to the rea owner. The economc reaty of the transacton was that
the assgnng coowners mortgaged ther nterest to ther operatng coowner; and
by so dong they not ony reaped the beneft of deveopment but acqured an
undvded one-s teenth nterest n vauabe physca equpment paced on the
property by the operators. The vaue of the eases was n the o and gas that
coud be produced from the demsed premses. The assgnors desred to partc-
pate n the producton to the e tent of one-s teenth; and arranged by contract
for ts e potaton, reservng to themseves a share In the net profts that was
not dsassocated from the retaned economc nterest but was derved from
such nterest and partook of the quaty of rent.1
Therefore, t was not the duty of the assgnees to return for ta es the gross
ncome from the one-s teenth nterest reserved by the assgnors. The decson
of the Ta Court s
ffrmed.
S unr, Crcut udge, concurrng: I concur n the opnon. It seems to me
that the gross ncome from o attrbutabe to the reserved one-s teenth n-
terest beongs each year to the assgnors, sub|ect to aowance for depeton.
If, as has happened, the assgnors ncome s kept by the assgnees to repay them
for one-s teenth of the deveopment costs, t s because the contract authorzes
the assgnees to pay t to themseves nstead of to the assgnors, t ther ad-
vances are repad. It does not affect the ownershp of the ncome any more than
f t had been ordered to be pad over to some thrd person.
Secton 29.22(a)-: What ncuded n gross 19 9-2-13008
ncome. I. T. 393
INT RN L R NU COD
Treatment for Federa Income ta purposes of donatve assgn-
ments of short-ved n-o payment rghts.
1 Pamer v. ender, 287 U. S. 1 Ct. D. 6 1, C. . II-1, 23 (1933) ; Thomas v.
Perkns, 301 U. S. 6 Ct. D. 1237. C. . 1937-1, 162 : nderson v. everng, 310 U. 8.
0 Ct. D. 1 6, C. . 19 0-1, 108 ; rby Petroeum Co. v. Commssoner, 326 U. S.
99 : urton-Sutton O Co., Inc., v. Commssoner, 328 . S. 2 ; Reynods v. Mc.Murray,
60 Fed. (2d) 8 3 Ct. D. 616, C. . II-1, 198 (1933) , certorar dened, 287 U. S. 66 :
evcrnr/ v. rmstrong, 69 Fed. (2d) 370. Cf. Crane v. Commssoner, 331 U. S. 1, 67
S. Ct. 10 7 Ct. D. 168 , C. . 19 7-1. 97 , upon the respectve contentons wth reference
to the assgnors not beng personay abe for any of the e pendtures made on ther
behaf by the operators.
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19.22 (a)-1 .
0
dvce s requested wth respect to the treatment for Federa ncome
ta purposes of donatve assgnments of short-ved n-o payment
rghts carved out of any type of depetabe economc nterest n o
and gas n pace (ncudng a arger m-o payment rght).
It s hed that such donatve assgnments are assgnments of future
ncome. The ncome thus assgned s depetabe ncome to the donor as
t arses. cquescence (C. . II-1,3,9 1933)) n . . Na et a.,
Independent ecutors of the state of M. M. (Mrs. W. I.) Cook v.
Commssoner (27 . T. . 33) has been wthdrawn. (See pages 6,
ths uetn.)
The nstant rung w be apped ony to donatve assgnments
made after anuary 2 ,19 9, the date of pubcaton of ths rung n
the Interna Revenue uetn.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved December 16, 19 8.
Thomas . Lynch,
ctng Secretary of the Treasury.
Secton 19.22(a)-1 : Canceaton of ndebted- 19 9 -13022
ness. Ct. D. 1712
INCOM ta nterna hevende code decson of supreme court
1. Gross Income Pt|bchase by Ta payer of s Own Ouqatons
at Dscount.
sovent ndvdua ta payer must ncude n hs gross Income,
for the ta years n whch he made the purchases, the dfference
between the face amount of hs persona ndebtedness as the maker
of certan easehod bonds orgnay ssued by hm at face vaue for
cash, and a esser amount pad by hm for ther purchase. e
reazed an Immedate fnanca gan from the purchases, and by
such acquston obtaned contro over the dscharge of hs obga-
tons. There s no dstncton between the saes made drecty to
the ta payer and those made ndrecty to hs aw partner actng
on hs behaf or through brokers or the bondhoders commttee.
The mere fact that each seer had knowedge that he was seng
to the maker of the bond as hs ony avaabe market dd not
change the sae nto a gft. The gan from each purchase comes
wthn secton 22(a) of the Interna Revenue Code and may not
be cassfed as a gft e empt from ta under secton 22(b) (3) of
the Code.
2. Decson Dstngushed.
everna v. mercan Denta Co., 318 D. S. 322 (Ct D. 1 77, C. .
19 3, 9 ), dstngushed.
3. Decson Reversed.
Decson of the Unted States Court of ppeas, Seventh Crcut
(16 Fed. (2d) 9 ), reversed.
Supreme Court of the Unted States
32. Commssoner of Interna Revenue, pettoner, v. Lews F. acobson
33. Commssoner of Interna Revenue, pettoner, v. Lews F. acobson
On wrts of certorar to the Unted States Court of ppeas for the Seventh Crcut
anuary 17, 19 9
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1
19.22(a)-1 .
OPINION
Mr. ustce ubton devered the opnon of the Court
Ths decson appes the Federa ncome ta to gans derved by a debtor
from hs purchase of hs own obgatons at a dscount and hs consequent con-
tro over ther dscharge. It presents the specfc queston whether a sovent
natura person, n stratened fnanca crcumstances, must ncude n hs gross
ncome for Federa ncome ta purposes the dfference between (1) the face
amount of hs persona ndebtedness as the maker of secured bonds, orgnay
ssued by hm at face vaue for cash, and (2) a esser amount pad by hm
for ther purchase. The debtor s obgatons were not unpad baances of pur-
chase prces whch coud be read|usted by the dscharge of the obgatons.
The proceeds of the obgatons were not traced nto dentfabe osses offsettng
the debtor s reazed gans from the dscharge of these obgatons. ach seer
knew that the bonds he sod were beng bought by or for the maker of them.
In each sae the bondhoder sought to mnmze hs probabe oss by gettng as
much as possbe, drecty or Indrecty, from the maker of the bonds as the
one avaabe purchaser of them. The maker of the bonds, at the same tme,
sought to reduce hs obgatons as much as possbe by buyng the bonds as
cheapy as he coud. Whe each seer thus knew that he was recevng from
the maker of the bonds ess than ther face amount, there Is no fndng that any
seer ntended to transfer or reease somethng for nothng or to make a gft
of any part of hs cam, as dstngushed from makng a sae and assgnment
of hs whoe cam for the hghest avaabe prce. The maker thus reazed
a gan from each purchase and the Commssoner of Interna Revenue found
correcty that, for Federa ncome ta purposes, the maker must ncude that
gan n hs gross ncome for the ta year n whch he made the purchase.
The respondent, Lews F. acobson, n 1938, 1939 and 19 0 resded, practced
aw and owned or controed substanta property nterests n Chcago, 111.
In 19 3 the pettoner, Commssoner of Interna Revenue, found defcences
n the ncome ta es pad by the respondent for each of those years. Those
defcences totaed 3,967.97, of whch about 2, 00 are now before us. Ths
case arose from the Commssoner s addton to the reported gross Income of
the respondent of the dfferences between (1) the prncpa face amounts of
certan easehod bonds e ecuted by the respondent and (2) the esser amounts
pad by hm for ther purchase. Such purchases were made by or for hm
substantay as foows:
Date of purchase
Purchased
D Drect
Through
broker
C Through
bondhoders
commttee
Prncpa
face
amount
Purchase
prce
Percentage of
face amount
pad by
purchasar-
maker-
ta payer
pr. 9, 1938.
9,
1938
17, 08.
Feb. 16, 1939.
une 16, 1939.
Oct. 23, 1039-
1939
pr. , 19 0..
Iay 21, 19 0..
May 23, 19 0..
une 19, 19 0..
uy L 19 0...
uy 3, 19 0...
uy 10. 19 0-
Sept. 23, 19 0.
Tota...
19 0
1)
I)
I)
D

60.00
3.600.00
900.00
1,800.00
60.00
180.00
270.00
0.00
2,700.00
1,800.00
60.00
60.00
60.00
60.00
202. 60
1,620. 00
06 00
900.00
226.00
86.60
130.00
210.00
1,080.00
720.00
200.00
200.00
18 . 0
186.00
6
6
6
n
0
M
8
7
0
0
1
1
1
1
1 , 00.00
6,3 8 60
Upon the respondent s petton, the Ta Court revewed the Commssoner s
fndngs and
8 16 9
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19.22(a)-1 .
2
ed that, as to the bonds acqured by pettoner acobson, the respond-
ent here through drect negotatons wth the bondhoders, he s not ta -
abe on the gan therefrom under the doctrne of everng v. mercan
Denta Co. (318 U. S. 322 Ct. D. 1 77, C. . 19 3, 9 ) ; hed, further, that
pettoner s ta abe on the gan reazed n the purchases from bondhoders
through the secretary of the bondhoders commttee and the securty deaers,
under the doctrne of the Supreme Court n Unted States v. rby Lumber
Co. (28 U. S. 1 Ct. D. 20, C. . -2, 3 6 (1931) ), he beng at a tmes
sovent. (6T. C. 10 8.)
S of the 16 |udges dssented and of those 6 voted to uphod the Comms-
soner competey, on the ground that none of the transactons were gratutous.
(6 T. C. 10 8, 10 7-10 9.) The Commssoner pettoned the Court of ppeas
for the Seventh Crcut to revew that part of the |udgment whch was unfa-
vorabe to hm. The respondent dd the same as to the remander of the |udgment.
That court decded aganst the Commssoner on both pettons. It hed that,
because the respectve seers knew that the bonds they sod were beng bought
by or for the respondent, as the maker of them, any e cess of the face vaues
of the bonds over ther saes prces shoud be treated as gfts to the respondent
and as e empt from Income ta . (16 Fed. (2d) 9 .) Due to the mportance
of the Issues n the unsetted fed of the ta abty of gans derved by a debtor
from hs dscharge of hs own obgatons at a dscount, we granted certorar
n both cases. (333 U. S. 866.) We have heard and decded them together.
The further matera facts, as found by the Ta Court or as shown by unds-
puted evdence, are as foows:
y purchases made n 1922 and 1923 the respondent acqured a 99-year ease,
runnng from May 1, 191 , together wth a two-story store, offce and apartment
budng on the eased premses n Chcago. On or about May 1, 192 , he bor-
rowed 90,000 from a nearby bank and, together wth hs wfe, e ecuted n
return 200 bonds secured by a trust deed mortgagng to that bank the easehod
and the mprovements thereon. The bonds bore nterest at 6 percent per
annum and were for the tota prncpa amount of 90,000, wth 2, 00 matur-
ng semannuay up to and ncudng November 1, 1931. The baance of the
bonds, totang 7, 00, were to mature May 1, 1932. The orgna proceeds
were used by the respondent to retre the e stng encumbrance, of an unds-
cosed amount, on the property, pay for a 16,2 0 addton made by hm to the
budng on the easehod and pay the necessary brokerage commsson of appro -
matey 10 percent of the oan, pus the cost of prntng the bonds and other
e penses n connecton wth the oan. remanng sma surpus was pad
to the respondent. In 192 the respondent, for the purposes of computng de-
precaton, aocated 76, 80. 6 to the mprovements, ncudng the new addton,
and 0,000 to the easehod, out of ther tota cost to hm of 116, 80. 6.
The bonds due on or before November 1, 1931, were pad at or about ther
maturtes. The debtor has never been n defaut on any nterest payment.
owever, after the trustee bank cosed on une 8, 1931, a commttee was
formed to represent the hoders of ths ssue of bonds. May 1, 1932, the re-
spondent secured from the commttee and ndvdua bondhoders a -year
e tenson of the maturty on a of the bonds and a reducton n the nterest
rate from 6 to percent. Durng ths e tenson the respondent ssued hs
checks n the names of the respectve bondhoders to cover nterest due them.
The checks were devered by the secretary of the bondhoders commttee, the
respondent kept hmsef fuy Informed as to the dentty and ocaton of the
respectve bondhoders and they, n turn, frequenty vsted hm to earn about
hs fnanca condton and that of the trusteed property. In 1937 he procured
a further e tenson of the maturty of the bonds to May 1, 19 2, and, n that
connecton, pad 10 percent on the prncpa of each bond, eavng a tota out-
standng baance of 1,7 0 payabe on these bonds.
The Ta Court found that n 1938 the far market vaue of the easehod and
the mprovements thereon was 80,000 and that n 1939 and 19 0 t was the
same, ess accrued deprecaton. The respondent testfed that he vaued t
at consderaby ess, even as ow as twce the amount of ts gross ncome, or
about 32,000. The gross and net ncome from the trusteed property, after
deducton of e penses, deprecaton and aso the Interest on the bonds, was:
Year Grots ncome Net ncome
1938.
1939.
19 0.
_ 16. 0. 00
_ 16, 20. 7
1 , 78. 0
1,233.9
1,107.11
1,719. 1
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3
19.22(a)-1 .
The respondent receved from hs aw practce and other sources the foowng
addtona gross ncome: 1938, 38,390.8 ; 1939, 3 ,6 .78; and 19 0, 3 ,279. 9.
The Ta Court sad that: On the strength of the showng of pettoner s assets
and abtes, we fnd pettoner was sovent durng each of the ta abe years
1938, 1939, and 19 0. (6 T. C. at p. 10 3.) The court of appeas sad: The
Ta Court found that the ta payer was sovent durng each of the ta abe years
1938, 1939 and 19 0, and we accept the fndng, athough a perusa of the record
makes t qute apparent that he was n stratened fnanca crcumstances.
(16 Fed. (2d) at p. 96.)
In hs petton to the Ta Court the respondent stated, and t has not been
dsputed, that the vaue of the easehod and budng had sharpy deprecated
snce hs acquston of them. The neghborhood had changed, stores were
vacant or pad ess than haf of ther prevous rents, from 1932 to 1938 the vaue
of the property was substantay ess than ts cost to hm, condtons were
gettng worse and he fet certan that he woud sustan a arge oss n connecton
wth the property.1
The Ta Court s fndngs descrbe each bond sae that s matera. Some were
to the respondent personay and some to hs aw partner, actng on hs behaf.
The rest were made ndrecty to the respondent through brokers or through
the bondhoders commttee. The Ta Court sad that each sae that was made
through a broker or the commttee was cosey akn to an open market trans-
acton. It made no fndng that any seer ntended to transfer or reease some-
thng for nothng. It referred to a of the respondent s acqustons of bonds
as purchases. pparenty the bonds were payabe to bearer and the Ta Court
referred to them as negotabe bonds. ach seer made a compete transfer
to the respondent of a the seer s rghts to or under the bonds. ach seer
thus determned the amount of hs own oss on hs nvestment. ach knew that
the maker of the bond woud acqure or secure contro over t and woud thus
be enabed to reduce hs abtes by ts face amount. cept for the 10 percent
pad on each bond n 1937, there s no evdence that any bondhoder at any tme
receved any parta payment on any bond or consented to a reducton of the
ndebtedness evdenced by the bond. There s no suggeston that any of the
respondent s payments made n 1938,1939 or 19 0 were made specfcay n parta
reducton of the respondent s obgaton as evdenced by a bond or that any
bondhoder specfcay dscharged hm from any part of the baance of that
obgaton. On the other hand, t does appear that each of such payments was
made In consderaton of the transfer to the respondent of tte to the entre
bond. ach bond was devered to the respondent evdencng hs obgaton
for ts fu orgna face amount, ess ony the 10 percent payment made, on ac-
count, n 1937. t the tme of the tra, the respondent apparenty st hed
the purchased bonds ntact. The court of appeas repudated any dstncton
made by the Ta Court for present purposes between the drect and ndrect
gaes to the respondent. The court of appeas based ts decson on each seer s
knowedge that he was transferrng hs bond to the maker of It. Thus far we
agree. The court of appeas, however, wthout any fndng of ntent by the
respectve seers to transfer or reease somethng for nothng, as dstngushed
from an ntent to get the hghest avaabe prce for ther entre cams, treated
the respondent s gan from each purchase as e empt from the ta aton mposed
1 In hs petton to the Ta Court, the respondent, n descrbng the sae of bonds to hm
at a dscount In 1939, sad :
It was sef Interest and good busness |udgment e ercsed by a prudent persons to
take cash settements, when otherwse greater osses mght be ncurred. I have done that
very thng mysef, and have advsed cents to do so n smar crcumstances. Most rea
estate bonds n Chcago were seng from c to 2 c on the doar n 1932 to 19 0.
In the Instant case the respondent was found to have been sovent before, as we as
after, hs reazaton of the gans In queston. The payment of the bonds purchased by hm
was secured by the mortgage of hs easehod property whch property had a far market
vaue substantay n e cess of the face amount of the bonds. The record fas to estab-
sh any suffcent bass for a cam that the respondent had suffered osses whch, for ta
purposes, offset hs gans from hs purchase of the bonds. Ltte of the 90,000 orgnay
receved by hm for the bonds was used to purchase property. There Is no fndng or sub-
stanta evdence showng specfcay how those funds were Invested. ven f they are
traced, In part, nto the addton made to the budng on the easehod premses and Into
the dscharge of the then e stng encumbrance on those premses, the tota so used s not
shown and the shrnkage In the vaue of those nvestments s not ceary ascertaned In
the ta abe years In queston. The rato of the oss n vaue of the easehod property Ind-
cated by the Ta Court fndngs s about 32 percent of ts cost n 192 but ths oss Is
merey based upon estmates. The respondent cams a arger shrnkage but there Is not a
suffcent ascertanment of t to permt consderaton of ts use as an offset to the re-
spondent s gans n 1938, 1939 or 19 0. See 2 Mertens, Law of Federa Income Ta aton,
secton 11.20and n. 99 (19 2).
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19.22(a)-1 ,

by secton 22(a) of the Revenue ct of 1938 and of the Interna Revenue Code,
because that court fet Itsef obged by precedent to cassfy each such gan as
a gft under secton 22(b)(3) of that ct and Code. We hod, however,
that those sectons do not, n the ght of the decsons of ths Court, permt
that resut.
The frst test of the ta abty of such gans reates to ther ncuson wthn
the gross ncome of the ta payer under secton 22(a), wthout reference to the
specfc e cusons made from t by secton 22(b). The other test conssts of the
appcaton to such gans of any of those specfc e cusons. We hod that these
gans come wthn secton 22(a) but not wthn any of the e cusons from
gross ncome stated n secton 22(b).
The respondent reazed an mmedate fnanca gan from hs purchase of
these bonds at a dscount. y that acquston he was enabed, at w, to cance
them and thus dscharge hmsef from abty to pay them. Whe the record
ndcates that he hed them ntact, apparenty wthout credtng reeased ndebt-
edness on them or otherwse physcay canceng them n whoe or n part
(e cept for the 10 percent payments made by hm on each bond n 1937), hs
possesson of them and contro over them s not dsputed and the pettoner
has propery treated ther acquston as consttutng a reducton of the respond-
ent s debts to the e tent of ther face amount. t the tme of ther purchase
the respondent was uncondtonay and prmary bound to pay ther face
amounts on May 1, 19 2, wth nterest. though n stratened fnanca cr-
cumstances he was sovent, both before and after hs acquston of the bonds,
and the bonds apparenty were coectbe from hm n fu through approprate
enforcement proceedngs. s acquston, and consequent contro over the ds-
charge of these bonds, therefore, mproved hs net worth by the dfference
between ther face amount and the prce he pad for them. It aso reeved
hm of the semannua nterest payments on them of percent per annum.
s acquston of them kewse reduced the face amount of the en hed
by others upon hs easehod property. In the frst nstance he had receved
the fu face amount n cash for these bonds so that hs repurchase of them
for 0 percent, or ess, of that amount refected a substanta beneft whch he
had derved from the use of that borrowed money. These were not purchase
money bonds. The gans from ther canceaton were not akn to reductons
In baances due on the prces of prevousy acqured property. The respectve
seers of the bonds bore no reaton to the respondent other than that of credtors.
The gans derved by the respondent through these purchases were comparabe
to those he woud have reazed f he had purchased, at the same dscount, ke
bonds ssued by a thrd party and had resod them at fu face vaue or had turned
them n at fu vaue as a credt upon some other ndebtedness of the respondent
s gans were comparabe n ther nature to those whch he woud have rea-
zed f a thrd party, pursuant to a contract, had pad off hs ndebtedness on
S C. 22. GROSS INCOM .
(a) Genera Defnton. Gross Income ncudes gans, profts, and ncome derved
from saares, wages, or compensaton for persona servce, of whatever knd and n what-
ever form pad, or from professons, vocatons, trades, busnesses, commerce, or saes, or
deangs In property, whether rea or persona, growng out of the ownershp or use of or
Interest In such property, aso from Interest, rent, dvdends, securtes, or the transacton
of any busness carred on for gan or proft, or gans or profts and ncome derved from
any source whatever. ( 2 Stat. 7.)
Ths was reenacted as secton 22(a), I. R. C, 3 Stat. 9, and amended n a manner not
matera here n 3 Stat. 7 - 7 . 26 U. S. C. (19 0 ed.), secton 22(a). The Revenue
ct of 1938 apped to the respondent s Income n 1938 and the Interna Revenue Code to
that n 1939 and 19 0.
S C. 22. GROSS INCOM .

(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 tte :

(3) Gfts, requests, and devses. The vaue of property acqured by gft, bequest,
devse, or Inhertance (but the ncome from such property sha be ncuded n gross
ncome)

( 2 Stat. 8.)
Ths was reenacted as secton 22(b)(3), I. R. C, 3 Stat. 10, 26 U. S. C. (19 0 ed.),
secton 22(b)(3), wthout matera change.
See note 1, supra, showng the vared uses to whch the respondent apped these pro-
ceeds and showng that It s not practcabe n ths case to determne hs osses from hs
resutng nvestments, and much ess to offset them aganst hs gans now at ssue. s
ta benefts from those osses are thus postponed unt some such occason as the sae
of the propertes refectng them makes t possbe to ascertan the osses ceary.
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19.22(a)-1 .
these bonds for hm to the e tent of the dscount at whch he purchased them.
The nature of the gan derved by a debtor from hs purchase of hs own obga-
tons at a dscount s the same whether the debtor s a corporaton or a natura
person. That such a gan comes wthn the meanng of gross ncome as used
n Federa ncome ta aws was ong ago recognzed by the Treasury Depart-
ment s reguatons and by ths Court n the eadng cases In ths fed. (Unted
States v. rby Lumber Co., 28 U. S. 1; everng v. mercan Chce Co., 291
U. S. 26 Ct. D. 809, C. . III-1, 26 (193 ) .) Smar provsons appeared
n the reguatons n effect n 1938-19 0.
If secton 22(a) stood aone, wthout the e cusons stated In secton 22(b),
the gan reazed by the respondent In ths case unquestonaby woud consttute
gross ncome for ncome ta purposes. The provsons of secton 22(b) and the
decsons of ths Court do not change that resut. On the contrary, they confrm t.
strkng demonstraton of the meanng gven by Congress to secton 22(a)
appears n ts amendments to secton 22(b) of the Interna Revenue Code by the
Revenue ct of 1939, c. 2 7, 3 Stat. 862, approved une 29, 1939 These amend-
ments then apped ony to ta abe years begnnng after December 31, 1938, and
ony to dscharges of ndebtedness occurrng on or after une 29, 1939. The vaue
of these amendments for the purposes of the nstant case s not so much n the
e cusons whch they prescrbe, as n the cear ght whch ther own mtatons
shed upon sectons 22(a) and 22(b) to the e tent that those sectons reman
nnchanged.
Such dscharges of a ta payer s debts by payments made for hs beneft are reazabe
Income to hm. In Doua v. Wcutu (296 U. S. 1, 9 Ct. D. 10 1, C. . I -2, 260
(193 ) ). ths Court sad:
The queston Is one of statutory constructon. We thnk that the defntons of grogs
Income (Revenue cts, 1026. secton 213; 1928, secton 22) are brond enough to cover
ncome of that descrpton. They are to he consdered In the ght of the evdent ntent
of the Congress to use ts power to the fu e tent. (Irwn v. Oavt, 268 U. S. 161 T. D.
3710, C. . I -1, 123 (192 ) ; everng v. Stockhom ank, 203 U. S. 8 , 89 Ct. D.
887, C. . III-2, 299 (193 ) .) We have hed that ncome was receved by a ta payer,
when, pursuant to a contract, a debt or other obgaton was dscharged by another for
hs beneft. The transacton was regarded as beng the same n substance as f the money
had been pad to the ta payer and he had transmtted t to hs credtor. (Od Coony
Trust Co. v. Commssoner. 279 U. S. 718 Ct. D. 80, C. . III-2, 222 (1020)1 : Unted
States v. oston t Mane Raroad, 279 U. S. 732 Ct. D. 73, C. . III-2. 31 (1929) .)
y the Revenue ct of (November 23,) 1921, c. 136, secton 213(a) gross
ncome ncudes gans or profts and ncome derved from any source whatever, and by the
Treasury reguatons authorzed bf secton 1303, that have been n force through repeated
reenactrhents, If the corporaton purchases and retres any of such bonds at a prce ess
than the ssung prce or face vaue, the e cess of the ssung prce or face vaue over the
purchase prce Is gan or ncome for the ta abe year. rtce (1) (c) of Reguatons
62, under Revenue ct of 1921. See rtce (1) (c) of Reguatons , under Revenue
ct of 1918; rtce (1) (o) of Reguatons 6 , under Revenue ct of 102 ; rtce
(1) (c) of Reguatons 69, under Revenue ct of 1926 ; rtce 68(1) (c) of Reguatons
7 , under Revenue ct of 1928. We see no reason why the reguatons shoud not be
accepted as a correct statement of the aw.
The defendant n error has reazed wthn the year an accesson to ncome,
f we take words n ther pan popuar meanng, as they shoud be taken here. (Unted
States v. rby Lumber Co., 28 U. S. 1, 2-3.)
rt. 22(a)-1 . Canceaton of ndebtedness. (a) In genera. The canceaton
of ndebtedness, n whoe or n part, may resut n the reazaton of ncome. If, for
e ampe, an ndvdua performs servces for a credtor, who n consderaton thereof
cances the debt, Income n the amount of the debt s reazed by the debtor as compensaton
for hs servces. ta payer reazes Income by the payment or purchase of hs obgatons
at ess than ther face vaue.

rt. 22(a)-18. Sae and purchase by corporaton of ts bonds.- (1) (a) If bonds
are ssued by a corporaton at ther face vaue, the corporaton reazes no gan or oss.
(6) If the corporaton purchases any of such bonds at a prce n e cess of the ssung
prce or face vaue, the e cess of the purchase prce over the Issung prce or face vaue
s a deductbe e pense for the ta abe year, (o) If, however, the corporaton purchases
any of such bonds at a prce ess than the ssung prce or face vaue, the e cess of the
ssung prce or face vaue over the purchase prce s gan or ncome for the ta abe year.
Treasury Reguatons 101, promugated under the Revenue ct of 1938.
In Treasury Reguatons 108 promugated under the Interna Revenue Code, sectons
19.22(a)-1 and 10.22(a)-18 were dentca wth the above. ven today they are the
same n Treasury Reguatons 111. promugated under the Interna Revenue Code, as
sectons 29.22(a)-13 and 20.22(a)-17.
These amendments are contaned n secton 21 of the Interna Revenue ct of 1939,
c. 2 7, 8 Stat. 862, 87 -876, 26 U. S. C. (19 0 ed.), sectons 22(b) (9), 113(b) (8). They
added to the Interna Revenue Code secton 22(b)(9) and secton 113(b)(3), both reat-
ng to the dscharge of Indebtedness. cross reference s made to the atter n the former.
Such secton 21 , In ts entrety, s as foows :
S C. 21 . DISC RG OF IND T DN SS.
(a) Income From Dscharge of Indebtedness. Secton 22(b) of the Interna Reve-
nue Code (reatng to e cusons from gross ncome) s amended by addng at the end
thereof the foowng new paragraph :
(9) Income from dscharge of ndebtedness. Id the case of a corporaton, the
the amount of any ncome of the ta payer attrbutabe to the dscharge, wthn the
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19.22(a)-U.
6
Uness those sectons as they stood In 1938 meant that the gans derved by a
debtor corporaton from ts purchases of Its own obgatons at a dscount re-
suted n gross Income under secton 22(a), there was no need for these 1939
amendments. Furthermore, as the status of natura persons and corporatons s
not dfferentated n secton 22(a), the new amendments make t equay cear
that, nasmuch as they reeve ony certan corporatons from the ta abty of
gans derved from ther purchases of ther own obgatons at a dscount, t must
be that smar gans derved by natura persons aso reman ta abe under sec-
ton 22(a). The strength of ths refecton of the amendments upon the un-
amended sectons s emphaszed by ther temporary character. The amendments
e pressy provde that they sha not appy to a ta abe year begnnng after
December 31, 19 2. Ths ndcates that, for ts permanent program, Congress
regarded such gans as propery ta abe and t Indcates that the amendments
were ntended to authorze temporary changes n pocy and were not carfca-
tons of e stng or contnung ta poces. Whe the tme mt orgnay pre-
scrbed has been subsequenty e tended, the e tensons have been made by
separate cts, each for a perod of one to three years. Ths repeated emphass
upon ther temporary character ncreases the contrast whch they make wth
the permanent pocy of Congress as to the genera ta abty of ths knd of
gans under secton 22(a).
These amendments descrbe gans correspondng amost precsey wth those
derved by the respondent from hs transactons n the nstant case but the
amendments appy ony to corporate gans. They thus ndcate that such gans
were recognzed as not havng been e cuded from gross ncome by secton
22(b)(3) or by any other secton. If they had been so e cuded there woud
have been no need for the new amendments to e cude those whch they dd,
even temporary. Furthermore, those gans are not e cuded from gross ncome
ta abe year, of any Indebtedness of the ta payer or for whch the ta payer s abe
evdenced by a securty (as herenafter n ths paragraph defned) If
( ) It s estabshed to the satsfacton of the Commssoner, or
( ) t s certfed to the Commssoner by any Federa agency authorzed to
make oans on behaf of the Unted States to such corporaton or by any Fed-
era agency authorzed to e ercse reguatory power over such corporaton,
that at the tme of such dscharge the ta payer was n an unsound fnanca cond-
ton, and If the ta payer makes and fes at the tme of fng the return, n such
manner as the Commssoner, wth the approva of the Secretary, by reguatons pre-
scrbes, ts consent to the reguatons prescrbed under secton 113(b)(3) .then n
effect. In such case the amount of any Income of the ta payer attrbutabe to any
unamortzed premum (computed as of the frst day of the ta abe year n whch such
dscharge occurred) wth respect to such Indebtedness sha not be ncuded n gross
Income and the amount of the deducton attrbutabe to any unamortzed dscount
(computed as of the frst day of the ta abe year n whch such dscharge occurred)
wth respect to such ndebtedness sha not be aowed as a deducton. s used n
ths paragraph the term securty means any bond, debenture, note, or certfcate, or
other evdence of ndebtedness, ssued by any corporaton, n e stence on une 1, 1939.
Ths paragraph sha not appy to any dscharge occurrng before the date of the
enactment of the Revenue ct of 1939, or n a ta abe year begnnng after December
31, 19 2.
(b) ass Reduced. Secton 113(b) of the Interna Revenue Code (reatng to the
ad|usted bass of property) s amended by addng at the end thereof the foowng new
paragraph:
(3) Dscharge of ndebtedness. Where n the case of a corporaton any amount
s e cuded from gross Income under secton 22(b)(9) on account of the dscharge of
ndebtedness the whoe or a part of the amount so e cuded from gross ncome sha
be apped n reducton of the bass of any property hed (whether before or after
the tme of the dscharge) by the ta payer durng any porton of the ta abe year n
whch such dscharge occurred. The amount to be so apped (not In e cess of the
amount so e cuded from gross ncome, reduced by the amount of any deducton ds-
aowed under secton 22(b) (9)) and the partcuar propertes to whch the reducton
sha be aocated, sha be determned under reguatons (prescrbed by the Comms-
soner wth the approva of the Secretary) n effect at the tme of the fng of the
consent by the ta payer referred to n secton 22(b)(9). The reducton ha be made
as of the frst day of the ta abe year n whch the dscharge occurred e cept In the
case of property not hed by the ta payer on such frst day, n whch case t sha take
effect as of the tme the hodng of the ta payer began.
(c) Ta abe Yeabs to Whch ppcabe. The amendments made by ths secton
sha be appcabe to ta abe years begnnng after December 31, 1938. ( 3 Stat.
87 -876.)
See aso, Treasury Reguatons 103, promugated under the Interna Revenue Code; sec-
ton 19.22(b) (9)-, Income from dscharge of ndebtedness; secton 19.22(b) (9)-2,
Makng and fng of consent; secton 19.113 (b) (3)-, d|usted bass: Dscharge of cor-
porate Indebtedness: Genera rue; secton 19.113(b) (3)-2, d|usted bass: Dscharge of
corporate ndebtedness : Speca eases.
Whe secton 22(b)(9) orgnay dd not appy to any dscharge occurrng n a ta -
abe year begnnng after December 31, 19 2 ( 3 Stat. 87 ). ths date was changed to
December 31, 19 ( 6 Stat. 811) : December 31, 19 6 ( 9 Stat. 67 ) : December 31, 19 7
(60 Stat 7 9) ; and December 31,19 6 (61 Stat 1T8),
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7
19.22(a)-1 .
for a purposes of the Income ta aws. Secton 22(b) (9) e cudes them ony
from the ordnary ncome ta es for the ta abe year In whch the ta payng cor-
poraton purchases ts own securtes at a dscount.10 Furthermore, the e -
cuson under secton 22(b) (9), as dstngushed from other e cusons under sec-
ton 22(b), s avaabe ony upon the e press condton that the ta payer makes
and fes at the tme of fng the return ts consent to the reguatons prescrbed
under secton 113(b) (3) then In effect. That secton and such reguatons re-
qure that, where any amount s e cuded by a corporaton from ts gross ncome
under secton 22(b) (9) on account of ts dscharge of ts own ndebtedness, the
whoe or a part of such amount sha be apped to the reducton of the bass of
property hed by the ta payer durng any porton of the ta abe year n whch
such dscharge occurs. The amount to be so apped and the propertes to whch
the reducton sha be aocated are to be determned by reguatons approved
by the Secretary of the Treasury. Ths means that such a gan, nstead of beng
competey e cuded as e empt from ta aton, s postponed, for ncome ta pur-
poses, unt a ater date when the property a dsposed of n a way whch w per-
mt another form of ascertanment of the ta payer s gan or oss n ts dspos-
ton. These provsons therefore demonstrate that Congress, at east snce
1939, has prescrbed that, n order for a corporate ta payer to e cude from ts
gross ncome under secton 22(a) certan gans attrbutabe to the dscharge
wthn the ta abe year of the ta payer s ndebtedness evdenced by bonds, the
ta payer must consent to the subsequent use of those gans n reducng the bass
of property hed by the ta payer durng any porton of the ta abe year n whch
such dscharge occurred. corporate ta payer wth gans meetng these spec-
fcatons but not fng the requred consent woud be obged to ncude those
gans n ts gross ncome, uness addtona facts brought them under some other
e empton. fortor, a natura person, such as the respondent n the nstant
case, who has derved gans precsey wthn these specfcatons but who, as a
natura person, s negbe to fe the requred consent s obged to ncude those
gans n hs gross ncome under secton 22(a). It remans, therefore, to consder
whether there are facts n ths case whch brng ths respondent s transactons
wthn any e cuson other than that stated n secton 22(b) (9).
The e cusons made by secton 22(b) appy to the ta e Imposed by the Income Ta
Chapter of the Interna Revenue Code. These Incude the ordnary ncome ta es but not
the addtona Income ta es such as those Imposed on persona hodng companes or the
e cess-profts ta es.
11 Treasury Reguatons 103, supra, sectons 19.113(b) (3)- and 2 cover the sub|ect.
They provde a comprehensve procedure for decreasng the cost or other bass of a ta -
Ia|ng corporaton s propertes as a condton of ts takng advantage of secton 22(b) (9).
Ths procedure appes not ony n the case of ndebtedness ncurred to purchase specfc
property but aso n the case of specfc property (other than nventory or notes or
accounts recevabe) aganst whch, at the tme of the dscharge of the Indebtedness, there
Is a en (other than a en securng ndebtedness ncurred to purchase such property)
. It even provdes that f any e cess of amount e cuded from gross ncome
under secton 22(b) (9) e ceeds those two ad|ustments, the cost or other bass of a the
property of the debtor other than nventory and note and accounts recevabe sha be
reduced proportonatey and, fnay, the baance, f any, of the amount e cuded from
the debtor s gross ncome s apped to the reducton of the cost or other bass of the
debtor s nventory or notes or accounts recevabe. It thus offers affrmatvey a broad
aternatve pan for reachng the corporate debtor s gans from ts dscharge of ts ndebt-
edness at a dscount.
a See note 8, tupra.
u Subsequent amendments have atered these provsons but have not changed ther
genera effect nor ther refecton upon the meanng of secton 22(a). For the e tenson
of the temporary nature of the provsons, see note 9, supra. The requrement of a specay
certfed unsound fnanca condton for a corporate ta payer n order to make secton
22(b) (9) appcabe was emnated by the Revenue ct of 19 2. That ct aso emnated
the mtaton to securtes n e stence on une 1, 1939. ( 6 Stat. 811.)
In makng these temporary provsons Congress had In mnd especay the condtons
presented by raroads nnd other corporatons then seekng to qudate heavy Indebtedness.
The Commttees reportng the bs for passage emphaszed the mtatons that were
mposed by these amendments upon corporatons seekng to e cude from ta nbe ncome
the gans derved from ther acquston of ther own securtes at a dscount. (II. R
Rep. No. 8 . 76th Cong., 1st sess. , 23-2 (1939) C. I. 1939-2. 0 ; Sen. Rep. No.
6 8, 76th Cong., 1st sess. 2-3, (1939) C. . 1939-2, 2 .) Obvousy t was e pected
that these provsons woud decrease the e stng burdens of Income ta aton. It cer-
tany was not Intended to mpose a burden of postponed ta abty upon gans whch
otherwse woud have been competey e empted from ta aton by secton 22(b)(3).
Severa provsons have e tended comparabe reef to other ta payers. None of them
appy to the respondent. They emphasze, however, the understandng of Congress that,
wthout speca provson for ther e cuson, the gans of a ta payer from the dscharge
of hs ndebtedness at a dscount are requred by secton 22(a) to be Incuded n hs gross
Income. Tnev recognze that the mere e cuson of gfts under secton 22(b)(3) Is not
enough to cover factua stuatons ke those presented In secton 22(b)(9) or In the
other reef provsons above mentoned.
mong these reef provsons are the foowng :
cuson, from e cess profts credt, of Income derved from the retrement or dscharge
by the ta payer of the ta payer s own obgatons f they have been outstandng more
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19.22 (a)-1 .
8
The ony provson for the e cuson of these types of gans from the re-
spondent s gross ncome that Is presented for our consderaton s the genera
e empton of gfts from ta aton prescrbed by secton 22(b)(3).1 Ths was
apped by ths Court In favor of a ta payer n everng v. mercan Denta
Co., 318 U. S. 322, as we as by the court beow In the nstant case. oth the
genera provson for ta aton of ncome and ths provson for the e cuson of
gfts from gross ncome, for ncome ta purposes, have been n the Federa
Income Ta cts n substantay ther present form snce the evenue ct of
1916. The contrast between the provsons s strkng. The ncome ta ed Is
descrbed n sweepng terms and shoud be broady construed n accordance
wth an obvous purpose to ta ncome comprehensvey. The e emptons, on
the other hand, are specfcay stated and shoud be construed wth restrant
n the ght of the same pocy. Congress coud have e cuded from the gross
ncome of a ta payers the gans derved by debtors ether from ther acqus-
tons of ther own obgatons at a dscount and ther consequent contro over
them, or from ther respectve reeases from a or part of such obgatons by
ther respectve credtors upon the debtor s payment to the credtor of some-
thng ess than the fu amount of the debt. Congress, especay snce the
Revenue ct of 1938, has been cognzant of ths ssue and of ts power to meet
t as stated, but t has chosen to e tend such reef ony on the above descrbed
restrcted and temporary bass and ony n the case of corporatons. In ts
treatment of the ssue Congress aso has requred the corporate ta payer s con-
sent to an aternatve pan for a reducton of the corporaton s bass of property
vaues to be used n ater determnatons of ts gans or osses. Ths speca
treatment s far dfferent from the tota e cuson of a gan resutng from an
e empt gft. If such gans were aready e empted as gfts under secton 22 (b) (3),
as representng somethng transferred to the debtor for nothng, there woud have
been no need for secton 22(b) (9). The concuson to be drawn s that such
transfers as are descrbed n secton 22(b) (9) coud not, wthout more, quafy
as e empt gfts under secton 22(b) (3). The same may be sad of the acqus-
ton, by a natura person, of hs own obgatons as debtor. The facts n the
nstant case present a stuaton qute smar to one contempated by secton
22(b) (9) e cept that the ta payer here s a natura person. Ths emphaszes
the ta abty of the gans before us.
than 18 months. Interna Revenue Code, sectons 711(a)(1)(C), 711(a)(2)( ), and
secton 711(b) (1) (C) added by the Second Revenue ct of 19 0, c. 7 7 ( Stat. 976-978)
repeaed by the Revenue ct of 19 , c. 3 ( 9 Stat. 68).
cuson, from gross ncome, for ncome ta purposes, of the ncome of raroad corpora-
tons attrbutabe to ther dscharge of ther Indebtedness to the e tent reazed from a
modfcaton or canceaton of ndebtedness, pursuant to an order of court. Interna
Revenue Code, secton 22(b) (10), added by the Revenue ct of 19 2, c. 619. 6 Stat. 812,
appcabe to ta abe year begnnng after December 31, 1939. hut not appcabe to any
dscharge In a ta abe year begnnng after December 31, 19 ; ths atter date was e -
tended to December 31, 19 6, 9 Stat. 7 ; December 31, 19 7, 60 Stat. 7 9 ; and December
31, 19 9, 61 Stat. 179.
See note 3, supra.
Sec. 2. (a) That, sub|ect ony to such e emptons and deductons as are herenafter
aowed, the net ncome of a ta abe person sha ncude gans, profts, and Income derved
from saares, wages, or compensaton for persona servce of whatever knd and n what-
ever form pad, or from professons, vocatons, busnesses, trade, commerce, or saes, or
deangs n property, whether rea or persona, growng out of the ownershp or use of or
nterest n rea or persona property, aso from Interest, rent, dvdends, securtes, or the
transacton of any busness carred on for gan or proft, or gans or profts and ncome
derved from any source whatever:

Sec. . The foowng Income sha be e empt from the provsons of ths tte Tte
I. Income Ta :
The proceeds of fe nsurance poces pad to Indvdua benefcares upon the death
of the nsured ; the amount receved by the nsured, as a return of premum or premums
pad by hm under fe nsurance, endowment, or annuty contracts, ether durng the term
or at the maturty of the term mentoned n the contract or upon the surrender of the
contract; the vaue of property acqured by gft, bequest, devse, or descent (but the
ncome from such property sha be ncuded a ncome) ; nterest upon the obgatons of
a State or any potca subdvson thereof or upon the obgatons of the Unted States
or ts possessons or securtes ssued under the provsons of the Federa Farm Loan ct
of uy seventeenth, nneteen hundred and s teen; the compensaton of the present
Presdent of the Unted States durng the term for whch he has been eected, and the
|udges of the Supreme and nferor courts of the Unted States now In offce, and the
compensaton of a offcers and empoyees of a State, or any potca subdvson thereof,
e cept when such compensaton s pad bv the Unted States Government. Itacs
supped.) (Revenue ct of 1916. c. 63, 39 Stat. 7 6, 7 7, 7 8-7 9.) See aso, n ct
To reduce tarff dutes and to provde revenue for the Government, and for other purposes.
(October 3,1913.) (38 Stat. 11 , 167. secton II .)
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9
19.22(a)-1 .
In the nstant case the reaton between the bondhoder and the respondent
may be assumed n each transacton to have been one n whch the utmate
partes were known to each other to be such. There was no suggeston n the
evdence or the fndngs that any bondhoder was actng from any nterest other
than hs own. ach transacton was a sae. The seer sought to get as hgh
a prce as he coud for the bond and the buyer sought to pay as ow a prce as
he coud for the same bond. If the transacton had been competey on the
open market through a stock e change, the conduct and ntent of each party
coud have been the same and there woud have been tte, f any, bass for any
cam that the respondent s gan was not ta abe ncome. The mere fact that
the seer knew that he was seng to the maker of the bond as hs ony avaabe
market dd not change the sae Into a gft. In the absence of proof to the con-
trary, the ntent of the seer may be assumed to have been to get a he coud
for hs entre cam. though the saes prce was ess than the face of the bond
and ess than the orgna ssung prce of the bond, there was nothng to ndcate
that the seer was not gettng a that he coud for a that he had. There s
nothng n the evdence or fndngs to ndcate that he ntended to transfer or
dd transfer somethng for nothng. The form of the transacton emphaszed
ths reatonshp. The seer assgned the entre bond to hs purchaser. The
seer dd not frst reease the maker from a part of the maker s obgaton and,
havng made the maker a gft of that reease, then se hm the baance of the bond
or vce versa. If the seer actuay had ntended to gve the maker some gft
the natura refecton of that gft woud have been a credt on the face of the bond
or at east some record or testmony evdencng the reease. Ths s not sayng
that the form of the transacton s concusve. ssumng that the e tenson of
the maturty of the bonds n the nstant case was bndng on the credtor, we
do not rest ths case upon the fact that the sae was made before maturty or
that the seer may have receved vad consderaton for a tota reease of hs
cam because the debtor s payment was made before maturty. It s qute
possbe that a bondhoder mght make a gft of an entre bond to anyone, ncud-
ng the maker of t. The facts and fndngs n ths case do not estabsh any such
ntent of the seer to make a gft n contradcton of the natura mpcatons
arsng from the saes and assgnments whch he made. It s concevabe,
athough hardy key, that a bondhoder, n the ordnary course of busness
and wthout any e press reease of hs debtor, mght have sod part of hs cams
on the bonds he hed at the fu face vaue of those parts and then have made a
gft of the rest of hs cams on those bonds to the same debtor for nothng.
It s that knd of e traordnary transacton that the respondent asks us, as a
matter of aw, to read nto the smpe saes whch actuay took pace and from
whch he derved fnanca gans. We are unabe to do so on the fndngs before
us. (Cf. ogardus v. Commssoner, 302 U. S. 3 Ct. D. 1281, C. . 1937-2, 2 8 .)
The stuaton n each transacton s a factua one. It turns upon whether the
transacton s n fact a transfer of somethng for the best prce avaabe or s a
transfer or reease of ony a part of a cam for cash and of the baance for noth-
ng. The atter stuaton s more key to arse n connecton wth a reease
of an open account for rent or for nterest, as was found to have occurred n
everng v. mercan Denta Co., supra, than n the sae of outstandng secur-
tes, ether of a corporaton as descrbed n secton 22(b)(9), or of a natura
person as presented n ths case. For these reasons we hod that the Comms-
soner was |ustfed n fndng a ta abe gan, rather than an e empt gft, n each
of the transactons before us. The |udgment of the court of appeas accordngy
s reversed and the cause s remanded for further acton n accordance wth ths
opnon.
It s so ordered.
Mr. ustce Rutedge, athough |onng n the Court s |udgment and opnon, s
of the vew that the resut Is essentay n confct wth that reached n everng
v. mercan Denta Co. (318 U. S. 322).
Dssentng opnon by Mr. ustce Reed, wth whom Mr. ustce Dougas |ons.
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29.22(b)(2)- .
0
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM
Secton 29.22(b) (2)-: Lfe nsurance ndow- 19 9-3-1301
ment contracts mounts pad other than by T. D. 68
reason of the death of the nsured.
( so Secton 29.22(b) (2)-2.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L T RS GINNING FT R D C M R 31, 19 1
Reguatons 111 amended Ta aton of amounts receved as an
annuty under an annuty or endowment contract
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On September 30, 19 8, notce of proposed rue makng reatng to
ta aton of amounts receved as an annuty under an annuty or endow-
ment contract was pubshed n the Federa Regster (13 F. R. 663).
fter consderaton of a such reevant matter as was presented by
nterested persons regardng the proposa, the foowng amend-
ments to Reguatons 111 26 CFR, Part 29 are hereby adopted.
Paragraph 1. Secton 29.22(b) (2)- 26 CFR 29.22(b) (2)- s
amended by addng at the end thereof the foowng:
For purposes of the precedng sentence, the term amounts receved before the
ta abe year under such pocy sha not he construed to ncude so much of any
payments as were Incuded n gross ncome ns amounts receved as an annuty
under an annuty or endowment contract for ta abe years endng pror to but
not on December 31, 19 8. pproprate ad|ustment w be requred wth respect
to such payments, or porton thereof, so ncuded as form the bass of a pendng
or successfu cam or sut for refund. For defnton of annuty see secton
29.22(b) (2)-2.
Par. 2. Secton 29.22(b) (2)-2 26 CFR 29.22(b) (2)-2 s amended
as foows:
( ) The frst sentence of the frst paragraph thereof s strcken out
and there s nserted n eu thereof the foowng:
s used n secton 22(b)(2)( ), amounts receved as an annuty under an
annuty or endowment contract means amounts (based on a computaton wth
reference to fe e pectancy and mortaty tabes and payabe over a perod
onger than 1 year) receved n perodca nstaments, whether annuay, sem-
annuay, quartery, monthy, or otherwse. For ad|ustment n the case of
amounts receved n perodca nstaments for a f ed perod and ncuded n
gross ncome for ta abe years endng pror to but not on December 31, 19 8, as
an annuty under an annuty or endowment contract see secton 29.22(b) (2)-.
( ) The fourth sentence of the frst paragraph thereof s strcken
out and there s nserted n eu thereof the foowng:
nnutes pad to retred empoyees pursuant to the Cv Servce Retrement ct
of May 29,1930, 6 Stat. 68, 7 , as amended ( U. S. C, chapter 1 ) ; and Pubc
Law 26, approved February 28, 19 8, 62 Stat. 8, are sub|ect to secton 22(b) (2),
the aggregate premums or consderaton pad for such annutes beng the tota
of the amounts prevousy wthhed from the compensaton of the empoyees.
Par. 3. Ths Treasury Decson sha be effectve on the thrty-frst
day after the date of ts pubcaton n the Federa Regster.
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1
29.22(b) (2)-2.
(Ths Treasury Decson s ssued under the authorty contaned n
sectons 62 and 3791 of the Interna Revenue Code ( 3 Stat. 32, 67;
For Federa ncome ta purposes, annuty payments receved un-
der authorty of the Cv Servce Retrement ct of May 29, 1930
( 6 Stat. 68), as amended by the ct of February 28, 19 8 (62
Stat. 8), by survvors of deceased retred cv servce empoyees,
or by survvors of deceased cv servce empoyees who ded whe In
servce, are ta abe to the recpents on the same bass and n the
same manner as such payments woud have been ta ed to the em-
poyees f receved by them, . e., n accordance wth the 3 percent
rue. In appyng the 3 percent rue, the unrecovered cost of the
annuty at the tme of any change n the number of survvors must
be prorated to the survvors In proporton to the amount of the an-
nuty to be receved by each of them, and the ta abe amount of the
annuty must kewse be prorated.
dvce s requested as to the proper treatment, for Federa ncome
ta purposes, of annuty payments receved by survvors of former
cv servce empoyees under the authorty of the C v Servce Retre-
ment ct of May 29, 1930 ( 6 Stat. 68), as amended by the ct of
February 28,19 8 (62 Stat. 8).
The above-cted ct, as amended, makes provson, under certan
crcumstances, for annuty payments to survvors of retred cv
servce empoyees and survvors of deceased cv servce empoyees
who ded whe n servce. Under secton of such ct, a marred
mae empoyee may, upon retrement, eect a reduced annuty wth a
contnung annuty upon hs death to hs wdow, and an unmarred
empoyee may make a smar eecton namng an ndvdua havng
an nsurabe nterest n the empoyee. Under secton 8 of the ct,
each annutant retred pror to pr 1,19 8, was granted an ncrease
n rate and was permtted, n eu of acceptng the ncrease, to eect
to retan hs or her orgna annuty and name hs wfe (or her hus-
band) to receve annuty benefts after the orgna annutant s death.
Under secton 12(c) of the ct, a specfed annuty s payabe upon
the deat of an empoyee eavng a wdow age 0 or over. In genera,
under the same secton, upon the death of an empoyee or retred
empoyee eavng (1) a wdow under age 0 and an unmarred chd
or chdren under age 18, or (2) eavng no wdow or wdower but an
unmarred chd or chdren under age 18, specfed annutes are pay-
abe to the wdow and/or chdren.
Secton 29.22(b) (2)-2 of Reguatons 111 provdes that annutes
pad to retred empoyees pursuant to the Cv Servce Retrement
Secton 29.22(b) (2)-2: nnutes.
19 9-9-13071
I. T. 39 9
INT RN L R NU COD
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29.22(c)-6.
2
ct, as amended, are sub|ect to the provsons of secton 22(b) (2) of
the Interna Revenue Code whch reads n part as foows:
mounts receved as an annuty under an annuty or endowment con-
tract sha be ncuded n gross ncome; e cept that there sha be e cuded from
gross ncome the e cess of the amount receved n the ta abe year over an
amount equa to 3 per centum of the aggregate premums or consderaton pad
for such annuty (whether or not pad durng such year), unt the aggregate
amount e cuded from gross ncome under ths chapter Chapter 1 of the Code
or pror ncome ta aws n respect of such annuty equas the aggregate pre-
mums or consderaton pad for such annuty.
In the case of a cv servce empoyee, the cost of annutes for hm-
sef and hs survvors s the aggregate amount deducted from hs
saary for such purpose under the Cv Servce Retrement ct, as
amended, pus any addtona amounts vountary pad nto the retre-
ment fund by hm.
It s hed that annuty payments receved under authorty of the
Cv Servce Retrement ct of May 29, 1930, as amended, by sur-
vvors of deceased retred cv servce empoyees, or by survvors of
deceased cv servce empoyees who ded whe n servce, are ta abe
to the recpents on the same bass and n the same manner as such
payments woud have been ta ed to the empoyees f receved by them,
. e., n accordance wth the 3 percent rue.
In those cases n whch the tota cost of annutes has not been
recovered ta free by the empoyee under the 3 percent rue, the
survvng wdow, or survvng wdow and chd or chdren, or sur-
vvng chd or chdren, as the case may be, who are n recept of
annuty payments, shoud report n ther gross ncomes ther fro rata
shares of an amount equa to 3 percent of the cost of the annutes
unt the tota amount e cuded from gross ncome by the empoyee
and hs survvors equas the cost of the annutes to the decedent, after
whch the fu amount of annuty payments receved each year must
be reported n the gross ncomes of the recpents. In appyng the
3 percent rue, the unrecovered cost of the annuty at the tme of any
change n the number of survvors must be prorated to the survvors n
proporton to the amount of the annuty to be receved by each of
them, and the ta abe amount of the annuty must kewse be prorated.
Where a survvor s gross ncome, ncudng hs ta abe porton of
an annuty, amounts to 000 or more, a Federa ncome ta return must
be fed by hm or on hs behaf; where such gross ncome s ess than
600, no return s requred.
Secton 29.22(b) (2)-2: nnutes.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 68 , page 0.)
S CTION 22(c). GROSS INCOM : IN NTORI S
Secton 29.22(c)-6: Inventores of vestock 19 9-2-13009
rasers and other farmers. T. D. 683
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 31, 19 1
Secton 29.22(c)-6 amended wth respect to farmer s change to
nventory method of accountng.
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3
29.22(d)- .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On une 9, 19 8, notce of proposed rue makng wth respect to a
farmer s change to the nventory method of accountng was pubshed
n the Federa Regster (13 F. R. 3096). fter consderaton of a
such reevant matter as was presented by nterested persons regardng
the proposa, the amendments to Reguatons 111 T26 CFR, Part 29
set forth beow are hereby adopted.
Secton 29.22(c)-6 of Reguatons 111, as amended by Treasury
Decson 23 C. . 19 ,70 , approved December 1 ,19 , s further
amended by strkng the frst paragraph and by nsertng n eu
thereof the foowng:
farmer may make hs return upon an nventory bass nstead of the cash
recepts and dsbursements bass. It s optona wth the ta payer whch of
these methods of accountng s used, but, havng eected one method, the opton so
e ercsed w be bndng upon the ta payer for the year for whch the opton
s e ercsed and for subsequent years uness another method s authorzed by
the Commssoner as provded n secton 29. 1-2.
Forma appcaton for permsson to change from the cash recepts and ds-
bursements bass to an nventory bass of accountng sha not be requred n the
case of a change made for a ta abe year begnnng before December 30, 19 8, the
date of approva of Treasury Decson ,r 683.
In any change of accountng from the cash recepts and dsbursements bass to
an nventory bass, whether made for a ta abe year begnnng before or after
December 30, 19 8, ad|ustments sha be made, at the opton of the ta payer, n
accordance wth one or the other of the two methods outned n (1) and (2)
beow:
(Ths Treasury Decson s ssued under the authorty contaned
n secton 62 of the Interna Revenue Code ( 3 Stat. 32; 26 U. S. C.
pproved December 30,19 8.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary , 19 9, 8: 8 a. m.)
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M T OD
Prce ndces for anuary, 19 9, pubshed by the ureau of Labor
Statstcs under date of March 10,19 9, for use by department stores
empoyng the reta nventory and eectve nventory methods.
The foowng prce ndces for anuary, 19 9, pubshed by the
ureau of Labor Statstcs for use by department stores empoyng
the reta nventory and eectve nventory methods, are accepted by
the ureau of Interna Revenue pursuant to Treasury Decson 60
62).)
Geo. . Schoeneman,
Commssoner.
19 9-11-13092
I. T. 39 3
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29.22(k)-.

(C. . 19 8-1, 16), approved March , 19 8, and Mmeograph 62
(C. . 19 8-1, 21), dated March 9, 19 8, for approprate appcaton
to nventores for ta abe years of 12 months ended on December 31,
19 8, and anuary 31, 19 9. The ndces pubshed heren represent
a contnuaton of department groups and prces shown n Tabe I,
Tabe II ( anuary to anuary), and Tabe III of I. T. 390 (C. .
19 8-1, 18), as e tended bv the prce ndces and data for uy, 19 8,
shown n I. T. 3927 (C. . 19 8-2,26).
ureau of Labor Statstcs, department store nventory prce ndces,
by department groups
anuary, 19 1 100
anuary,
19 8, to
anuary,
19 9, per-
cent n-
crease
Group
anuary,
19 8
anuary,
19 9
218.6
190.3
178.2
181.3
190.0
18 .9
162.
170.1
1 0.
180.
211.
-3.3
3.1
1.2
.8
-.3
.0
.0
.
1.1
- .2
II. Shoes....
196.2
180.3
182.8
189.
192.3
170.7
171.0
1 2.1
171 2
I . Notons and toet artces
Lades accessores
Tota, Groups I, II, III, I , . I . and
18 .
171.0
180.
1st. 7
177.2
182.3
.1
Store tota
3.6
L0
Secton 29.22(d)-7: Inventory qudaton and
repacement.
INT RN L R NU COD
Interm aowance n respect of overpayment of ta . (See Mm.
6361, page 126.)
S CTION 22(k). GROSS INCOM : LIMONY,
TC., INCOM
Secton 29.22(k)-: mony and separate man- 19 9-1-13000
tenance payments Income to former wfe. I. T. 393
( so Secton 23(u), Secton 29.23(u)-.)
INT RN L R NU COD
Where the tme for makng payments of amony under an nter-
ocutory decree of dvorce In the State of Caforna s mted to the
duraton (12 months) of the decree, the payments made pursuant
to the decree are not Incudbe n the gross ncome of the wfe under
secton 22(k) of the Interna Revenue Code, and are not deductbe
from the gross Income of the husband under secton 23(u) of the
Code.
I. T. 3761 (C. . 19 , 76) modfed.
dvce s requested whether payments receved by a wfe from her
husband durng the perod of an nterocutory decree of dvorce n
the State of Caforna, no provson beng made for payment of
amony after the fna decree, are ncudbe n the gross ncome of
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f 29.22(k;-.
the wfe under secton 22 (k) of the Interna Revenue Code and
deductbe from the gross ncome of the husband under secton 23 (u)
of the Code.
Secton 22 (k) of the Interna Revenue Code provdes n part as
foows:
S C. 22. GROSS INCOM .

(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 mantenance,
perodc payments (whether or not made at reguar ntervas) receved subse-
quent to such decree n dscharge of a ega obgaton whch, because
of the marta or famy reatonshp, s Imposed upon or Incurred 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
Instament payments dschargng a part of an obgaton the prncpa sum of
whch s, n terms of money or property, specfed n the decree or nstrument
sha not be consdered perodc payments for the purposes of ths subsecton;
e cept that an nstament payment sha be consdered a perodc payment for
the purposes of ths subsecton f such prncpa sum, by the terms of the
decree or nstrument, may be or s to be pad wthn a perod endng more
than 10 years from the date of such decree or Instrument
Secton 23(u) of the Code provdes n part as foows:
S C. 23. D DUCTIONS FROM GROSS INCOM .
In computng net ncome there sha be aowed as deductons:

(u) mony, re, Payments. In the case of a husband descrbed n secton
22(k), amounts ncudbe under secton 22(k) n the gross Income of hs wfe,
payment of whch s made wthn the husband s ta abe year.
The ureau hed n I. T. 3761 (C. . 19 , 76) that perodc pay-
ments made pursuant to an nterocutory decree of dvorce n the
State of Caforna by a husband for the support of hs wfe are n-
cudbe n her gross ncome under secton 22 (k) of the Interna Reve-
nue Code, and are deductbe by the husband under secton 23(u) of
the Code.
Under secton 139 of Deerng s Cv Code of Caforna, permanent
amony may be awarded. owever, an award of amony must be
made by the nterocutory decree. If the nterocutory decree does
not contan a provson for amony, the decree may not, after the
perod for appea has e pred, be modfed to ncude a provson for
amony. (See acgaup v. aegaup, 72 Ca. pp. 6 , 238 Pac.
93.) It s stated that many nterocutory decrees n the State of
Caforna provde for the payment of amony n specfed monthy
amounts for the duraton (12 months of such decrees and that, n such
cases, athough the court coud, n ts fna decree, provde for per-
manent amony, the court does not usuay do so.
In vew of the foregong, t s hed that where the tme for makng
payments of amony under an nterocutory decree of dvorce n the
State of Caforna s mted to the duraton (12 months) of the
decree, the payments made pursuant to the decree do not quafy as
perodc payments under secton 22(k) of the Interna Revenue
Code. ccordngy, such amony payments are not ncudbe n the
gross ncome of the wfe under secton 22 (k) of the Code and are not
deductbe from the gross ncome of the husband under secton 23 (u)
of the Code. (Cf. . . Stene v. Commssoner, 10 T. C. 09.) I. T.
3761, supra, s hereby modfed to accord wth the concuson reached
heren.
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29.23(a)- .
6
Secton 29.22(k)-: mony and separate man- 19 9-7-130 3
tenance payments Income to former wfe. I. T. 39
( so Secton 23(u), Secton 29.23(u)-.)
INT RN L R NU COD
Treatment for Federa ncome ta purposes of payments for
amony made pursuant to an nterocutory decree of dvorce n the
State of Caforna.
Wthdrawa of modfcaton of I. T. 3761 (C. . 19 , 76).
dvce s requested reatve to payments for amony pursuant to
an nterocutory decree of dvorce n the State of Caforna, and
partcuary wth respect to modfcaton of I. T. 3761 (C. . 19 , 76)
by L T. 393 (page , ths uetn).
I. T. 3761, supra, hods that perodc payments made pursuant to
an nterocutory decree of dvorce n the State of Caforna by a
husband for the support of hs wfe are ncudbe n her gross ncome
under secton 22 (k) of the Interna Revenue Code and deductbe
by the husband under secton 23 (u) of the Code. That rung reates
to payments made pursuant to an nterocutory decree whch awards
amony for an ndefnte perod of tme.
I. T. 393 , supra, hods that where the tme for makng payments of
amony under an nterocutory decree of dvorce n the State of
Caforna s mted to the duraton (12 months) of the decree, the
payments made pursuant to the decree are not ncudbe n the gross
ncome of the wfe and are not deductbe from the gross ncome of
the husband under sectons 22(k) and 23(u) of the Interna Revenue
Code, respectvey. That rung reates to payments made pursuant
to an nterocutory decree whch awards amony for a defnte perod
of tme.
Payments to be made for a defnte perod of tme are consdered
to be nstament payments and not perodc payments wthn
the meanng of secton 22(k) of the Code. ccordngy, I. T. 3761,
supra, and I. T. 393 , supra, are dstngushabe, and modfcaton of
the former rung s wthdrawn.
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Secton 29.23 (a)-: usness e penses.
INT RN L R NG COD
Federa stamp ta es pad by corporaton on ssuance of ts bonds.
Nonretroactve appcaton of I. T. 3806 (C. . 19 6-2, 1). (See
Mm. 6367, page 63.)
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7
29.23(c)- .
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Secton 29.23(c)-: Ta es. 19 9-3-1301
( so Secton 2 , Sectons 29.2 -2 and 29.2 - .) I. T. 3937
INT RN L R NU COD
The abama gross recepts (saes) ta Imposed by secton 7 3,
artce 10, Tte 1, Code of abama, 19 0, Is mposed upon the
vendor and Is deductbe by hm under secton 23(c)(1) of the
Interna Revenue Code. Such ta shoud be captazed by a vendee
who pays the ta In connecton wth the purchase of equpment
for use n trade or busness where the cost of such equpment s
requred to be captazed for Federa ncome tu purposes.
The abama use ta mposed by secton 788 (as amended), artce
11, Tte 1, Code of abama, 19 0, s Imposed upon the vendee and
Is deductbe by hm under secton 23(c) (1) of the Interna Revenue
Code. Such ta may not be captazed e cept as provded In secton
2 (a) (7) of the Code.
dvce s requested whether a vendee may deduct the abama
gross recepts (saes) ta and the abama use ta , for Federa ncome
ta purposes, where such ta es are pad n connecton wth the pur-
chase of equpment for use n the vendee s trade or busness.
Sectons 7 3 and 776 of artce 10, Tte 1, Code of abama, 19 0,
provde n part as foows:
Sec. 7 3. Ta Leved on Gboss Recepts. There Is hereby eved, In addton
to a other ta es of every knd now mposed by aw, and sha be coected
as heren provded, a prvege or cense ta aganst the person on account
of the busness actvtes and n the amount to be determned by the appcaton
of rates aganst gross saes, or gross recepts, as the case may be, as foows:
(a) Upon every person, frm or corporaton engaged, or contnung wthn ths
State, n busness of seng at reta any tangbe persona property whatsoever,
ncudng merchandse and commodtes of every knd and character, (not n-
cudng, however, bonds or other evdences of debt or stocks)

Sec. 776. Ta To e dded to Purchase Prce; Refunds Unawfu; Pen-
aty. It sha be unawfu for any person, frm, corporaton, assocaton or
copartnershp engaged n or contnung wthn ths State n the busness for whch
a cense or prvege ta s requred by ths artce to fa or refuse to add to
the saes prce and coect from the purchaser the amount due by the ta payer
on account of sad ta provded heren, or the amount due by sad ta payer on
account of any ta es provded heren
Secton 23(c)(1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera.
Secton 23(c) (3) of the Interna Revenue Code, reatng to reta
saes ta es, provdes as foows:
(3) Reta saes ta . In the case of a ta Imposed by any State, Terrtory,
Dstrct, or possesson 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, or upon persons engaged n
furnshng servces at reta, whch Is measured by the gross recepts for fur-
nshng such servces, f the amount of such ta s separatey stated, then to
the e tent that the amount so stated s pad by the purchaser (otherwse than
n connecton wth the purchaser s trade or busness) to such person such amount
sha be aowed as a deducton n computng the net ncome of such purchaser
8 16 0 6
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29.23(c)- .
8
as If such amount consttuted a ta mposed upon and pad by such purchaser.
Itacs supped.
Secton 23(c) (3) of the Code, supra, s not appcabe to the nstant
case snce that secton precudes the vendee from deductng a reta
saes ta where the ta s pad n connecton wth property purchased
for consumpton or use n the vendee s trade or busness.
It s hed that the ta mposed by secton 7 3, artce 10, Tte 1,
Code of abama, 19 0, s mposed upon the vendor and s deductbe
by hm under secton 23(c) (1) of the Interna Revenue Code. There-
fore, the amount e pended by the vendee s not deductbe by hm as
a ta . If the cost of the equpment purchased by a vendee s requred
to be captazed for Federa ncome ta purposes, the amount of the
ta attrbutabe to the equpment shoud aso be captazed.
Wth respect to the abama use ta , secton 788, as amended, and
secton 791, artce 11, Tte 1, Code of abama, 19 0, provde n
part as foows:
Sec. 788. Property Ta ed; Persons Lare. (a) n e cse ta s hereby
mposed on the storage, use or other consumpton n ths State of tangbe per-
sona property purchased at reta on or after the frst of March, 1939, for storage,
use or other consumpton n ths State regardess of whether the re-
taer s or s not engaged n busness n ths State very person stor-
ng, usng or otherwse consumng n ths State tangbe persona property pur-
chased at reta sha be abe for the ta mposed by ths artce, and the abty
sha not be e tngushed unt the ta has been pad to ths State; provded,
however, that a recept from a retaer mantanng a pace of busness n ths
State or a retaer authorzed by the department department of revenue of the
State of abama , under such rues and reguatons as t may prescrbe, to co-
ect the ta mposed hereby and who sha for the purposes of ths artce be
regarded as a retaer mantanng a pace of busness n ths State, gven to the
purchaser n accordance wth the provsons of secton 791 of ths tte, sha be
suffcent to reeve the purchaser from further abty for a ta to whch such
recept may refer.

Sec. 791. Set.er to Coect Ta ; Reguatons ; Penaty. very such seer
makng saes of tangbe persona property for storage, use or other consumpton
n ths State sha at the tme of makng such saes or, f the storage,
use or other consumpton of the tangbe persona pro erty s not then ta abe
hereunder, at the tme such storage, use or other consumpton becomes ta abe
hereunder, coect the ta mposed by ths artce from the purchaser, and gve
to the purchaser a recept therefor n the manner and form prescrbed by the
department. The ta requred to be coected by the seer from the purchaser
sha be dspayed separatey from the st, advertsed n the premses, marked
or other prce on the saes check or other proof of saes. It sha be unawfu
for any such seer to advertse or hod out or state to the pubc or to any
customer, drecty or ndrecty, that the ta or any part thereof mposed by
ths artce w be assumed or absorbed by the seer or that t w not be added
to the seng prce of the property sod, or f added that t or any part thereof
w be refunded.
The use ta mposed by secton 788 (as amended), artce 11, Tte
1, Code of abama, 19 0, s mposed upon the vendee and s deduct-
be by hm under the provsons of secton 23(c) (1) of the Interna
Revenue Code. Therefore, ths ta may not be captazed e cept
as provded n secton 2 (a) (7) of the Code.
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9
29.23(c)- .
Secton 29.23 (c)-: Ta es.
( so Secton 2 , Secton 29.2 - .)
19 9-3-13016
I. T. 3938
INT RN L R NU COD
The Oho use and storage ta mposed by secton 6-26, Oho
Genera Code, s mposed upon the consumer and s deductbe by
hm under secton 23(c)(1) of the Interna Revenue Code. Such
ta may not be captazed for Federa ncome ta purposes e cept
as provded n secton 2 (a) (7) of the Code.
dvce s requested whether a vendee may deduct the Oho use and
storage ta for Federa ncome ta purposes.
The pertnent provsons of the Oho Genera Code reatng to the
use and storage ta read n part as foows:
Sec. 6-26. Ta Levy on Storage, Use, tc. ; Purpose ; Rates ; ceptons.
For the use of the genera revenue fund of the State, an e cse ta s hereby eved
on the storage, use, or other consumpton n ths State of tangbe persona
property purchased on and after the 1st day of anuary, 1936, for storage, use,
or other consumpton n ths State

ach consumer, storng, usng, or otherwse consumng n ths State tangbe
persona property purchased for such purpose or purposes, sha be abe for
the ta mposed by ths act, and such abty sha not be e tngushed unt
the ta has been pad to ths State;

Sec. 6-28. Coecton and Payment of Ta . very seer, engaged n the
busness of seng tangbe persona property n ths State, for storage, use, or
other consumpton n ths State, to whch the provsons of secton 6-26 of the
Genera Code appy, sha and any other seer who s authorzed by rue or regu-
aton of the commsson to do so may coect from the consumer the fu and e act
amount of the ta payabe n respect of each such storage, use, or con-
sumpton
Sec. 6-29. Return Fed Wth Commsson; Dupcate and Payment
to Treasurer; Seer. very person storng, usng, or consumng tangbe
persona property, the storage, use, or consumpton of whch s sub|ect to the
ta mposed by ths act, when such ta was not pad to a seer, sha
fe wth the commsson a return t the tme of fng each such return,
each such person sha fe wth the treasurer of state an e ecuted dupcate
thereof and sha pay to the treasurer of state the amount of ta mposed by
ths act wth respect to the purchases covered by the return.
The payment to the State of the ta , nterest and penaty assessed by the
commsson under ths secton sha reeve the seer, who sod the property wth
regard to the storage, use, or other consumpton on whc the ta was pad to
the State under ths secton, from the payment to the State of the amount of
the ta whch he s requred by ths act to coect from the purchaser.
Secton 23(c) (1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. Secton 29.23(c)- (a) of Reguatons 111 provdes
that n genera ta es are deductbe ony by the person upon whom
they are mposed.
It s evdent that the Oho use and storage ta s a ta upon the con-
sumer, and, n genera, the seer s responsbty s mted to coecton
of such ta from consumers and payment of the ta to the State.
ccordngy, t s hed that the Oho use and storage ta mposed
by secton 6-26, Oho Genera Code, s mposed upon, and de-
ductbe by, the consumer under secton 23(c)(1) of the Interna
Revenue Code. Therefore, ths ta may not be captazed e cept as
provded n secton 2 (a) (7) of the Code.
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29.23(c)- .
60
Secton 29.23(c)-: Ta es. 19 9-3-13017
I. T. 3939
INT RN L R NU COD
The ta es mposed by secton 3 of Chapter 27, traordnary
Sesson, 19 6, Sesson Laws of aska, upon gross saes, e ports, and
remuneraton for servces do not consttute reta saes ta es wthn
the meanng of secton 23(c)(3) of the Interna Revenue Code,
and, for Federa ncome ta purposes, they are not deductbe under
that secton by a purchaser. Such ta es are deductbe under sec-
ton 23(c) (1) of the Code by the seer of the goods, both at reta
and whoesae, and/or the one recevng the remuneraton for
servces.
dvce s requested whether the ta es on gross saes, e ports, and/or
remuneraton for servces, eved by the Terrtory of aska, are
deductbe by the purchaser.
Under secton 3 of Chapter 27, traordnary Sesson, 19 6, Sesson
Laws of aska, the aska Word War II eterans Revovng Fund
was created, and a ta s eved to carry out the purposes of the
Word War II eterans ct on gross saes, e ports, and/or remunera-
ton for servces, to be coected and deposted n the revovng fund.
The pertnent provsons of the above-cted act are n part as
foows:
(a) There s hereby eved the foowng ta to carry out the
purposes of the aska Word War II eterans ct on gross saes, e ports and/or
remuneraton for servces
(1) One per centum of the gross revenue derved from a reta saes made
n the Terrtory, sad revenue beng computed n doars and the ta payabe
by the retaer, and/or 1 per centum of the gross revenue, computed n doars,
derved from servces performed n the Terrtory, payabe by the person recevng
such remuneraton;
(2) One-haf of 1 per centum of the gross revenue, computed n doars,
derved from whoesae saes made n the Terrtory, payabe by the whoesaer,
and one-haf of 1 per centum of the gross market vaue, computed n doars at
the tme of e port, of a fsh, god, fur, umber, and other commodtes pro-
duced, mned, caught, manufactured or processed n the Terrtory, payabe by
the e porter;
Secton 23(c)(1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. Secton 29.23(c)-(a) of Reguatons 111 provdes that
n genera ta es are deductbe ony by the person upon whom they
are mposed.
Secton 23(c) (3) of the Interna Revenue Code, reatng to reta
saes ta es, provdes as foows:
(3) Reta saes ta . In the case of a ta Imposed by any State, Terrtory,
Dstrct, or possesson 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, or upon persons engaged n
furnshng servces at reta, whch s measured by the gross recepts for fur-
nshng such servces, f the amount of such ta s separatey stated, then to
the e tent that the amount so stated s pad by the purchaser (otherwse than
n connecton wth the purchaser s trade or busness) to such person such
amount sha be aowed as a deducton n computng the net Income of such
purchaser as If such amount consttuted a ta mposed upon and pad by such
purchaser.
It s hed that the ta es mposed by secton 3 of Chapter 27, -
traordnary Sesson, 19 6, Sesson Laws of aska, do not consttute
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61
29.23(c)- .
reta saes ta es wthn the meanng of secton 23(c) (3) of the In-
terna Revenue Code, supra, and therefore are not deductbe under
that secton by a purchaser. Such ta es are deductbe under secton
23(c) (1) of the Code by the seer of the goods, both at reta and
whoesae, and/or the one recevng the remuneraton for servces.
Secton 29.23(c)-1: Ta es. 19 9-10-1308
I. T. 39 2
INT RN L R NU COD
The ta Imposed by the Cgarette Ta ct of the State of New
ersey (chapter 6 , P. L. 19 8, as amended), effectve uy 1,19 8. s
deductbe for Federa ncome ta purposes under secton 23(c) (1)
of the Interna Revenue Code by censed dstrbutors who purchase,
aff , and cance the cgarette ta stamps and by censed consumers
who remt the ta drecty to the State. The ta s not a reta saes
ta and s not deductbe by purchasers under secton 23(c) (3) of
the Code.
dvce s requested whether a purchaser may deduct, for Federa
ncome ta purposes, the ta mposed by the Cgarette Ta ct of the
State of New ersey (chapter 6 , P. L. 19 8, as amended), whch
became effectve uy 1,19 8.
The ta n queston s mposed on the sae, use, or possesson for
sae or use wthn the State of New ersey of a cgarettes at the rate
of y2 cents for each 10 cgarettes or fracton thereof. The aw de-
fnes and provdes for the censng of a dstrbutor, whoesae
deaer, reta deaer, and consumer. Pertnent e cerpts from
the aw provde as foows:
102. Defntons.

c. Dstrbutor means and ncudes any person, wherever resdent or ocated,
who brngs or causes to be brought Into ths State unstamped cgarettes pur-
chased drecty from the manufacturers thereof; and aso any person who manu-
factures or produces, or causes to be manufactured or produced, cgarettes and
ses, uses or dstrbutes the same wthn ths State.

f. Consumer means any person e cept a dstrbutor who brngs or causes
to be brought Into ths State for consumpton, storage or use n ths State cga-
rettes to whch New ersey revenue stamps have not been attached.

20 . Reports Requred; Penaty Requred fob Not Fng Repobts.
very censed dstrbutor sha fe wth the drector drector of the dvson
of ta aton. State department of ta aton and fnance on or before the twenteth
day of each month, a report n such form as the drector sha prescrbe, whch
report sha dscose the number of cgarettes on hand on the frst and ast days
of the caendar month Immedatey precedng the month n whch such report s
requred; together wth such nformaton concernng the amount of stamps
purchased, used, and on hand durng the report perod; together wth any other
nformaton for the report perod that tte drector sha prescrbe.

very censed consumer who has acqured cgarettes for use. storage or con-
sumpton sub|ect to the ta sha, on or before the twenteth day of the month
foowng recept of such cgarettes, compete and fe wth the drector, n such
form as the drector sha prescrbe, a report showng the amount of cgarettes
so receved. Sad report sha be accompaned by a remttance for the fu amount
of the ta due.

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29.23(c)- .
62
01. Drector To Provde Revenue Stamps.
The ta es mposed and eved by ths act sha be pad through the use of
stamps, e cept as provded n secton 20 (consumers) of ths act. The drector
sha provde for the sae thereof to censed dstrbutors. Ony
censed dstrbutors sha aff and cance stamps.
There s no provson of the New ersey statute requrng whoe-
sae or reta deaers to purchase, aff , and cance cgarette ta stamps
or to make drect remttances of the ta to the desgnated State offca.
Therefore, t appears that there are two casses of ta payers, . e.,
censed dstrbutors who pay the ta by aff ng and canceng stamps
and censed consumers who pay the ta drecty wthout the use of
stamps.
Secton 23(c) of the Interna Revenue Code provdes n part as
foows:
S C. 23. D DUCTIONS FROM GROSS INCOM .
In computng net ncome there sha be aowed as deductons:

(c) Ta es Generay.
(1) owance n genera. Ta es pad or accrued wthn the ta abe
year, e cept

(3) Reta sa.es ta . In the case of a ta mposed by any State,
upon persons engaged n seng tangbe persona property at reta,
whch s a stated sum per unt of such property sod,
f the amount of such ta s separatey stated, then to the e tent that the
amount so stated s pad by the purchaser (otherwse than n connecton
wth the purchaser s trade or busness) to such person such amount sha be
aowed as a deducton
Secton 29.23(c)-(a) of Reguatons 111 provdes n part that n
genera ta es are deductbe ony by the person upon whom they are
mposed.
It s cear that the New ersey cgarette ta whch s pad by means
of stamps s mposed upon and pad by censed dstrbutors and that
the cgarette ta whch s pad by monthy remttances s mposed upon
and pad by censed consumers. It s aso cear that persons engaged
n seng tangbe persona property at reta are not sub|ect to the
ta .
ccordngy, t s hed that the ta mposed by the Cgarette Ta
ct of the State of New ersey s deductbe for Federa ncome ta
urposes under secton 23(c)(1) of the Interna Revenue Code by
censed dstrbutors who purchase, aff , and cance the cgarette ta
stamps and by censed consumers who remt the ta drecty to the
State. The ta does not quafy as a reta saes ta wthn the mean-
ng of secton 23(c) (3) of the Code, and t s not deductbe by pur-
chasers.
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63
29.23 (c)-2.
Secton 29.23(c)-2: Federa dutes and e cse 19 9-6-13038
ta es. Mm. 6367
( so Secton 23(a), Secton 29.23(a)-1;
Secton 2 , Secton 29.2 -2.)
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 31, 19 1
Deductbty of Federa stamp ta es pad on the ssuance of
bonds; mtaton on the effectve date of appcaton of a prevous
rung.
Treasury Department,
Offce of Commssoner of Intf.rna Revenue,
Washngton 2 , D. C, February 23,19 9.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Sec. 29.23(c)-2. Federa Dutes and cse Ta es. The fo-
owng statement s pubshed pursuant to secton 3(a)(3) of the
dmnstratve Procedure ct:
Reference s made to that porton of secton 23(c) of the Interna
Revenue Code, as amended by secton 111 of the Revenue ct of 19 3,
enacted February 2 ,19 , whch provdes that:
In computng net ncome there sha be aowed as deductons:

(c) Ta es Generay.
(1) owance n genera. Ta es pad or accrued wthn the ta abe
year, e cept

(F) Federa mport dutes, and Federa e cse and stamp ta es (not
descrbed n subparagraph ( ), ( ), (D), or ( )), but ths subsecton
sha not prevent such dutes and ta es from beng deducted under
subsecton (a).
On the bass of the foregong, ths offce ssued a rung desgnated
as I. T. 3806 (C. . 19 6-2, 1) whch reads, n part, as foows:
(3) Federa stamp ta es pad by a corporaton on the ssuance of ts
bonds upon orgna fnancng, or refnancng, are e haustbe capta e -
pendtures, amortzabe over the term or fe of the bonds;
It has come to the attenton of ths offce that pror to the pubca-
ton of I. T. 3806 certan corporate ta payers whch pad Federa
stamp ta es on the ssuance of bonds deducted the entre amounts so
pad on ther Federa ncome and e cess profts ta returns under the
assumpton that such ta es were deductbe as ordnary and neces-
sary busness e penses under the provsons of secton 23(a) of the
Interna Revenue Code. It appears that retroactve appcaton of
the rung quoted above woud create, n these nstances, consderabe
hardshp.
ccordngy, t w be the admnstratve pocy not to dsturb such
treatment wth respect to returns fed for ta abe years ended pror
to the pubcaton of I. T. 3806 where Federa stamp ta es pad by a
corporaton on the ssuance of ts bonds were deducted n ther en-
trety n the year of payment or accrua. (See secton 3791(b) of
the Interna Revenue Code; 26 U. S. C. 3791(b).)
Inasmuch as the rue announced heren merey mts the effectve
date of appcaton of a prevous rung, and the needs of certan of
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29.23(k)- .
6
the ta payers affected thereby requre mmedate ssuance of the
rue, pror notce and pubc rue-makng procedure n connecton
therewth are hereby found to be mpractcabe, as they woud deay
promugaton of the rue.
s ths mmeograph s wthn the parenthetca e cepton to secton
(c) of the dmnstratve Procedure ct, t sha be effectve upon
ts fng for pubcaton n the Federa Regster.
Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos IT: IM.
Fred S. Martn.
ctng Commssoner.
pproved February 23,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the Federa Regster March 1, 19 9, 8: 9 a. m.)
S CTION 23(k). D DUCTIONS FROM GROSS
INCOM : D D TS
Secton 29.23 (k)- : Reserve for bad debts. 19 9-2-13010
L T. 3936
INT RN L R NU COD
Method of accountng for bad debt reserves n the case of banks
Consderaton has been gven to the queston whether banks usng,
or changng to, the reserve method of accountng for bad debts for
Federa ncome ta purposes may set up and cany such reserves on
au ary records wthout ncudng such reserves n ther reguar
books of account. The queston has aso been presented whether a
bank whch changes to the reserve method of accountng for bad debts,
but whch has prevousy set up on ts books contngent reserves or
aocatons of surpus aganst bad debt osses, may estabsh author-
zed bad debt reserves by transfer out of e stng reserves, whch
were not recognzed for Federa ncome ta purposes, wthout oss
of permssbe deductons from ta abe ncome.
It s the poston of ths offce that reserves for bad debts estabshed
by banks for Federa ncome ta purposes shoud be refected n the
reguar books of account. Such reserves are sub|ect to ad|ustment
by offcers of the ureau of Interna Revenue as n the case of other
vauaton accounts. ny ad|ustments so made w, of necessty, af-
fect the surpus account rather than the ncome for the year n whch
the ad|ustment s made. Moreover, t s understood that the show-
ng of bad debt reserves aganst oans and dscounts on the reguar
books of account and n fnanca reports s requred by the Federa
Reserve System, the Comptroer of the Currency, and the Federa
Depost Insurance Corporaton.
. R. R. 377 (C. . . 6 (1921)) and . R. M. 172 (C. . 1-2. 8
(1922)) are not appcabe to reserves for bad debts. Those rungs
reate to deductons for deprecaton wth respect to assets whch
have been wrtten down to vaues beow the ad|usted bases for depre-
caton and permt the use of suppementa records for recordng
such bases for Federa ncome ta purposes, whereas oans and ds-
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6
29.23(k)- .
counts represent a arge porton of a bank s assets whch are requred
to be shown on ts reguar books of account.
In the case of a bank whch, at the tme of changng to the reserve
method of accountng for bad debts, aready has on ts books contn-
gent reserves or aocatons of surpus aganst future bad debt osses,
whch reserves or aocatons have not been recognzed for Federa
ncome ta purposes as other than surpus, there s no ob|ecton to
the creaton of bad debt reserves (by transfer on the books) out of
such tems of contngent reserves or aocated surpus. ny ad|ust-
ments n such reserves or aocated surpus w have no effect on the
amount aowabe as a deducton on account of an addton to a bad
debt reserve.
Secton 29.23 (k)- : Reserve for bad debts. 19 9-9-13072
I. T. 39 0
INT RN L R NU COD
Nonretroactve appcaton of I. T. 3986 (page 6 , ths uetn), re-
atng to method of accountng for bad debt reserves n the case of
banks.
It appears that pror to pubcaton of I. T. 3936 (page 6 , ths u-
etn) , numerous banks usng, or changng to, the reserve method of ac-
countng for bad debts had set up and carred reserves for bad debts
on au ary records wthout ncudng them n ther reguar books of
account, whch practce was accepted by the ureau of Interna
Revenue.
Under authorty contaned n secton 3791(b) of the Interna Rev-
enue Code, I. T. 3936, supra, nsofar as t requres a bank s bad debt
reserves to be refected n the reguar books of account, w be apped
ony to ta abe years endng after December 31,19 8.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr , 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
Secton 29.23 (k)- : Reserve for bad debts. 19 9-13-13110
I. T. 39 7
INT RN L R NU COD ND R NU CT OF 1926
Use of bad debt reserves by deaers n persona property who
report saes ncome on the nstament bass.
I. T. 236 (C. . I-1, 69 (1927)) modfed.
Reconsderaton has been gven to I. T. 236 (C. . I-1,69 (1927))
whch hods n part that the use of a reserve for bad debts s not per-
mssbe by a deaer n persona property on the nstament pan who
reports profts appcabe to nstament saes n accordance wth the
nstament bass of accountng as contempated by artce 2, Regu-
atons 69. rtce 2 of Reguatons 69 corresponds to secton 29. -1
of Reguatons 111, promugated under the Interna Revenue Code.
In O. D. 792 (C. . , 86 (1921)), t was hed that a ta payer seng
persona property on the nstament pan s entted to deductons for
unpad nstament obgatons whch become worthess and are
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29.23(k)- .
66
charged off, wthout recovery of the property sod, to the e tent of the
capta porton of the worthess obgaton, that s, the unrecovered
cost of goods sod. ad debt deductons are aowabe n the case of
a ta payer keepng ts accounts and fng ts returns on the cash
recepts and dsbursements bass to the e tent of the capta porton of
worthess sma oan accounts. (See state of Maurce S. Satst n,
Transferee, v. Commssoner, 6 . T. . 77 , acquescence, C. .
19 2-1, 1 , and Mmeograph 6209, C. . 19 7-2, 26.) In Frst Na-
tona ank of Omaha . Commssoner (17 . T. . 13 8, acquescence,
C. . I -2, 20 (1930)), the Unted States oard of Ta ppeas
(now The Ta Court of the Unted States) sad (page 1366) : If the
pettoner s entted to deduct from gross ncome under ts system of
bookkeepng and reportng bad debts charged off, t s entted to the
benefts of secton 23 (a) ( ) of the Revenue ct of 1921 wth respect
to the settng up of a reserve for bad debts and deductng from ncome
the addton made thereto each year. The oard s order n that
case was vacated n part ( 9 Fed. (2d) 70), but that statement of the
oard, whch statement was quoted wth approva n the Satsten
case, supra, was not affected.
In the ght of the foregong, t s now the poston of the ureau
that ta payers usng the reserve method of accountng for bad debts
n accordance wth secton 23 (k) (1) of the Interna Revenue Code and
reguatons promugated thereunder, and reportng ncome from
nstament saes of persona property on the nstament pan n
accordance wth secton (a) of the Code, upon adopton of the
reserve method of accountng for bad debt osses from nstament
accounts, w, n computng net ncome, be entted to deduct a reason-
abe addton to the reserve account. L T. 236 , supra, s hereby
modfed.
The reasonabeness of an addton to a reserve for bad debts wth
respect to nstament accounts w depend upon the tota amount of
the capta porton of such accounts outstandng at the cose of the
ta abe year, the then baance n the reserve account, and the e per-
ence of the ta payer wth respect to the nstament accounts. s to
the determnaton of the capta porton of such accounts, see secton
29. -1 of Reguatons 111 and O. D. 792, supra.
The requrements of the ureau ncdent to the adopton of the
reserve method n the frst return of a ta payer or n connecton wth
a change n accountng for bad debts from the specfc charge-off
method to the reserve method are the same whether nstament saes
or nonnstament transactons are nvoved.
ta payer reportng ncome from nstament saes on the nsta-
ment bass n accordance wth secton (a) of the Interna Revenue
Code and accountng for bad debts wth respect to accounts other than
nstament accounts by usng the reserve method may adopt such
reserve method n accountng for bad debts reatng to nstament
accounts, provded that (1) permsson to do so s obtaned n accord-
ance wth and sub|ect to the terms provded by secton 29.23 (k)-
1(a) (2) of Reguatons 111 and (2) accurate accounts are kept wth
respect to the reserve for bad debts reatng to the nstament accounts
separate from those wth respect to the bad debt reserve set up aganst
other accounts.
In the case of a ta payer fng a frst return of ncome and seectng
the reserve method of accountng for bad debts, or of a ta payer fng
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G7
19.23(m)-.
a return under permsson to change to the reserve method n accord-
ance wth secton 29.23(k)- of Reguatons 111, the reserve method
of accountng for bad debts may, at the eecton of the ta payer, be
used ony wth respect to accounts other than nstament accounts, or
ony wth respect to nstament accounts, or both. If the ta payer
eects to use the reserve method n connecton wth both knds of
accounts, separate reserves must be mantaned.
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION
Secton 19.23(m)-: Depeton of mnes, o 19 9-10-13086
and gas wes, other natura deposts, and Ot. D. 1720
tmber; deprecaton of mprovements.
INCOM T INT RN L R NU COD ND R NU CTS OP 1936 ND
1938--D CISION OF COURT
1. Gross Income Deductons Depeton O and Gas Lease.
Under a purported o and gas ease provdng for the essor to
receve 0 percent of the net profts nstead of a gross royaty, the
essor retaned an economc nterest n the o and gas n pace and
n computng ncome ta es was entted to a depeton aowance ony
from cash payments actuay receved from the essee ruther than a
depeton aowance on one-haf of the gross Income from the
property before deducton of e penses pad by the essee. The fact
that the ease provded for the payment of net profts nstead of a
gross royaty dd not estabsh that the contract amounted to an
absoute sae of the o before severance.
2. Decson ffrmed.
Memorandum opnon of the Ta Court (December 18, 19 2)
affrmed.
In the Unted States Crcut Court of ppeas for the Nnth Crcut
Comms oner of Interna Revenue, pettoner, v. Fe O Co., a corporaton,
respondent
Fe O Co., a corporaton, pettoner, v. Commssoner of Interna Revenue,
re pondent
1 Fed. (2d) 276
Upon pettons to revew a decson of The Tu Court of the Unted States
efore Denman, Stephens, and eay, Crcut udges
ugust 2, 19
OPINION
eay, Crcut udge: Ths case Is before us on pettons of the Commssoner
and the ta payer to revew a decson of the Unted States Ta Court entered
upon a proceedng for the redetermnaton of defcences. The defcences were
assessed as a resut of the Commssoner s dsaowance of depeton deductons
camed by the ta payer In ts ncome returns for 1937, 1938, and 1939, under
sectons 23(m) and 11 (b) (3) of the Revenue cts of 1936 and 1938. The facts
were stpuated.
In December, 1928, the ta payer was the owner n fee of 160 acres of and
ocated n the etteman s n Caforna. t that tme t entered Into a
wrtten agreement purportng to ease the and to the Petroeum Securtes Co.
for the term of 20 years and so ong thereafter as o or gas mght contnue to be
produced. Ths agreement has snce remaned n fu force and effect. It s In
form a ease, and save n one partcuar ts provsons are very smar to those
of the typca o and gas ease. The pecuarty es n ths: nstead of re-
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19.23(m)-.
68
tanng a gross royaty, the essor was to receve 0 percent of the net profts.
The term net profts was defned as the proceeds of sae of the o ess the e -
penses of the essee n drng, pumpng, storage, and the ke, ess aso a number
of other Items such as State and county ta es, nsurance, and genera operatng
costs. Whe the agreement rectes that t was gven n consderaton of the sum
of 10, the actua amount pad to the essor at the tme of e ecuton was 1 0,000.
The Commssoner, restng hs argument many on the provson for the pay-
ment of net profts, asserts that the contract s an absoute sae rather than a
ease, that s to say, that the contract effected a dsposton of a the ta payer s
economc nterest n the o n pace. The consderaton, he contends, was the
1 0,000 payment pus a share of the net profts of the operaton wth no re-
tenton of any Interest n the underyng o. If the Commssoner s nterpre-
taton of the contract s correct the ta payer woud be entted to no depeton
aowance. everng v. be O Land Deveopment Co., 303 U. S. 372 Ct. D.
1322, C. . 1938-1, 298 ; nderson v. everng, 310 U. S. 0 Ct. D. 1 6, C. .
19 0-1, 108 ; ankenshp v. Unted States, 9 Fed. (2d) 07; McLean v.
Commssoner, 120 Fed. (2d) 9 2. owever, the Ta Court, whe recognzng
the rue contended for by the Government, was of opnon that the contract dd
not amount to a sae of the o before severance. It accordngy hed that the
defcency assessments were unwarranted.
Under the terms of the agreement the ta payer retaned a rghts of owner-
shp e cept those specfcay dsposed of theren. It retaned reversonary
rghts n the property, and the rght of forfeture n the event of the essee s
faure tmey to prosecute drng; aso certan rghts n f tures and equp-
ment upon termnaton of the ease. s stressed by the Ta Court, the n-
strument gave the essee the rght to e pore the and for o, and t the event o
were found, to operate on the and for the recovery thereof. Sad the court:
Ownershp of the o n pace remaned n pettoner as owner of the and and
dd not pass to the essee before severance. It was thought that the provson
for an equa dvson of the net profts of each payng we was merey the
yardstck adopted by the contractng partes to measure the producton acqured
by the essee and the producton retaned by pettoner as essor. Further,
that the essee receved the proceeds of sae and pad the costs and e penses of
producton, not as the soe owner of the o. but as one of two partes equay
nterested n the producton and sae. The and, sad the court, was furnshed
by the essor, and the abor, capta, and management by the essee. Partcuar
sgnfcance was found n a provson to the effect that the essor, f dssatsfed
wth the amounts reazed by the essee, mght requre the atter to se 0 percent
of the producton to purchasers of the essor s own choosng.
We see no reason for re|ectng ths nterpretaton of the contract. It s cear
that the ta payer retaned an economc nterest n the o n pace. It had a
capta nvestment n the and and n the payng wes, and the ncome t re-
ceved from producton was not, we thnk, ncome arsng from a sae of the
o before severance. Cf. Pamer v. ender, 287 U. S. 1 Ct. D. 6 1, C. . II-1,
23 (1933)1 ; everng v. be O Land Deveopment Co., supra; everng v.
Mountan Producers Corp., 303 U. S. 376 Ct. D. 1321, C. . 1938-1, 3 3 . In the
case ast cted the Supreme Court sad (p. 382) that the term gross ncome
from te property means gross ncome from the o and gas and the
term shoud be taken n ts natura sense. Wth the motves whch ead the ta -
payer to be satsfed wth the proceeds he receves we are not concerned.
In makng ts returns for the years n queston the ta payer deducted the
depeton aowance from the cash payments actuay made by the essee for
those years. In the proceedng before the Ta Court t camed t had overpad
ts ta es, that s to say, that t was entted to depeton aowance of 27 per-
cent on one-haf of the gross ncome from the property before deducton of the
e penses pad by the essee. The Ta Court re|ected the contenton, hodng
that there had been no overpayment.
We thnk the hodng s correct. The aowance for depeton under secton
11 (b) (3) s an amount equa to a stated percentage of the gross ncome from
the property of the partcuar ta payer. everng v. Twn e O Syndcate.
293 U. S. 312 Ct. D. 90 , C. . I -1, 2 3 (193 ) ; everng v. ankne O
Co., 303 U. S. 362 Ct. D. 1323, C. . 1938-1, 306 . s we read the opnon n
everng v. Mountan Producers Corp., supra, a contenton vrtuay dentca
wth that made by the ta payer here was there re|ected, the Court sayng (p. 382)
that t was not at berty to construct a theoretca gross ncome by recourse
to the e penses of producton operatons.
ffrmed.
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69
29.23(aa)-.
S CTION 23(u). D DUCTIONS FROM GROSS INCOM :
LIMONY, TC., P YM NTS
Secton 29.23 (u)-: Perodc amony payments.
INT RN L R NU COD
Payments made pursuant to an nterocutory decree of dvorce n
Caforna and mted to ts duraton. (See I. T. 393 , page .)
Secton 29.23(u)-1: Perodc amony payments.
INT RN L R NU COD
Wthdrawa of modfcaton of I. T. 3761 (C. . 19 , 76). (See
I. T. 39 , page 6.)
S CTION 23(aa). D DUCTIONS FROM GROSS INCOM :
OPTION L ST ND RD D DUCTION FOR INDI IDU LS
Secton 29.23(aa)-: Standard deducton. 19 9-6-13039
( so Secton 2 , Secton 29.2 -3; Secton I. T. 39 2
1, Secton 29. 1-1.)
INT RN L R NU COD
For the purposes of sectons 23(aa), 2 (b), and 1(b) of the Inter-
na Revenue Code, the partes named n an Interocutory decree
of dvorce n the State of Caforna are not consdered as marred.
dvce s requested whether the partes named n an nterocutory
decree of dvorce n the State of Caforna are consdered, for Fed-
era ncome ta purposes, as marred.
Secton 201 of the Revenue ct of 19 8 (C. . 19 8-1, 211, 213)
amends secton 2 (b) (2) of the Interna Revenue Code to provde n
part that:
( ) an Indvdua egay separated from hs spouse under a decree of dvorce
or of separate mantenance sha not be consdered as marred.
Ths provson reates to the determnaton of marta status for the
purpose of the credts provded by secton 2 (b) of the Code. Sm-
ar provsons for determnaton of marta status are ncuded n
secton 23(aa) (6) of the Code (as added by secton 302(c) of the Rev-
enue ct of 19 8), reatng to the standard deducton, and n secton
1(b) ( ) of the Code (as added by secton 303 of the Revenue ct of
19 8), reatng to |ont returns. Congress ceary ntended a unform
constructon of a of these provsons. The rue wth respect to the
marta status of an ndvdua egay separated from ns spouse
under a decree of dvorce or separate mantenance s derved from
the correspondng provson n secton 22(k) of the Code, reatng
to the ta treatment of amony and ke payments. (See ouse of
Representatves Report No. 127 , C. . 19 8-1, 2 1, 277, and Senate
Report No. 1013, C. . 19 8-1, 28 ,32 .)
In I. T. 3761 (C. . 19 , 76), t was hed that perodc payments
made pursuant to an nterocutory decree of dvorce n the State of
Caforna by a husband for the support of hs wfe are ncudbe
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19.2 -6.
70
n her gross ncome under secton 22(k) of the Interna Revenue Code,
and are deductbe by the husband under secton 23(u) of the Code.
The partes n such a case were consdered dvorced or egay sepa-
rated for the purposes of secton 22 (k) of the Code.
It s hed that, for the purposes of sectons 23(aa), 2 (b), and 1 (b)
of the Interna Revenue Code, the partes named n an nterocutory
decree of dvorce n the State of Caforna are not consdered as
marred.
S CTION 2 . IT MS NOT D DUCTI L
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD
abama gross recepts (saes) ta pad by vendee n connecton
wth purchase of equpment for use n trade or busness. (See I. T.
3937, page 7.)
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD
Federa stamp ta es pad by corporaton on ssuance of ts bonds.
Nonretroactve appcaton of I. T. 3806 (C. . 19 6-2, 1). (See
Mm. 6367, page 63.)
Secton 29.2 - : Ta es and carryng charges
chargeabe to capta account and treated
as capta tems.
INT RN L R NU COD
abama use ta . (See I. T. 3937, page 7.)
Secton 29.2 - : Ta es and carryng charges
chargeabe to capta account and treated
as capta tems.
INT RN L R NU COD
Oho use and storage ta . (See I. T. 3938, page 9.)
Secton 19.2 -6: Losses from saes or e - 19 9-10-13087
changes between certan casses of persons. Ct. D. 1719
ncome ta nterna revenue code decson of court
1. Gross Income Deductons Losses From Saes or changes
of Property Sae of Partnkushp sskts to Corporaton,
and Dssouton of Partnershp.
Ta payers were members of a partnershp whch sod most of the
assets used by t n ther bankng busness for cash to a corporaton
formed to take over and contnue the busness. The ma|orty of the
capta stock of the corporaton was owned by the ta payers. The
proceeds of the sae were dstrbuted to the ta payers. t the tme
of the transfer, certan securtes ncuded In the assets showed a
gan In vaue over ther cost, whe others showed a oss. In com-
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19.2 -6.
putng net ncome the Commssoner ncuded the capta gans but
dsaowed the capta osses. Certan securtes n defaut were
owned by the partnershp whch the partners tendered and the
corporaton accepted, pus cash, as a contrbuton to the corpo-
rate surpus. ed: 1. Ta payers are prohbted by secton
2 (b)(1)( ) of the Interna Revenue Code from takng a deduc-
ton for osses resutng from the sae. 2. Upon the fna wndng up
and qudaton of the partnershp, the ndvdua partners are not
entted to a deducton for oss, ether n the ght of the proper con-
structon of secton 2 (b) (1) ( ) of the Code, or as a proven oss
upon the partnershp nvestment. 3. The partners Indvduay
made the contrbuton of the securtes n defaut to the corpora-
ton s capta surpus, and there was no sae or e change resutng n
a competed transacton showng a reazed oss.
2. Decson Reversed n Part and ffrmed n Part.
Decson of The Ta Court of the Unted States (8 T. C. 1010)
reversed n part and affrmed n part.
3. Certorar Dened.
Petton for certorar dened (336 U. S. 892) December 13, 19 8.
Unted States Crcut Court of ppeas for the Second (kc-t
Commssoner of Interna Revenue, pettoner on revew, v. George Whtney,
respondent on revew
George Whtney, pettoner on revew, v. Commssoner of Interna Revenue,
respondent on revew
and tweve Consodated Cases
efore Swan, C.ark, and Frank, Crcut udges
On pettons to revew decsons of The Ta Court of the Unted States
ugust 11, 10 8
OPINION
O vrk, Crcut udge: For many yenrs the partnershp of . P. Morgan Co.
carred on a genera bankng busness n New York Cty n the frm name, and
n Phadepha under the name of Dre e Co. In the atter part of 1939 the
partners decded that ther New York busness shoud be ncorporated as a trust
company, and arrangements to that end whch nvoved aso the compete
separaton of the Phadepha busness were competed n March, 19 0. On
March 29, the State superntendent of banks ssued a certfcate authorzng
. P. Morgan Co. Incorporated to transact the busness of a trust company
n New York Cty. The foowng day, Saturday, March 30, a speca meet-
ng of the drectors of the corporaton was hed. The drectors were the 13
partners of the frm. t ths meetng a resouton was adopted authorzng
the corporaton to purchase the assets and to assume the abtes and obga-
tons of the frm as set forth n a b of sae and agreement presented to the
meetng. The b of sae and agreenrent was e ecuted by the frm, the 13
ndvdua partners, and the corporaton on that date. y t the frm and
each of the partners, respectvey, sod and transferred to the new bankng
corporaton a tte to the frm assets, rghts and propertes, detaed by
schedue and of the aggregate agreed vaue of 97,098,131.87, aganst the as-
sumpton by the corporaton of abtes to depostors and others of 8 ,832,-
737.78. The dfference of 12,26 ,39 .09 was pad to the frm ; then t (ess the
sum of ,073.01 contrbuted to the corporaton under crcumstances stated
beow) was deposted to the accounts n the bank of the 13 frm members n the
proportonate amounts of ther nterests n the partnershp. mong other pro-
vsons of the b of sae and agreement was a promse by each of the partners
not to engage n any bankng or other busness n New York Cty or esewhere
under the name of . P. Morgan Co., or any otter smar name, e cept as an
offcer, drector, or empoyee of the bank. stockhoders meetng the same
day approved the acton of the drectors and confrmed the e ecuton and ac-
ceptance by the bank of the b of sae and agreement. The partners owned
72.9 percent of the corporate stock and ther reatves owned an addtona .3
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72
percent. The bank opened for busness on Monday, pr 1, whe the affars
of the partnershp were wound up by the settement of accounts of March 30,
19 0.
In the assets transferred by the frm to the corporaton certan securtes then
showed a gan n vaue over ther cost, whe others showed a oss. The amounts
of such capta gans and osses are not n dspute; but the treatment of them
wth respect to the 19 0 ncome ta es of the 13 frm members s. In computng the
net ncome of each of the 13 partners, the Commssoner ncuded the capta gans,
but dsaowed the capta osses on the bass of I. R. C. secton 2 (b) (1) ( ).
udge Leech, however, n a decson revewed by the fu Ta Court wthout ds-
sent, hed that the secton dd not prohbt deducton of these osses beng
partnershp osses and therefore drected ther aowance. 8 T. C. 1019. The
Commssoner s pettons for revew n each of the 13 cases rase therefore the
queston as to the approprate constructon of ths statutory provson.
For consderaton of ths queston t s not necessary to set forth the detas of
each partner s nterest or of other reevant facts, partcuary as they are stated
n the opnon beow.1 For a the partners the short-term capta osses aggre-
gated 1, 98,871.01; and the ong-term capta osses, after appyng the per-
centages appcabe n 19 0 under I. R. C. secton 117(b), amounted to 1,230,-
368.01. The ta payers cross-pettons brng up separate ssues concernng the
dsaowance by the Ta Court of osses camed upon certan securtes n defaut
contrbuted by the frm to the corporaton; we sha postpone dscusson of ths
phase of the appea unt ater.
Secton 2 (b)(1)( ) prohbts any deducton, n computng net ncome, for
osses from saes or e changes of property e cept n the case of dstrbutons n
qudaton between an ndvdua and a corporaton whose stock s more than
0 percent owned by or for hm.1 Our probem s shorty whether ths provson
ncudes or e cudes partnershp hodngs. The provson was orgnay enacted
In 193 as secton 2 (a) (6) (1 ) ; t then Incuded, n addton to the present pro-
hbton, ony those between members of a famy. It reached substantay ts
present form n 1937, when there were added to the prohbted groups: two per-
sona hodng companes wth stock ownershp of more than 0 percent n or for
the same Indvdua: the grantor and fducary of any trust: the fducares of two
trusts from the same grantor: the fducary nnd benefcary of any trust. mong
rues for the determnaton of stock ownershp are subdvsons ( ) and (C) of
I. R. C. secton 2 (b) (2), provdng that an ndvdua sha be consdered as own-
ng the stock owned, drecty or ndrecty, by or for hs famy. and the stock
owned, drecty or ndrecty, by or for hs partner (the frst, , datng from
193 , and the second, C, from 1937). Further, as s we known, a partnershp
s not ta abe; the Indvdua partners are abe n ther ndvdua capacty for
both ndvdua ncome and ther respectve shares of partnershp ncome com-
puted accordng to the statutory rues. I. R. C. sectons 181-183.
When these detaed statutory provsons are read aganst the background of
the egsatve hstory and the probem as It was presented to the Congress In
193 , we cannot fee that there can be any serous doubt as to the egsatve ntent
or any substanta ground for beevng that Congress ntended to eave so arge
a oophoe amost as arge as the one t was tryng to cose from Its prohb-
ton aganst deductbe osses upon transfers between cosey reated persons or
groups. Indeed, the ony thng whch woud gve us pause s the unanmous de-
cson of the Ta Court, whose e pert vew s aways entted to respectfu con-
1 The partners were: . 1 . Morgan, Thomas W. Lamont, unus S. Morgan, George
Whtney, . C. Leffngwe. Francs I). artow, rthur M. nderson, Thomas S. Lamont,
. P. Davson. Chares p. Dckey. enry C. e ander. I. C. Raymond tkn, and Wam .
Mtche. Three of the partners have snce ded and are now represented by ther
e ecutors: . P. Morgan ded before the pettons to the Ta Court, whe Francs D.
artow ded durng ther pendency, and Thomas W. Lamont after the fng of the pettons
for revew.
S C. 2 . IT MS NOT D DUCTI L .

(b) Losses From Saes or changes of Property.
(1) Losses dsaowed. In computng net ncome no deducton sha In any case
be aowed In respect of osses from saes or e changes of property, drecty or
Indrecty

( ) cept n the case of dstrbutons n qudaton, between an ndvdua
and a corporaton more than 0 per centum n vaue of the outstandng stock of
whch s owned, drecty or ndrecty, by or for such ndvdua;
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19.2 -6.
sderaton. We cannot avod beevng that It hag become entanged In the
|ursprudenta aspects of so-caed ega enttes to such an e tent as to cause
t to overook the rea meanng and purpose of these enactments. In fact they
had not then been so authortatvey e paned as s now the stuaton snce the
more recent decson of the Supreme Court n McWans v. C. I. R., 331 U. S. 09
Ct. D. 16 6. C. . 19 7-2, 3 1, whch we cte beow. The crcumstances under
whch a |ura aggregate admttedy the status of a partnershp under the Fed-
era revenue aws and the Unform Partnershp ct may become a ura entty
are fascnatng n ther possbtes for semantc dspute. ut ths shoud not
be aowed to go so far as to draw a teeth from a statute carefuy drected at
what the egsatve body vewed as the ev of ta evason. We may come
back to ths |ursprudenta debate to dscuss brefy some of the suggestons
urged upon us; but frst and most mportant must be a consderaton of the statute
tsef aganst ts background.
The statute was passed as a part of the dramatc nvestgatons of and egs-
atve attack upon ta evason whch deveoped as a concomtant of the great
oss n securty vaues from 1929 on to the date of the egsaton. The voume
of reazed osses n such Investments and the queston of reazaton tsef
provoked egsatve attenton. For the Investgaton n whch ths very frm
promnenty appeared had brought out that t was possbe for ta payers to go
through the form of reazaton of a oss by a transfer where the economc
attrbutes of ownershp were retaned. Ths we ponted out n deang wth the
speca restrctons made by ths same genera egsaton upon the offset of
partnershp capta osses aganst Indvdua capta gans n reversng the de-
ductons aowed n 3 T. C. 1217 to a partner of ths frm. C. I. R. v. Lamont, 2
Cr., 1 6 Fed. (2d) 800, certorar dened 329 U. S. 782. Whether or not the
Congress went further than a fnr ad|ustment of equtes woud requre, whether
n truth t may be shockng to the sense of ustce, as the ta payers assert,
that capta gans be ta ed and osses dsaowed, s not for us to say. t east,
however, the egsatve approach s understandabe aganst ths background.
ut t woud hardy be understandabe were we to consder the purpose to be
to permt |ust that form of reazaton of a oss condemned n an ndvdua
whenever t was done through the smpy added ega devce of the partnershp,
and partcuary when ths woud eave untouched the more spectacuar cases
whch the nvestgaton of the Senate Commttee on ankng and Currency had
brought to pubc attenton. O. I. R. v. Lamont, upra, 1 6 Fed. (2d) at page
803.
The ony reason for such a dfferentaton suggested by the Ta Court or by
the ta payers s the dffcuty of determnng the bona tdes of transactons
showng arge ta osses between members of fames and between ndvduas
and the corporatons they controed. No reason s suggested why these dff-
cutes of proof woud not be, f anythng, ncreased by the nterposton of the
partnershp devce. ut the Supreme Court has shown that ths s at best
an nadequate e panaton of the egsaton. It says, per Mr. Chef ustce
nson n the ense to whch we have aready referred: Moreover, we thnk the
evdentary probem was not the ony one whch Congress ntended 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 s that ther members,
athough dstnct ega enttes, generay have a near-dentty of economc nter-
ests. It s a far nference 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 deen them to be approprate occasons
for the aowance of deductons. MaWams v. C. I. R., supra, 331 U. S. at
page 699.
nd then the Court goes on to quote from the egsatve hstory of the 193
egsaton to demonstrate that the purpose was ths and coud not have been
to e cude transfers made through the medum of the Stock change, uness
t wanted to eave a oophoe amost as arge as the one t set out to cose. 331
1 Notwthstandng egsatve rcpen of the rue of Dobson . 0. /. R., 320 U. S. 89
Ct. D. 1 97, C. . 19 , 61, by amendment of I. R. C. secton 11 1(a) by chapter 6 6,
Pubc Law No. 773, 80th Cong.. 2d sess.. une 2 . 19 8. secton 36. Whe ths statute
does not become effectve unt Sept. 1, 19 8, our queston here, beng the nterpretaton
of a statute. Is revewabe under UcWUams v. C. I. R., 331 U. S. 69 : ngham s Trust
. C. I. R., 32 U. S. 36 , 163 . L. R. 117 Ct. D. 16 3, C. . 19 , 103 : . Y. Stocks v.
C. /. R., 2 Cr.. 16 Fed. (2d) 7 ; C. I. R. . ohn, Cr., 1 8 Fed. (2d) 32 Ct. D. 1682,
C. . 19 7-1. 2 .
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19.2 -6.
7
U. S. at page 701. Whe the stress n the egsatve hstory s upon what were
termed famy osses, there s not the sghtest suggeston that the nterpos-
ton of a partnershp woud afford a correctve eement. Indeed, a the reason-
ng s to the contrary. . R. Rept. No. 70 , Commttee on Ways and Means,
73d Cong., 2d sess., C. . 1939-1 (Part 2), , 71; S. Rept. No. 8, Commttee
on Fnance, 73d Cong., 2d sess., C. . 1939-1 (Part 2), 86, ( 07. Ths s empha-
szed by the statutory anguage reachng saes drecty or ndrecty between
the prohbted groups. C. I. R. v. ohn, Cr., 1 8 Fed. (2d) 32. fna
cnchng demonstraton of the egsatve ntent s found n the 1937 amend-
ments, partcuary the provson quoted above from secton 2 (b)(2)(C) that
an ndvdua sha be consdered to own stock owned by a partner. The desr-
abty of the change to avod sma dfferentatons n the coverage of the
prohbton s e paned n . R. Rept. No. 1 6, 7 th Cong., 1st sess., O. . 1939-1
(Part 2), 70 , 722-72 , whch aso ponts out that the statutory e ampes are
not e cusve, snce the Government can deny osses where the saes are not n
fact bona fde. The vew taken by the Ta Court therefore requres a dfferen-
taton so fne as that between a |ont sae made by an ndvdua and hs partner
and one made by the partnershp tsef a dfferentaton wthout substance or
reaty n the ght of the egsatve purpose. The Ta Court cted the egsatve
hstory dscussed n G. I. R. v. Lament, supra, as supportng speca treatment
of partnershps; but that e ceptona treatment n the partcuar nstance of the
e tent to whch capta gans mght be offset by capta osses s strong evdence of
une ceptona treatment esewhere. Indeed, as we there ponted out, ctng
Neuberger v. G. I. R., 311 U. S. 83 Ct. D. 1 70, C. . 19 0-2, 228 , the resut
was otherwse before the statutory enactment and agan after restoraton of the
earer aw n 1938.
Other provsons of the Interna Revenue Code aso appear to us to end
support to the Commssoner s nterpretaton of the provson here nvoved.
Thus secton 3797(a), a secton of defntons, goes so far as to provde that,
e cept as otherwse provded or manfesty ncompatbe wth the ntent, the
term person sha be construed to ncude both an ndvdua and a partnershp,
and the term partnershp ncudes a syndcate, group, poo, |ont venture,
or other unncorporated organzaton not a trust or estate or a corporaton.
Surey one coud not avod the effect of ths specfc prohbtory egsaton by
assocatng hmsef wth a group or poo; nor may the e tent of coverage of the
ct turn upon how far oca aw treats a |ont venture as a partnershp. nd
there s nothng n the Code whch seems to us n any way nconsstent wth the
Commssoner s approach to the probem.
The chef reance of the Ta Court and of the ta payers upon ths appea s
upon the concept of a partnershp as an entty, ownng and transferrng property
apart from ts partners. Thus the court ctes as apposte that secton of the
Unform Partnershp ct (effectve n New York) whch defnes a partner s
nterest n the partnershp as hs share of the profts and surpus, N. Y.
Partnershp Law, secton 2, thus overookng the mmedatey more apposte
provson that the property rghts of a partner are not ony (6) hs nterest
n the partnershp, and (c) hs rght to partcpate n management, but aso
(a) hs rghts In specfc partnershp property. Id., secton 0. nd the e st-
ence of ndvdua rghts n specfc partnershp property s cnched by d., secton
1, partner s coowner wth hs partners of specfc partnershp property hod-
ng as a tenant n partnershp, the ncdents of ths tenancy beng thereupon set
forth n some fve subdvsons. It s a matter of we-understood hstory
fto whch we have often referred, as n the cases from ths crcut cted beow)
that the drafters of the ct re|ected the entty theory for the common aw
or aggregate theory. See the authortatve artces by the draftsman. Dean
Lews: The Unform Partnershp ct, 2 Yae L. . 617, 620; The Unform Part-
nershp ct, 29 arv. L. Rev. 1 8-192, 291-313. ccordngy the assent of a
the partners s necessary n order to dspose of the good w of the busness,
or to do any act makng t Impossbe to carry on ts ordnary busness, or to
assgn a partner s rght n specfc property of the frm. N. Y. Partnershp Law,
secton 20, paragraph 3 (b.c) ; secton 1, paragraph 2(b). See umpp v.
Gardner, 11 N. Y. 1 3, 21 N. . 99 ; Postman v. Rowan, 0 Msc. 0,119 N. Y. S. 2 8;
Freeman v. bramson, 30 Msc. 101, 61 N. Y. S. 839. ere the sae to the cor-
In vew of the ater decson of gpns v. Smth. 308 D. S. 73 fOt. D. 1 3 . C. .
19 0-1, 127 , refusng to recognze such a sae to a whoy owned corporaton, even before
the statute, the resut mcht perhaps be the same In the absence of statute. See Wckwre
v. fnfcrf Statm, 6 (Mr., f Fed. (2d) 679; 1 Montgomery s Federa Ta es Corporatons
and Partnershps, 19 7- 8, 720.
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7
19.2 -6.
poraton coud not have been vady accompshed wthout the e press assent
of the 13 partners, as, of course, they recognzed by |onng n the b of sae
and agreement and makng the transfer of the assets.
In support of ts theory, the Ta Court cted certan of ts decsons, ncudng
an S. Lehman, 7 T. C. 1088, the affrmance of whch In C. I. R. v. Lehman, 2 Cr.,
16 Fed. (2d) 383, certorar dened 68 S. Ct. 108 , has become the man reance
of the ta payers on ths appea. That case apped the untary concept of a part-
nershp to the e tent of reachng a resut whch, we agree, was n ne wth
ordnary busness conceptons and the there practca statutory ntent. There the
ta payer had become a partner n a brokerage rm n 1908 and the queston was
the vauaton of a partnershp nterest sod by the ta payer n 1037. The court
hed, for the purpose of fndng the capta gan, that the date of acquston was
1908. thus re|ectng severa confctng theores of the Commssoner: the varous
dates of purchases of tems of frm assets, the date of the ast change n
personne by the death of a partner, and so on. udge L. and wrote the opnon;
athough we have ponted out the genera acceptance of the aggregate theory
n the Unform ct and the Federa ta ng statutes n some haf dozen or more
decsons, most of them wrtten by udge and, these the ta payers overook n
ther emphass upon ths nonanaogous case, whch, ndeed, had been fore-
shadowed on ts narrow pont by earer cases.
In an acute anayss of the ta aton of partnershps t s sad that n the
broader aspects of partnershp aw the Unform ct has coated the common-aw
coownershp theory wth a thn veneer of the equty entty concept; but funda-
mentay, the reatonshp s defned n terms of rghts and obgatons of the n-
dvdua partners. So, too, the ta aw adopts the entty concept as a skn deep
accountng e pedent, but the framework s that of the ndvdua partner s
proft and oss. Rabkn and ohnson, The Partnershp under the Federa Ta
Laws, 6 arv. L. Rev. 900, 01 . nd the authors state by way of concuson:
In too many nstances the Treasury and the courts have shed away from the
pan mpcatons of the statutory scheme: an ncome ta mposed upon the
partners as ndvduas. ascay, the ta aw adopts the common-aw concept
of the partnershp as an aggregate of ndvduas operatng the propertes of the
partnershp enterprse as coowners. arv. L. Rev. at page 9 9. There s no
doubt that generay speakng under the ta aw we must approach the partner-
shp as an assocaton of ndvduas who are coowners of ts specfc property and
who are ta ed, whe the partnershp s not. owever |ustfed we have been n
foowng busness practces to treat a share of the frm tsef apart from the nd-
vdua nterests, 0. I. R. v. Lehman, supra, we cannot fnd |ustfcaton n the
precedents and the statute for carryng the rue so far as to appy t by anaogy
to the ownershp of specfc property or to dsregard the drect specfcatons of
ndvdua ownershp of partnershp property. Certany we cannot do so
aganst the background of the statutory provsons when dsregard of these pre-
cepts woud substantay emascuate the egsatve prohbton. We concude
that on the Commssoner s pettons the decsons of the Ta Court must be re-
versed for recomputaton of the ta es on the bass of e cuson of these osses.
It shoud be added that the ta payers make an argument, not presented to the
Ta Court, that these osses are wthn the statutory e cepton of payments n
qudaton of the partnershp. There seems a serous queston here whether the
statutory anguage of secton 2 (b)(1)( ) was ntended to ncude more than
dvdends n qudaton of a corporaton. ut assumng arguendo that t may
appy aso to a partnershp, t s cear that here the payments were not n quda-
ton of the partnershp, but were the far consderaton for the transfer of assets
arrs v. O. I. R., 2 Cr., 39 Fed. (2d) 6 ; everng v. Wabrdge, 2 Cr., 70 Fed. (2d)
683. certorar dened 293 I . S. 9 : everng v. rchbad, 2 Cr., 70 Fed. (2d) 720,
certorar dened 293 IT. S. 9 : Rossmoore, v. C. I. R.. 2 Cr.. 76 Fed. (2d) 20 Ct. P. 1009,
C . I -2, 278 (193 )1 ; everng v. Smth. 2 Cr.. 90 Fed. (2d) 90 Ct. D. 1207, C. .
1938-1. 277 : Wam v. Mc owan, 2 Cr., 1 2 Fed. (2d) 70, 162 . L. R. 1036 a of
them wrtten hy udge L. and and cted by hm n C. I. R. v. Lehman, supra. The arrs,
Rossmoore, Smth, and Wams eases are partcuary emphatc In ther statement of the
actua re|ecton, for good or , of the entty theory. See aso en|amn v. oey. 2 Cr.. 139
Fed (2d) 9 , ctng Neuberger v. C. I. R., supra; Frst Mechancs ank of Trenton .
C. /. R., 3 Cr.. 91 Fed. (2d) 27 ; urnet v. Lennger, 28 U. S. 136; and cf. Cty ank
Farmers Trust Co. v. Unted States, Ct. O., 7 Fed. Supp. 98, whch was not foowed n
the Lehman case.
s by the cases that apprecaton n a partner s contrbuton to frm capta cannot be
consdered reazed unt qudaton of the frm, as n the Wabrdge and rchbad cases,
note supra, and Chshom v. C. /. R.. 2 Cr.. 79 Fed. (2d) 1 , 101 . L. R. 200, certorar
dened everng v. Chshom, 296 U. S. 6 1. whch were dscussed and foowed In
Fannery v. Unted States. D. C. Md., 2 Fed. Supp. 677, and Spad v. Unted States, D. C.
Md., 28 Fed. Supp. 670, affrmed Unted States v. Fannery, Cr., 106 Fed. (2d) 31 .
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19.2 -6.
76
to the corporaton. Ths was a sae, not a qudaton. Mathews v. Squre, D. C.
W. D. Wash., 9 Fed. Supp. 827.
The pettons for revew by the ta payers dea wth a dfferent set of facts,
whch the Ta Court vewed dfferenty. Our decson above on the ssue rased
by the Commssoner s such as to requre affrmance on ths pont aso, athough
the grounds taken by the Ta Court are n themseves adequate. The facts con-
cern certan securtes n defaut owned by the rm, but whose purchase by a trust
company the partes beeved to be prohbted by the New York bankng aw. So
the partners tendered, and the corporaton accepted, the defauted securtes of the
vaue of 1, 72,6 8, together wth cash of ,073.01, or a tota of 1, 27,731.01, as a
contrbuton to the corporate surpus. There were undsputed short-term and
ad|usted ong-term osses over the cost of these assets n e cess of 2 mon
doars, but the ta payers cam ony a fractona part thereof, determned by ap-
pyng a fracton whose denomnator s the tota contrbuton |ust stated and
whose numerator s the sum of 8 6,796. 2. Ths atter fgure s the amount of
a speca reserve carred by the frm for the purpose of makng payments to ts
retred empoyees. Snce the partners had consdered ths fund, wth ts yeary
addtons from proft and oss, as entrey devoted to ths purpose, so that the
Indvdua partners camed no further nterest n t even upon retrement from
the frm and took contrbutons to t as deductons In ther ncome ta returns,
wth the approva of the revenue authortes, the contenton s that these assets
are charged wth a trust or en to the e tent of the reserve and thus osses to a
ke e tent were deductbe.
Nevertheess the Ta Court found that the partners had ndvduay made
the contrbuton to the corporaton s capta surpus, and that there had been
no sae or e change resutng n a competed transacton showng a reazed
oss. Ths s ampy supported by the record. The contrbuton was n fact and
n form made by, and accepted from, the partners, and no reference was made
to the speca reserve. Indeed t s conceded that the corporaton n makng
ts openng entres respectng the contrbuted cash and securtes overooked
the speca reserve. ut n December, 19 0, a resouton was passed drectng
that the sum of 8 6,796. 2 be charged to surpus reserve and credted to the
speca reserve fund. Ths transfer was accordngy made on the corporaton
books. amounts whch had been pad by the corporaton to the frm s e -
empoyees were then charged to the fund, as have been a ke payments snce.
Ths beated step shows that the contrbuted securtes were not actuay sub-
|ect to a en or trust and coud not be consdered more obgated for these
payments than any other of the genera assets of the frm. s a matter of fact,
the corporaton had e pressy assumed the obgaton to pay retrement aow-
ances to these e -empoyees by the b of sae and agreement of March 30, 19 0,
wthout menton of or reference to ths reserve. ence both on the ground
taken beow and the frst ground stated n ths opnon the ta payer s appeas
must fa.
Fnay the ta payers make an overrdng argument of osses to the ndvdua
partners upon qudaton of the partnershp whch s ngenousy audacous.
They say that, even f the frm osses are dsaowed under secton 2 (b) (1) ( ),
nevertheess upon the fna wndng up and qudaton of the frm on March 30,
19 0, each partner sustaned a oss measured by the ad|usted cost of hs nterest
In the partnershp and the amount he receved n qudaton. Whe the Ta
Court dd not dscuss or even state ths argument, t dd say that osses were
sustaned by each of the 13 partners on the dssouton of the frm, and found
the amount of such osses on three aternatve hypotheses: (1) on ther treat-
ment as ordnary osses; (2) on ther treatment as capta osses, wth the
hodng perod f ed by the tme durng whch each partner hed hs partnershp
nterest, and (3) on ther treatment as capta osses, wth the hodng perod
f ed by the tme durng whch the securtes were owned by the frm. On
these dfferent hypotheses the osses woud run In e cess of a tota of mon
doars f ordnary osses, and sghty above and sghty under haf that amount
on each of the other assumptons. It s of course nterestng that by the appca-
ton of the frst hypothess, whch the ta payers have partcuary stressed on
argument here, osses based upon essentay the same set of facts whch we
have hed dsaowed under secton 2 (b) (1) ( ) as capta osses to an amount
sghty under 3 mons n tota become transmuted nto ordnary osses totang
n e cess of mon doars.
The cash was added to cause tha contrbuton to baance wth certan reserves carred
on the partnershp books as abtes, ncudng a genera reserve of 200,173.22, the speca
reserve of 8 6,796. 2 dscussed beow, and proft and oss of 10.761.37 a totang
1 T n m
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77
19.2 -6.
We do not thnk such deductons may be made by the ndvdua ta payers
ether n the ght of the proper constructon of secton 2 (b) (1) ( ) or, beyond
that, as a proven oss upon the partnershp nvestment. Snce the whoe bass
of the refusa of the deducton under secton 2 (b) (1) ( ) s that the transfer
s not such a change of economc nterest as to be consdered e ecuted or cosed
to the pont of reazaton of oss to the former owner, there s nothng whch
woud change the prohbton by the added fact, obvousy a usua one n the
stuaton, of termnaton of the partnershp. There can be tte reason for a
transfer n substanta amount of frm assets to a corporaton e cept the sub-
sttuton of the corporate way of dong busness for the former partnershp one;
and the prohbton of secton 2 (b)(1)( ), uness t s to be meanngess,
must e hed to appy then equay or especay. ut further, we do not see
the bass for fndng a partnershp oss upon ths qudaton n any of the
amounts stated.
It may ndeed be an Interestng queston how far such a partnershp oss on
qudaton, apart from the gans or osses the partner may show on hs ndvdua
tems of property, may be estabshed n any event. The cases cted by the ta -
payers are not e acty n pont, snce they den wth matters such as the tme
of reazaton of a gan on a capta contrbuton or of a oss on a qudaton n
knd of the contrbuton of a mted partner. Of course there may we be
gan or oss n tems as specfc property; ndeed secton 2 (b) (1) ( ) then d-
recty appes. eyond that a partnershp vountary qudated can hardy suffer
a oss of good w n ts change of manner of dong busness, snce t has taken
the step of ts own choce and free w, and ts new form of operaton s seemngy
preferabe to the partes. If, however, as the ta payers assume, the process
must be one of consderng partnershp gans and osses over the perod of bus-
ness actvty to strke a baance at the end, not ony does the operaton tsef
suggest doubts as to ts vadty, but the busness hstory s here ackng to pro-
duce the resut. True a fna ngenuty of argument s shown n the deveopment
of a bass of vauaton, for the ta payers argue that the cost prce s the amount
receved for the assets, pus the osses on the securtes transferred under ther
cost, whe the reazaton prce s the qudatng amounts pad the partners.
Naturay, the amount of oss turns out to be once more the very oss on the secur-
tes themseves.
The ta payers support ths resut by assumng reguarty of proceedngs, wth
proper ad|ustments of gans and osses, n enrer ra payments, so that at dssou-
ton the partnershp stuaton s propery refected by the condton of the secur-
tes or assets fnay dsposed of and the recepts therefor and dstrbutons to
the partners. Such smpcty of resut, eadng to a desred, f not aready
vsuazed, sum, ponts to the artfcaty of the process. ow many probems
nvovng a manner of dsaowed osses (as n C. . R. v. Lamont, supra) or un-
admtted gans as on ta -e empt securtes woud actuay arse on a detaed
e amnaton of frm hstory we can ony surmse. It seems cear that, f ever a
oss upon an nvestment n a partnershp s to be deducted, t must be based
upon a more reastc foundaton than the mere deducton of cash dstrbuted
from cash receved, pus nvestment osses. s the Commssoner suggests, snce
a ad|ustments of the partners Interest or capta account are assumed to have
been duy made, hs nterest at dssouton woud aways equa hs dstrbutve
cash. ctuay any addtona oss must be a oss upon some specfc property
whch then s nondeductbe under the crcumstances here by reason of secton
2 (b)(1) ( ).
ence on the 13 pettons for revew by the Commssoner, the decsons of the
Ta Court w be reversed and the proceedngs remanded for recomputaton of
the varous ta es upon the bass of e cuson of osses as drected n ths opnon.
On the 13 pettons for revew by the ta payers, the decsons are affrmed.
8Of the frst group are the cnses cted n note 6 supra; of the second group are Woodruff
- Commssoner, 38 . T. . 739. and oettcher v. Commssoner, . T. . Mem. Op. uy
1 , 1939, 1939 Prentce- a . T. . Memorandum Dec, 39,3 3, C. C. . Dee. 10,79 - ,
whch have not been authortatvey passed upon by appeate courts. See aso D. S. Treas.
Reg. 103, secton 19.113(a) (13)-1 and 2.
s stated above, the amount actuay dstrbuted to the partners was 12,210,321.08,
representng the e cess vaue of assets over abtes pad them by the corporaton of
-.2f ,39 .09, ess the cash tem of ,073.01 whch they contrbuted to the corporaton,
note 7 supra. The partners eventuay reazed a sma addtona sum 30,378.1 on
ne gae of ther Interest n Morgan Ce., of Pars, a French partnershp, to Morgan Ce.,
Inc., as fnay setted n 19 .
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29. 3-2. 78
S CTION 2 . CR DITS OF INDI IDU L
G INST N T INCOM
Secton 29.2 -3: Persona e empton, surta
e emptons, and e emptons for both norma
ta and surta .
INT RN L R NU COD
Partes named n an nterocutory decree of dvorce n the State
of Caforna. (See I. T. 39 2, page 69.)
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
Secton 29. 3-2: When charges deductbe. 19 9-12-13102
I. T. 39 6
nterna revenue code
ccrua and deducton, for Federa Income ta purposes, of vaca-
ton pay n the case of certan raroad corporatons whch n 19 1
entered nto agreements wth abor unons as to nonoperatng
empoyees and n 19 as to operatng empoyees, whch agreements
provde for vacatons wth pay, or pay n eu of vacatons, for em-
poyees who rendered compensated servce on not ess than 160 days
durng the precedng caendar year.
dvce s requested as to accrua and deducton, for Federa ncome
ta purposes, of vacaton pay of raway empoyees under certan
agreements between raroad corporatons and abor unons repre-
sentng such empoyees.
The agreement entered nto on December 17, 19 1, as amended
February 23, 19 , between severa raroad corporatons and 1 abor
unons, provdes n effect that begnnng wth 19 2 a vacaton wth
pay (varyng from 6 to 12 consecutve work days), or pay n eu of
such vacaton, w be granted to each nonoperatng empoyee who
rendered compensated servce on not ess than 160 days durng the
precedng caendar year. Smar agreements were entered nto on
May 17, 19 , and September 1, 19 , whch agreements provde n
effect that begnnng wth 19 a vacaton wth pay, or pay n eu of
such vacaton, w be granted to each operatng empoyee who ren-
dered compensated servce on not ess than 160 days durng the pre-
cedng caendar year. These two agreements regardng operatng
empoyees were combned n a Consodated Unform acaton
greement entered nto on une 6, 19 .
The above-mentoned agreements provde that vacatons may be
taken from anuary 1 to December 31; that dues regard sha be gven
to the desres and preferences of the empoyees n senorty order
when f ng the dates for ther vacatons; that the rate to be used n
the computaton of the empoyee s vacaton pay s, n genera, the
rate at whch he s workng at the tme of takng the vacaton; and
that, f a carrer fnds that t cannot reease an empoyee for a vaca-
ton durng the caendar year because of the requrements of the
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79
29. 3-2.
servce, then such empoyee sha be pad an aowance n eu of a
vacaton.
rtce 8 of the severa agreements states that No vacaton wth
pay, or payment n eu thereof, w be due an empoyee whose em-
poyment reaton wth a carrer has termnated pror to the sched-
ued vacaton perod , e cept that empoyees retrng
under the provsons of the Raroad Retrement ct sha receve
payment for vacaton due. It was agreed on une 10, 19 2, by the
carrers and the abor unons, that an empoyee s empoyment rea-
ton s not termnated wthn the appcaton of artce 8 when he s
(a) ad off or cut off on account of force reducton f he mantans
rghts to be recaed. ( ) on furough or eave of absence, or (c)
absent on account of sckness or dsabty.
Secton 3 of the Interna Revenue Code provdes generay, wth
an e cepton that s mmatera here that deductons and credts sha
be taken for the ta abe year n whch pad or accrued or pad or
ncurred, dependent upon the method of accountng used, uness n
order to ceary refect the ncome the deductons or credts shoud be
taken as of a dfferent perod.
The genera rue appcabe to ta payers whch keep ther accounts
and fe ther returns on the accrua bass s that there shoud be
charged aganst the ncome of a ta abe year the e penses ncurred
n and attrbutabe to the process of earnng ncome durng that
year, even though such e penses may not be pad unt a subsequent
year. Where a the events whch determne the abty of the ta -
payer have occurred wthn the ta abe year, the abty may be sad
to have accrued even though the amount thereof has not been def-
ntey ascertaned durng the ta abe year ( rated States v. nderson,
269 U. S. 22, T. D. 3839, C. . -, 179 (1926). and Lucas v. mer-
can Code Co., Inc., 280 U. S. , Ct. L . 168, C. . I -1, 31 (1930)),
but f t s uncertan whether any abty e sts, there can be no
accrua for ta purposes unt the contngency dsappears and a-
bty becomes f ed and certan ( rovm v. everng, 291 U. S. 193,
Ct. D. 786, C. . III-1, 223 (193 ), and ghand Mk Con-
densng Co. v. Phps, 3 Fed. (2d) 777, Ct. D. 117, C. . III-2,
301 (1929)).
In the nstant case, an empoyee s rght to a vacaton, or pay n eu
thereof, s estabshed by vrtue of hs havng performed servces dur-
ng the precedng ta abe year. s of the end of a ta abe year, the
empoyer raroad s obgated to gve, n the succeedng ta abe
year, a vacaton wth pay (or pay n eu thereof) wth respect to a
those empoyees who have rendered compensated servces durng the
ta abe year for the number of days (160) specfed n the agree-
ments. fter the end of a ta abe year, the abty for vacatons
wth pay (or pay n eu thereof) may, wth respect to some em-
poyees, be termnated f the empoyment reaton s termnated pror
to the schedued vacaton perod. Ths crcumstance, however, w
not precude the accrua of vacaton pay at the end of the ta abe
year n whch the servces are performed, snce, wth respect to the
ndvdua empoyee at the end of such year, the empoyer woud bg
|ustfed n antcpatng that the abty w be pad ( everng v.
Russan Fnance and Constructon Corporaton et a., 77 Fed. (2d)
32 ) or, wth respect to the empoyees as a group, such crcumstance
woud ony make uncertan the utmate amount of abty to the
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29. 1-1.1
80
group Lucas v. mercan Code Co., Inc., supra, and Contnenta Te
Lumber Co. v. Unted States, 286 U. S. 290, Ct. D. 9 , C. . I-1,
260(1932)).
It s the opnon of ths offce that the abty for vacaton pay-
ments s f ed as of the cose of the ta abe year n whch the quafy-
ng servces were rendered and shoud not be consdered contngent
as of that date.
ccordngy, t s hed (1) that for each of the caendar years 19 1
to 19 7, ncusve, the empoyer shoud accrue at the end of such year,
as a deducton for Federa ncome ta purposes, the amount of ts
abty to make vacaton payments to nonoperatng empoyees n the
succeedng ta abe year, whch amount shoud equa the amount
actuay pad n such succeedng ta abe year; (2) that for the caen-
dar year 19 the empoyer shoud deduct the amounts pad to ts
operatng empoyees as vacaton pay durng such year and the accrued
amount of such vacaton pay as of the cose of such year, whch ac-
crued amount shoud equa the amount actuay pad n 19 ; and
(3) that for each of the caendar years 19 , 19 6, and 19 7 the em-
poyer shoud accrue at the end of the year, as a deducton, the amount
of ts abty to make vacaton payments to operatng empoyees n
the succeedng ta abe year, whch amount shoud equa the amount
actuay pad m such succeedng ta abe year.
Wth respect to the caendar year 19 8 and subsequent caendar
years, there shoud be accrued and deducted for Federa ncome ta
purposes a reasonabe estmate, based on the best nformaton ava-
abe, of the empoyer s abty to make vacaton payments to operat-
ng and nonoperatng empoyees durng the succeedng ta abe vear.
(Cf. G. C. M. 2 261, C. . 19 7-2, .) ny ad|ustments of these
accruas n succeedng ta abe years to conform to the actua abty
may be treated as overappng tems, as provded by secton 29. 3-2
of Reguatons 111.
The prncpes set forth heren are not confned to cases nvovng
raroad corporatons, but are appcabe to a ta payers empoyng
the accrua method of accountng for Federa ncome ta purposes
who, under abor unon agreements, have become abe for vacaton
pay as of the cose of the ta abe year n respect of vacatons wth pay,
or pay n eu thereof, to be taken or receved durng the succeedng
year. owever, such ta payers may accrue and deduct vacaton pay
for the year n whch t s pad f that has been the consstent practce
of the ta payer and f there s a substanta condton to actua pay-
ment, such as beng n the empoy of the empoyer at the tme of the
schedued vacaton.
P RT . R TURNS ND P YM NT OF T
S CTION 1. INDI IDU L R TURNS
Secton 29. 1-1: Indvdua returns.
INT RN L R NU COD
Partes named n an nterocutory decree of dvorce n the State
of Caforna. (See I. T. 39 2, page 69.)
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81
I 29. 3-3.
Secton 29. 1-1: Indvdua returns.
INT RN L R NU COD
ont return where husband s traveng abroad and wfe prevousy
fed a separate return. (See I. T. 39 6, beow.)
S CTION 3. TIM ND PL C FOR FILING R TURNS
Secton 29. 3-3: tensons of tme n the case 19 9-8-13061
of foregn organzatons, certan domestc cor- I. T. 39 6
poratons, ctzens of Unted States resdng
or traveng abroad, and nonta abe returns of
fducares for estates or trusts.
( so Secton 1, Secton 29. 1-1.)
INT RN L R NU COD
The e tenson of tme for fng Federa ncome ta returns pro-
vded by secton 29. 3-3(a) ( ) of Reguatons 111, for ctzens of
the Unted States resdng or traveng abroad, s appcabe to a
|ont return fed on or before the 1 th day of the s th month fo-
owng the cose of the ta abe year even though the wfe has pre-
vousy fed a separate return.
dvce s requested whether the e tenson of tme for fng Federa
ncome ta returns provded by secton 29. 3-3(a) ( ) of Reguatons
111. for ctzens of the Unted States resdng or traveng abroad, s
appcabe to a |ont return fed on or before the 1 th day of the s th
month foowng the cose of the ta abe year where the husband s
traveng abroad and the wfe has prevousy fed a separate return.
Secton 3(a) (2) of the Interna Revenue Code provdes as foows:
(2) tenson of tme. The Commssoner may grant a reasonabe e tenson
of tme for tng returns, under such rues and reguatons as he sha prescrbe
wth the approva of the Secretary. cept n the case of ta payers who are
abroad, no such e tenson sha be for more than s months.
Secton 29. 3-3(o) of Reguatons 111, promugated under the fore-
gong provson of aw, provdes n part:
(a) n e tenson of tme for fng returns of ncome for ta abe years begn-
nng after December 31, 19 1, s hereby granted up to and ncudng the 1 th
day of the s th month foowng the cose of the ta abe year n the case of:

( ) mercan ctzens resdng or traveng abroad, ncudng persons n
mtary or nava servce on duty outsde the Unted States.
O. D. 21 (C. . 2, 203 (1920)) hods that where a husband and
wfe fe a |ont return and an e tenson of tme has been granted to
ether of them, the beneft of the e tenson nures to both and t s
unnecessary for the other party to secure addtona authorty.
It s hed that the e tenson of tme for fng Federa ncome ta
returns provded by secton 29. 3-3(a) ( ) of Reguatons 111, supra,
for ctzens of the Unted States resdng or traveng abroad, s ap-
pcabe to a |ont return fed on or before the 1 th day of the s th
month foowng the cose of the ta abe year even though the wfe
as prevousy fed a separate return.
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29.119-2. 82
SU C PT R C SUPPL M NT L PRO ISIONS
SUPPL M NT . COMPUT TION OF N T INCOM
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.
INT RN L R NU COD
ass of vesse wth respect to whch an ad|ustment has been made
under secton 9 of the Merchant Shp Saes ct of 19 6. (See Mm.
6366, page 270.)
S CTION 117. C PIT L G INS ND LOSS S
Secton 29.117- : Determnaton of perod 19 9-11-13093
for whch capta assets are hed. I. T. 39
nterna revenue code
ppcaton of I. T. 3919 (C. . 19 8-2, 67), reatng to determ-
naton of the hodng perod, for the purpose of secton 117 of the
Interna Revenue Code, of a commodty receved pursuant to a fu-
tures purchase contract.
I. T. 3919 (C. . 19 8-2, 67) hods that for the purpose of deter-
mnng the perod durng whch capta assets are hed, under secton
117 of the Interna Revenue Code, the perod durng whch a futures
purchase contract s hed by an ndvdua trader may not be ncuded
as part of the hodng perod of the commodty receved pursuant
to the contract.
Pursuant to authorty contaned n secton 3791(b) of the Interna
Revenue Code, I. T. 3919, supra, w be apped ony to futures pur-
chase contracts entered nto on and after ugust 23, 19 8, the date
on whch that rung was promugated, e cept that short-term capta
oss treatment may be gven n cases where, n reance on the rue
contaned n I. T. 3919, saes have been made wthn 6 months after
devery of the commodty under futures purchase contracts entered
nto pror to such promugaton date.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr 20,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
S CTION 119. INCOM FROM SOURC S
WIT IN UNIT D ST T S
Secton 29.119-2: Interest.
nterna revenue code
Interest pad by a domestc corporaton to a nonresdent foregn
(Cuban) corporaton on a oan negotated n Cuba, (See I. T. 39 0,
page 113.)
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83
29.119- .
Secton 29.119- : Compensaton for abor or 19 9-6-130 0
persona servces. I. T. 39 3
( so Secton 211, Secton 29.211-7.)
INT RN L R NU COD
nonresdent aen ndvdua, an empoyee of a foregn branch
of a domestc corporaton, s sub|ect to Federa ncome ta wth
respect to saary receved by hm for the perod he was n the Unted
States attendng an nternatona saes conventon and saes promo-
ton meetngs.
dvce s requested whether saary receved by a nonresdent aen
ndvdua, an empoyee of a foregn branch of domestc corporaton,
for the perod durng whch he was n the Unted States attendng an
nternatona saes conventon and saes promoton meetngs s sub|ect
to Federa ncome ta .
The ta payer s manager of a foregn branch of a domestc corpora-
ton. The branch s a sef-controed, autonomous unt, the affars of
whch are admnstered abroad. It keeps ts own books of account and
sends to the head offce n the Unted States ts monthy baance sheets
and proft and oss statements n the same manner as woud normay
be done by a subsdary corporaton. The resdent manager of the
branch has e cusve authorty to accept or re|ect orders for merchan-
dse. uthorty for the performance of a admnstratve functons
of the branch s deegated to the manager by an approprate power of
attorney.
The ta payer came to the Unted States for the purpose of attend-
ng an nternatona saes conventon and saes promoton meetngs
conducted by the domestc corporaton and ts subsdares. s stay
was for a perod of appro matey 36 days. The genera purpose of
the conventon and meetngs was to nform those n attendance as to
what was beng done by the domestc corporaton n promotng saes,
and to demonstrate the use of mpements, toos, and equpment deve-
oped n recent years.
Secton 119(a) (3) of the Interna Revenue Code provdes as
foows:
(a) Gross Income From Sources m Unted States. The foowng tems of
gross ncome sha be treated as Income from sources wthn the Unted States:

(3) Persona servces. Compensaton for abor or persona servces per-
formed n the Unted States, but n the case of a nonresdent aen ndvdua
temporary present n the Unted States for a perod or perods not e ceed-
ng a tota of nnety days durng the ta abe year, compensaton receved
by such an ndvdua (If such compensaton does not e ceed 3,000 n the
aggregate) for abor or servces performed as an empoyee of or under a
contract wth a nonresdent aen, foregn partnershp, or foregn corporaton,
not engaged n trade or busness wthn the Unted States, sha not be
deemed to be ncome from sources wthn the Unted States; Itacs
supped.
Secton 29.119- of Reguatons 111 provdes n part as foows:
Compensaton for Labor or Persona Servces. cept as provded n secton
119(a)(3), gross ncome from sources wthn the Unted States ncudes com-
pensaton for abor or persona servces performed wthn the Unted States
regardess of the resdence of the payor, of the pace n whch the contract for
servce was made, or of the pace of payment,
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29.122-3.
8
Secton 211(b) of the Code provdes n part as foows:
(b) Unted States usness oe Offce. nonresdent aen ndvdua
engaged n trade or busness wthn the Unted States sha be ta abe wthout
regard to the provsons of subsecton (a). s used n ths secton, secton
119, the phrase engaged n trade or busness wthn the Unted
States Incudes the performance of persona servces wthn the Unted States
at any tme wthn the ta abe year, but does not ncude the performance of
persona servces for a nonresdent aen ndvdua, foregn partnershp, or
foregn corporaton, not engaged n trade or busness wthn the Unted States,
by a nonresdent aen ndvdua temporary present n the Unted States
for a perod or perods not e ceedng a tota of nnety days durng the ta abe
year and whose compensaton for such servces does not e ceed n the aggregate
3,000. Itacs supped.
No persona servces coud have been performed by the ta payer
n a foregn country durng the perod n whch he was physcay
present n the Unted States. It s cear that durng that perod of
tme the servces for whch the ta payer was compensated were per-
formed n ths country. It foows, therefore, that such compensa-
ton was from sources wthn the Unted States. (Secton 119(a) (3),
I. . C.)
ccordngy, t s hed that a nonresdent aen ndvdua, an em-
poyee of a foregn branch of a domestc corporaton, s sub|ect to
Federa ncome ta wth respect to saary receved by hm for the
perod he was n the Unted States attendng an nternatona saes
conventon and saes promoton meetngs.
O. D. 78 (C. . 3,128 (1920)) reates to compensaton receved dur-
ng a ta abe year to whch the Revenue ct of 1918 s appcabe
and shoud not be foowed n appyng the provsons of the Interna
Revenue Code.
S CTION 122. N T OP R TING LOSS
D DUCTION
Secton 29.122-3: Computaton of net operat- 19 9-9-13073
ng oss n case of a ta payer other than a I. T. 39 1
corporaton.
INT RN L R NU COD
In determnng a net operatng oss under secton 122 of the
Interna Revenue Code n the case of a ta payer other than a cor-
poraton, the amount of State Income ta pad Is aowabe as a
deducton ony to the e tent of gross ncome not derved from a
trade or busness.
dvce s requested whether the amount of State ncome ta pad
s an aowabe deducton n determnng a net operatng oss under
secton 122 of the Interna Revenue Code n the case of a ta payer
other than a corporaton.
In the nstant case, an ndvdua ta payer who keeps hs books and
fes hs Federa ncome ta returns on the cash recepts and ds-
bursements bass for caendar years, n computng a net operatng oss
for 19 deducted the amount of hs 19 3 State ncome ta pad
n 19 , and n computng a net operatng oss for 19 deducted
State ncome ta es for 19 0 and 19 1 whch were pad n 19 . The
ta payer had no ordnary nonbusness gross ncome n ether 19
or 19 .
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29.122-3.
Secton 122 of the Interna evenue Code provdes n part as
foows:
S C. 122. N T OP R TING LOSS D DUCTION.
(a) Defnton of Net Operatng Loss. s used In ths secton, the term
net operatng oss means the e cess of the deductons aowed by ths chapter
Chapter 1 of the Code over the gross ncome, wth the e ceptons, addtons,
and mtatons provded In subsecton (d).

(d) ceptons, ddtons, and Lmtatons. The e ceptons, addtons, and
mtatons referred to n subsectons (a), sha be as foows:

( ) Deductons otherwse aowed by aw not attrbutabe to the operaton
of a trade or busness reguary carred on by the ta payer sha (n the
case of a ta payer other than a corporaton) be aowed ony to the
e tent of the amount of the gross Income not derved from such trade or
busness.
The specfc queston presented n the nstant case s whether State
ncome ta , an e pendture whch s aowabe under secton 23(c)
of the Code as a deducton n computng net ncome, may be consdered
as attrbutabe to the operaton of the ta payer s trade or busness
wthn the meanng of secton 122(d) ( ) of the Code, supra. If not,
then t s deductbe n computng a net operatng oss ony to the e tent
of the amount of ordnary nonbusness gross ncome. (See secton
29.122-3( ) (7) of Reguatons 111.)
Secton 1(a) of the Interna Revenue Code (now repeaed) pro-
vdes that vctory ta net ncome means gross ncome mnus, nter
aa, amounts aowabe as a deducton by secton 23(c), to the e tent
such amounts are pad or ncurred n connecton wth the carryng
on of a trade or busness. I. T. 36 (C. . 19 , 372) hods that
State ncome ta es are not deductbe for vctory ta purposes for the
mped reason that such ta es are not pad or ncurred n connecton
wth the carryng on of the ta payer s trade or busness.
Secton 22(n) of the Interna Revenue Code provdes that ad|usted
gross ncome means the gross ncome mnus, nter aa, the deduc-
tons aowed by secton 23 whch are attrbutabe to a trade or busness
carred on by the ta payer. Secton 29.22 (n)- of Reguatons 111
provdes n part as foows:
To be deductbe for the purposes of determnng ad|usted gross n-
come, e penses must be those drecty, and not those merey remotey, connected
wth the conduct of the trade or busness. For e ampe, ta es are deductbe
n arrvng at ad|usted gross Income ony f they consttute e pendtures drecty
attrbutabe to the trade or busness Thus, property ta es pad or
ncurred on rea property used n the trade or busness are deductbe but State
ncome ta es are not deductbe even though the ta payer s Income s derved
from the conduct of a trade or busness. Itacs supped.
ccordngy, t s hed that n determnng a net operatng oss
under secton 122 of the Interna Revenue Code n the case of a ta -
payer other than a corporaton, the amount of State ncome ta pad
s aowabe as a deducton ony to the e tent of gross ncome not de-
rved from a trade or busness.
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29.131-2.
86
SUPPL M NT C. CR DITS G INST T
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S
Secton 29.131-2: Meanng of terms. 19 9- -13031
LT. 39 1
INT RN L R NU COD
Maayan ncome ta accounted for by a dvdend-payng corpora-
ton wth respeet to corporate profts dstrbuted as a dvdend s a
ta pad by the dstrbutng corporaton, and as such shoud not be
camed as a credt aganst Unted States ncome ta , under secton
131(a) (1) of the Interna Revenue Code, by the stockhoders.
dvce s requested whether the ncome ta mposed by the Maayan
Income Ta Ordnance, 19 7, as amended, accounted for by a dvdend-
payng corporaton wth respect to corporate profts dstrbuted as a
dvdend, s, for the purposes of secton 131(a)(1) of the Interna
Revenue Code, a ta pad by the dstrbutng corporaton or by ts
stockhoders.
In the case under consderaton, a domestc corporaton (the ta -
payer) s engaged n busness operatons n Maaya. The domestc
corporaton has a subsdary whch s organzed under the aws of
Maaya and whch s aso engaged n busness operatons there. oth
corporatons are sub|ect to the Maayan ncome ta .
Secton 10(1) (d) of the Maayan ordnance provdes that ncome
ta sha be payabe n respect of dvdends receved. Secton 26 pro-
vdes that the dvdend ncome returnabe for Maayan ncome ta pur-
poses s the amount receved pus the ta deducted therefrom by the
payor corporaton, and that where no such deducton has been made,
the ncome arsng sha be the amount of the dvdend ncreased by
an amount on account of such ta es correspondng to the e tent to
whch the profts out of whch the sad dvdend has been pad have
been charged wth such ta es. The ta rate appcabe to corpora-
tons s prescrbed n secton 39, whch aso provdes for an ad|ust-
ment of the ta by the comptroer of ncome ta upon a showng that
dvdends have been pad out of chargeabe ncome.
Secton 0 of the Maayan ordnance, as amended, provdes as fo-
ows :
0. (1) very company whch s resdent n the Federaton sha be entted
to deduct from the amount of any dvdend pad to any sharehoder ta at the
rate pad or payabe by the company, as reduced by any reef granted under sec-
tons 3, or 6 of ths ordnance, on the chargeabe ncome of the year of as-
sessment wthn whch the dvdend s decared payabe:
Provded that
() where ta s not pad or payabe by the company on the whoe ncome
out of whch the dvdend s pad, the deducton sha be restrcted to that
porton of the dvdend whch s pad out of Income on whch ta s pad or
payabe by the company;
() the comptroer may gve notce n wrtng for any year of assessment
to a company resdent n the Federaton requrng t to deduct ta from dv-
dends payabe to a partcuar sharehoder at a rate greater than the rate pad
or payabe by the company, and the company sha thereupon deduct ta
from a dvdends pad durng that year of assessment to that sharehoder
at the rate mentoned n the notce and the e cess ta so deductbe sha be
a debt due from the company to the Government and sha be recoverabe
forthwth as such or may be assessed and charged upon the company In ad-
dton to any other ta otherwse payabe by It
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87
29.131-2.
(2) very such company sha upon payment of a dvdend, whether ta s de-
ducted therefrom or not, furnsh each sharehoder wth a certfcate settng forth
the amount of the dvdend pad to that sharehoder and the amount of ta whch
the company has deducted or s entted to deduct n respect of that dvdend.
Secton 2 provdes that any ta whch the dvdend-payng corpora-
ton has deducted wth respect to a dvdend sha, when the dvdend
s ncuded n the chargeabe (ta abe) ncome of the stockhoder, be
set off aganst the ta charged to the stockhoder wth respect to the
dvdend. Secton 89 provdes that f the ta pad by any person by
deducton or otherwse e ceeds the amount wth whch he s propery
chargeabe, such person sha be entted to have the amount of the
e cess ta refunded.
The ta payer contends that the ta n respect to corporate earnngs
dstrbuted as dvdends s a ta upon the stockhoder, and not upon
the dvdend-dstrbutng corporaton, for the reason that the corpora-
ton does not have to account for ta as to that porton of corporate
earnngs dstrbuted to a partcuar stockhoder f t s shown that he s
not ta abe, and that the provsons of secton 0(1) of the Maayan
ordnance confrm that contenton.
Secton 131 of the Interna Revenue Code provdes n part as foows:
(a) owance of Credt. If the ta payer chooses to have the benefts of ths
secton, the ta mposed by ths chapter Chapter 1 of the Code , e cept the ta
mposed under secton 102, sha be credted wth:
(1) Ctzens and domestc corporatons. In the case of a
domestc corporaton, the amount of any ncome ta es pad or
accrued durng the ta abe year to any foregn country
In dde v. Commssoner (302 U. S. 73, Ct. D. 1303, C. . 1938-1,
309), reatng to a smar queston wth respect to rtsh ta es, t s
stated that the decson must turn on the precse meanng of the words
n the statute whch grants to the ctzen ta payer a credt for foregn
ncome ta es pad. Paraphrasng the anguage used by the Supreme
Court n the dde opnon and appyng t to the nstant case, sec-
ton 131 of the Interna Revenue Code does not say that the meanng
of ts words s to be determned by foregn ta ng statutes and dec-
sons, and there s nothng n ts anguage to suggest that n aowng
the credt for foregn ta payments, a shftng standard s to be
adopted by reference to foregn characterzatons and cassfcatons
of ta egsaton. Incuson of the deducted amount n the base on
whch ta s cacuated, together wth the provsons for refund of
e cess ta to the stockhoder, and the apparent recognton under
the Maayan ta ordnance of the stockhoder as the ta payer, are
recogntons of the concepton under the foregn ta ng statute to
whch our revenue aws gve no recognton. Our statutes have never
treated the stockhoder for any purpose as payng the ta coected
from the corporaton. Nor have they treated as ta payers those upon
whom no ega duty to pay the ta s ad. Measured by these stand-
ards, our statutes afford no bass for sayng that the stockhoder of a
foregn corporaton pays the ta whch s ad upon and coected
from the corporaton, and no bass for a decson that secton 131 e -
tends to such a stockhoder a credt for a ta pad by the corporaton
a prvege not granted to stockhoders n our own corporatons.
ccordngy, t s hed that Maayan ncome ta accounted for by a
dvdend-payng corporaton wth respect to corporate profts ds-
trbuted as a dvdend s a ta pad by the dstrbutng corporaton,
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29.131-7.
88
and as such shoud not be camed as a credt, under secton 131(a) (1)
of the Code, aganst Unted States ncome ta by the stockhoders.
Secton 29.131-7: Ta es of subsdary corpora- 19 9-7-130
tons. I. T. 39
INT RN L R NU COD
The ta es mposed by the Me can Mnng Ta and Mnng Fee
Law of ugust 30,193 , wth respect to the vaue of metas, metac
compounds, and nonnetac ores produced n Me co, are not ncome
ta es or ta es n eu of ncome ta es wthn the meanng of secton
131 (f) and (h) of the Interna Revenue Code, and a credt for such
ta es Is not aowabe under secton 131 of the Code.
dvce s requested whether the ta es mposed by the Me can
Mnng Ta and Mnng Fee Law of ugust 30, 193 (pubshed n
the Offca ourna of ugust 31, 193 ), are ncome ta es or ta es n
eu of ncome ta es wthn the purvew of secton 131 (f) and (h) of
the Interna Revenue Code.
rtce 1 of Chapter I of the Me can aw desgnated as the Mnng
Ta and Mnng Fee Law states that the ta es whch are assessed on
mnng are on mnng propertes, on the producton of metas and
metac compounds, and on the producton of nonmetac ores. The
rates of ta es on meta producton are provded for n Chapter III,
artce 8 thereof settng forth the specfc rates whch appy on the
vaues of god, sver, and other metas n the varous stages of produc-
ton. Provson s made for an ncrease n the rate of ta n case of
ncreases n vaues on the New York market. The f ng of the monthy
vaues of metas and metac compounds by the Me can Government
s provded for n artce 13 of Chapter III, and Chapter I sets forth
the paces and the tmes for payment of the ta es. Chapter II pro-
vdes for the fng of monthy decaratons wth respect to the produc-
ton of ores and metaurgca products, and Chapter sets forth
crcumstances under whch no ta s assessed. The aw n queston s
not a part of the genera Me can ncome ta aw entted Ley de
Impuesto sobre a Renta. mnng ta was mposed many years
before the enactment of the genera ncome ta aw of Me co n 192 .
The frst of the present seres of mnng ta aws was pubshed n the
Offca ourna on uy 3, 1919, and the ast one, the aw under con-
sderaton, was pubshed n the Offca ourna on ugust 31,193 .
Secton 131(f) of the Interna Revenue Code provdes n part as
foows:
(f) Ta es of Foregn Subsdary.
(1) Foregn subsdary of domestc corporaton. For the purposes of
ths secton, a domestc corporaton whch owns a ma|orty of the votng stock
of a foregn corporaton from whch t receves dvdends n any ta abe year
sha be deemed to have pad the same proporton of any ncome, war-profts,
or e cess-profts ta es pad or deemed to be pad by such foregn corporaton
to any foregn country upon or wth respect to the accumuated
profts of such foregn corporaton from whch such dvdends were pad,
whch the amount of such dvdends bears to the amount of such accumuated
profts.
Secton 131(h) of the Interna Revenue Code provdes n part as
f oows:
(h) Credt for Ta es n Leu of Income, tc., Ta es. For the purposes of
ths secton and secton 23(c) (1), the term ncome, war-profts, and e cess-profts
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89
23.11, Regs. 10 .
ta es sha Incude a ta pad In eu of a ta upon Income, war-profts, or e cess-
profts otherwse generay mposed by any foregn country
amnaton of the provsons of the Me can Mnng Ta and
Mnng Fee Law does not ndcate that the ta es thereunder are m-
posed on the profts of the mnng ndustry, but ndcates that the ta es
are mposed on the vaue of the ore produced. The costs of operaton
do not consttute factors n the determnaton of such vaue. The
ta es here nvoved are appcabe regardess of whether there s ncome
from the property, and they appear to be eved for the rght and
prvege of e potng mnng propertes. They are not ncome ta es
as contempated n secton 131 (f) of the Interna Revenue Code, supra.
Wth respect to the queston whether the mnng ta es are ta es n
eu of ta es on ncome, t s the opnon of ths offce that the mport of
secton 131(h) of the Code, supra, s that, for- the purposes of secton
131 of the Code, the term ncome, war-profts, and e cess-profts ta es
ncudes a ta mposed by statute or decree by a foregn country f (a)
such country has n force a genera ncome ta , (6) such genera n-
come ta s not mposed upon the ta payer, and (c) the ta payer
camng the credt woud, n the absence of a specfc provson app-
cabe to such ta payer, be sub|ect to such genera ncome ta . s stated
above, Me co has a genera ncome ta aw, and t appears that Me -
can mnng subsdares of Unted States corporatons are sub|ect to
the genera ncome ta n addton to beng sub|ect to the mnng ta es.
It appears, therefore, that the mnng ta es are not pad n eu of n-
come ta es.
ccordngy, t s hed that the ta es mposed by the Me can Mnng
Ta and Mnng Fee Law of ugust 30,193 , wth respect to the vaue
of metas, metac compounds, and nonmetac ores produced n
Me co, are not ncome ta es or ta es n eu of ncome ta es wthn the
meanng of secton 131 (f) and (h) of the Interna Revenue Code, and
a credt for such ta es s not aowabe under secton 131 of the Code.
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 1 1. CONSOLID T D R TURNS
Secton 23.11, Reguatons 10 : Consodated 19 9-13-13111
returns for subsequent years. I. T. 39 8
nterna revenue code
ffated corporatons whch fed consodated Federa ncome ta
returns for fsca years ended n 10 8 may, notwthstandng the fng
of such returns, fe separate Federa ncome ta returns for fsca
years endng n 18 9.
dvce s requested whether affated corporatons whch fed
consodated Federa ncome ta returns for fsca years ended n 19 8
may eect to fe separate Federa ncome ta returns for fsca years
endng n 19 9.
Secton 1 1(a) of the Interna Revenue Code, as amended, provdes
n part as foows:
(a) Prvege to Fte Consodated Income and cess-Profts-Ta Re-
turns. The makng of consodated returns sha be upon the condton
8 16 19 7
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29.1 2-1.
90
that the affated group sha make both a consodated Income-ta return and a
consodated e eess-profts-ta return for the ta abe year, and that a corpora-
tons whch at any tme durng the ta abe year have been members of the
affated group makng a consodated ncome-ta return consent to a the con-
sodated ncome- and e cess-profts-ta reguatons prescrbed under subsecton
(b) pror to the ast day prescrbed by aw for the fng of such return.
Secton 23.11(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 Tears.
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
contnued fng of consodated returns,
It s hed that the aw appcabe to the fng of consodated Fed-
era ncome ta returns has been so amended as to make ess advanta-
geous 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 fsca years endng n 19 9. ccordngy, affated corporatons
whch fed consodated Federa ncome ta returns for fsca years
ended n 19 8 may, notwthstandng the fng of such returns, fe
separate Federa ncome ta returns for fsca years endng n 19 9.
trustee n bankruptcy has no authorty, n Ins capacty as
trustee, to fe a Federa ncome ta return on behaf of a bankrupt
ndvdua. Such ndvdua s requred to fe a return for each of
hs ta abe years, uness otherwse e cepted by aw. The perod
for whch a return must be made by the bankrupt ndvdua s not
affected by the nterventon of bankruptcy proceedngs, and hs re-
turn shoud cover a fu ta abe year. The return fed by the trustee
on behaf of the bankrupt estate shoud be on Form 10 1 and shoud
cover the ta abe year of the estate.
The rght of a bankrupt ndvdua to a refund of ncome ta
erroneousy pad for a perod pror to bankruptcy passes to the
trustee n bankruptcy upon the fng of the petton, and refund of
such ta may be made to the trustee ony on the bass of a proper
cam for refund fed by hm.
dvce s requested wth respect to the fng of ndvdua ncome
ta returns by a trustee n bankruptcy on behaf of a bankrupt
ndvdua.
In the nstant case, the bankrupt s an ndvdua who operated a
busness n hs ndvdua capacty throughout the ta abe year 19 6.
e overpad hs ndvdua Federa ncome ta for 19 6 n tne amount
of 00. The ta payer fed a petton n bankruptcy on October 16,
19 7. and was ad|udcated a bankrupt on November , 19 7. The
trustee n bankruptcy dd not fe a Federa ncome ta return for
19 7 as trustee, but he dd fe a return for the bankrupt ndvdua
S CTION 1 2. FIDUCI RY R TURNS
Secton 29.1 2-1: Fducary returns.
( so Secton 322, Secton 29.322-3.)
19 9-13-13112
I. T. 39 9
INT RN L R NU COD
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29.1 2-1.
on Form 10 0 for the perod anuary 1, 19 7, to October 31, 19 7.
That return shows the ndvdua overpad hs 19 6 ncome ta
abty by 00, and a refund of that amount s camed n the
return.
The trustee n bankruptcy s entted, by operaton of the ank-
ruptcy ct, as amended, to the 00 overpad by the bankrupt nd-
vdua. Wth respect to the trustee s rghts and the tems of property,
or property rghts, whch he takes over from the ndvdua, secton 70
of the ankruptcy ct, as amended, provdes n part as foows:
Sec. 70. Tte to Property. a. The trustee of the estate of a bankrupt and hs
successor or successors, f any, upon Is or ther appontment and quafcaton,
sha n turn be vested by operaton of aw wth the tte of the bankrupt as of
the date of the ng of the petton In bankruptcy to a
( ) Property, ncudng rghts of acton, whch pror to the fng of the petton
he coud by any means have transferred or whch mght have been eved upon
and sod under udca process aganst hm, or otherwse sezed, mpounded, or
sequestered ; (6) Rghts of acton arsng upon contracts, or usury, or
the unawfu takng or detenton of or n|ury to hs property
ccordngy, the ankruptcy ct, as amended, operates to transfer
(wth certan mmatera e ceptons) to the trustee n bankruptcy
everythng whch the bankrupt ndvdua owns as of the date the
petton n bankruptcy s fed. (See Chander v. Nathans, 6 Fed. (2d)
72 , decded pror to enactment of the so-caed Chander ct, 2 Stat.
8 0.)
The 00 overpad by the bankrupt ndvdua for the ta abe year
19 6 s an asset of the bankrupt s estate whch has not been reduced to
possesson. Snce the bankrupt, as an ndvdua, and the trustee n
bankruptcy are two separate ta abe enttes, each beng requred to
fe a Federa ncome ta return, the proper course for the trustee to
foow n order to obtan a refund of the 19 6 overpayment s to fe a
cam for refund on Form 8 3. (See secton 29.322-3 of Reguatons
11L , .
The trustee n bankruptcy has no authorty, n hs capacty as trus-
tee, to fe a Federa ncome ta return for the bankrupt ndvdua.
The ndvdua s requred to fe an ncome ta return for each of hs
fu ta abe years, uness otherwse e cepted by aw, and nether the
nsttuton of bankruptcy proceedngs nor the ad|udcaton of bank-
ruptcy aters hs duty n ths regard n any respect. The trustee n
bankruptcy s a fducary. (See secton 3797(a)(6) of the Interna
Revenue Code.) s a fducary, a trustee n bankruptcy s requred by
secton 1 2 of the Interna Revenue Code and secton 29.1 2-1 of Regu-
atons 111 to fe a return on Form 10 1 (Unted States Fducary
Income Ta Return) for the estate he s admnsterng, f the ncome
of the estate s suffcent to requre a return. Such return shoud cover
the ta abe year of the bankrupt estate, caendar or fsca as the trustee
may eect. ny ta whch may be due on the bass of such return s
mposed by secton 161 of the Code, reatng to estates and trusts. (See
G. C. M. 2 617, C. . 19 ,23 .)
In vew of the foregong, a coector of nterna revenue s not au-
thorzed to accept as a correct return a Form 10 0 fed by a trustee n
bankruptcy on behaf of a bankrupt ndvdua. Such a return does
not quafy as a return for the ndvdua or as a return for the bank-
rupt estate.
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29.1 3-1.
92
S CTION 1 3. WIT OLDING OF T T SOURC
Secton 29.1 3-1: Wthhodng ta at source. 19 9-6-130 1
( so Secton 1 , Secton 29.1 -1.) T. D. 690
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 N T RL NDS, GINNING
NU RY 1. 19 7
Reease of e cess ta wthhed, and e empton from, or reduc-
ton n rate of, wthhodng under sectons 1 3 and 1 of the In-
terna Revenue Code n the case of resdents of the Netherands
and of Netherands corporatons, as affected by the recproca n-
come ta conventon between the Unted States and the ngdom
of the Netherands procamed by the Presdent of the Unted States
on December 8,19 8.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. G.
To Coectors of Interna Revenue and Others Concerned:
On December 28, 19 8, notce of proposed rue makng under the
ncome ta conventon between the Unted States and the ngdom
of the Netherands, procamed by the Presdent of the Unted States
on December 8, 19 8, was pubshed n the Federa Regster (13 F. R.
8 01). fter consderaton of a such reevant matter as was pre-
sented by nterested persons regardng the proposa, the foowng
reguatons are adopted for the purposes of such conventon. These
reguatons are necessary to prescrbe rues wth respect to reease
of e cess ta wthhed, and e empton from, or reducton n the rate
of, wthhodng under sectons 1 3 and 1 of the Interna Revenue
Code n the case of resdents of the Netherands and of Netherands
corporatons, as affected by such conventon.
Tabe or Contents
Secton.
7.800. Introductory.
7.801. Dvdends.
7.802. Interest.
7.803. Patent and copyrght royates and fm rentas.
7.80 . Pensons and fe annutes.
7.80 . Natura resource royates and rea property rentas.
7.806. Reease of e cess ta wthhed at source.
7.807. ddressee n the Netherands not actua owner.
7.808. Return of ta wthhed and nformaton return wth respect to persons
whose addresses are n the Netherands.
7.809. Refund of e cess ta wthhed.
7.810. enefcares of a domestc estate or trust.
Secton 7.800. Introductory. The ncome ta conventon between
the Unted States and the ngdom of the Netherands, sgned pr
29,19 8, procamed by the Presdent of the Unted States on Decem-
ber 8, 19 8, and effectve on anuary 1, 19 7 (herenafter referred to
as the conventon), provdes n part as foows:
rtce I
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the case of the Unted States:
the Federa Income ta es.
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29.1 3-1.
(6) In the case of the Netherands:
() for the appcaton of the provsons of the conventon other
than rtce , the ncome ta and the Netherands ta es credted
aganst t, the corporaton ta and the Netherands ta es credted
aganst t, the property ta , and the ta on fees of drectors and
managers of corporatons; and
() for the appcaton of rtces to III ncusve (e -
cept rtces I and II), the capta accretons ta and the
e traordnary capta ta .
(2) The present conventon sha appy aso to any other ta es of a substan-
tay smar character mposed by ether contractng state subsequenty to the
date of sgnature of the present conventon, or, by the government of any over-
seas part of the ngdom (n the case of the Netherands) or overseas terrtory
(n the case of the Unted States) to whch the present conventon s e tended
under rtce II, subsequenty to the date of the notfcaton of e tenson.
(3) In the event of apprecabe changes n the fsca aws of ether of the con-
tractng states the competent authortes of the contractng states w consut
together.
rtce II
(1) In the present conventon, uness the conte t otherwse requres:
(0) 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 Netherands means ony the ngdom of the Netherands
n urope.
(c) The term Unted States corporaton means a corporaton, assoca-
ton, or other organzaton or urdca entty created n the Unted States
or under the aws of the Unted States or of any State or Terrtory of the
Unted States.
(d) The term Netherands corporaton means a corporaton, assocaton,
or other organzaton or |urdca entty created n the Netherands or under
the aws of the Netherands.
(e) The terms corporaton of one contractng state and corporaton
of the other contractng state mean a Unted States corporaton or a
Netherands corporaton, as the conte t requres.
f) The term Unted States enterprse means an ndustra or com-
merca enterprse or undertakng carred on n the Unted States by a
ctzen or resdent of the Unted States or by a Unted States corporaton.
(g) The term Netherands enterprse means an ndustra or commerca
enterprse or undertakng carred on n the Netherands by a ctzen or res-
dent of the Netherands or by a Netherands corporaton.
(ft) The terms enterprse of one of the contractng states and enter-
prse of the other contractng state mean a Unted States enterprse or a
Netherands enterprse, as the conte t requres.
(1) The term permanent estabshment, when used wth respect to an
enterprse of one of the contractng states, means a branch, 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 con-
tracts on behaf of such enterprse or has a stock of merchandse from whch
he reguary fs orders on behaf of such enterprse. n enterprse of one
of the contractng states sha not be deemed to have a permanent estabsh-
ment n the other contractng state merey because t carres on busness
deangs n such other contractng state 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 states
mantans In the other contractng state 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 estabshment of such enterprse. When
a corporaton of one contractng state has a subsdary corporaton whch
Is a corporaton of the other contractng state or whch Is engaged n trade
or busness In such other contractng state, such subsdary corporaton sha
not, merey because of that fact, be deemed to be a permanent estabshment
of ts parent corporaton.
(|) The term competent authorty or competent authortes means,
n the case of the Unted States, the Commssoner of Interna Revenue or
hs duy authorzed representatve; In the case of the Netherands, the
Drecteur-Generaa der eastngen or hs duy authorzed representatve;
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29.1 3-1.
9
and, n the case of any part or terrtory to whch provsons of the present
conventon are e tended under rtce II, the competent authorty
for the admnstraton n such part or terrtory of the ta es to whch such
provsons appy.
(2) In the appcaton of the provsons of the present conventon by ether
of the contractng states, any term whch s not defned n the present conventon
sha, uness the conte t otherwse requres, have the meanng whch that term
has under the aws of such contractng state reatng to the ta es whch are the
sub|ect of the present conventon.

rtce
Income of whatever nature derved from rea property and nterest from
mortgages secured by rea property sha be ta abe ony In the contractng state
n whch the rea property s stuated.

rtce vn
(1) The rate of Unted States ta on dvdends derved from a Unted States
corporaton by a resdent or corporaton of the Netherands not engaged n trade
or busness n the Unted States through a permanent estabshment sha not
e ceed 1 percent: Provded that such rate of ta sha not e ceed percent f
such Netherands corporaton contros, drecty or ndrecty, at east 9 percent
of the entre votng power n the corporaton payng the dvdend, and not more
than 2 percent of the gross ncome of such payng corporaton s derved from
nterest and dvdends, other than nterest and dvdends from ts own subsdary
corporaton. Such reducton of the rate to percent sha not appy f the rea-
tonshp of the two corporatons has been arranged or s mantaned prmary
wth the ntenton of securng such reduced rate.
(2) Dvdends derved from sources wthn the Netherands by a resdent or
corporaton of the Unted States not engaged n trade or busness n the Nether-
ands through a permanent estabshment sha be e empt from Netherands ta .
(3) ther of the contractng states may termnate ths artce, by gvng
wrtten notce of termnaton to the other contractng state through dpomatc
channes, on or before the 30th day of .Tune n any year after the frst year for
whch the present conventon becomes effectve. In such event ths artce sha
cease to be effectve on and after the 1st day of anuary n the year ne t foow-
ng that n whch such notce s gven.
rtce III
(1) Interest (on bonds, securtes, notes, debentures, or on any other form of
ndebtedness), other than nterest referred to n rtce of the present conven-
ton, derved from sources wthn the Unted States by a resdent or corporaton
of the Netherands not engaged n trade or busness n the Unted States through
a permanent estabshment, 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 Netherands corporaton controng, drecty or ndrecty, more than 0
percent of the entre votng power n the payng corporaton.
(2) Interest (on bonds, securtes, notes, debentures, or on any other form of
ndebtedness), other than nterest referred to n rtce of the present con-
venton, derved from sources wthn the Netherands by a resdent or corpora-
ton of the Unted States not engaged n trade or busness n the Netherands
through a permanent estabshment, sha be e empt from Netherands ta ;
but such e empton sha not appy to such nterest pad by a Netherands corpora-
ton to a Unted States corporaton controng, drecty or ndrecty, more than
0 percent of the entre votng power n the payng corporaton.
rtck I
Royates for the rght to use copyrghts, patents, desgns, secret processes and
formuae, trade-marks, and other anaogous property, and royates, ncudng
rentas, n respect of moton pcture fms or for the use of ndustra, commerca,
or scentfc equpment, derved from sources wthn one of the contractng states
by a resdent or corporaton of the other contractng state not engaged n trade
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29.1 3-1.
or busness n the former state through a permanent estabshment, sha be
e empt from ta mposed by the former state.

rtce II
Dvdends and nterest pad by a Netherands corporaton sha be e empt
from Unted States ta e cept where the recpent s a ctzen, resdent, or cor-
poraton of the Unted States.

rtce

(2) Prvate pensons and fe annutes derved from wthn one of the con-
tractng states and pad to ndvduas n the other contractng state sha be
e empt from ta aton n the former state.
(3) The term pensons as used n ths artce means perodc payments made
n consderaton for servces rendered or by way of compensaton for n|ures
receved.
( ) The term fe annutes as used n ths artce means a stated sum pay-
abe perodcay at stated tmes durng fe, or durng a specfed number of
years, under an obgaton to make the payments n return for adequate and fu
consderaton n money or money s worth.

rtce I
(1) The authortes of each of the contractng states, n accordance wth
the practces of that state, may prescrbe reguatons necessary to carry out the
provsons of the present conventon.
(2) Wth respect to the provsons of the present conventon reatng to
e change of nformaton and mutua assstance n the coecton of ta es, the
competent authortes may, by common agreement, prescrbe rues concernng
matters of procedure, forms of appcaton and repes thereto, converson of
currency, dsposton of amounts coected, mnmum amounts sub|ect to coec-
ton, and reated matters.

rtce III

(2) The present conventon sha become ef ectve on the 1st day of anuary
n the year ast precedng the year n whch the e change of nstruments of
ratfcaton takes pace. It sha contnue effectve for a perod of years be-
gnnng wth that date and ndefntey after that perod, but may be term-
nated by ether of the contractng states at the end of the -year perod or at
any tme thereafter, provded that at east 6 months pror notce of termnaton
has been gven, the termnaton to become effectve on the 1st day of anuary
foowng the e praton of the 6-month perod.

s used n ths Treasury Decson, uness the conte t otherwse
requres, the terms defned n the above artces of the conventon
sha have the meanngs so assgned to them.
Sec. 7.801. Dvdends. (a) Genera. The rate of ta mposed by
secton 211(a) of the Interna evenue Code (reatng to nonresdent
aen ndvduas not engaged n trade or busness wthn the Unted
States) and by secton 2o(a) of the Interna Revenue Code (reatng
to foregn corporatons not engaged n trade or busness wthn the
Unted States) s 30 percent. Such rate s reduced under rtce II
of the conventon to 1 percent n the case of dvdends receved on
or after anuary 1, 19 7, from sources wthn the Unted States by a
nonresdent aen (ncudng a nonresdent aen ndvdua, fdu-
cary, and partnershp) who s a resdent of the Netherands or a
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29.1 3-1.
90
Netherands corporaton, f such aen or Netherands corporaton s
at no tme durng the ta abe year engaged n trade or busness,
through a permanent estabshment, wthn the Unted States. s
to what s a Netherands corporaton, see rtce 11(1) (d) of the con-
venton. Thus, f a nonresdent aen who s a resdent of the Nether-
ands, performs persona servces wthn the Unted States durng the
caendar year 19 8, but has at no tme durng such year a permanent
estabshment wthn the Unted States, he s entted to the reduced
rate of ta wth respect to such dvdend, as provded n rtce II
of the conventon, even though, by reason of hs havng rendered per-
sona servces wthn the Unted States, he s engaged n trade or bus-
ness theren n that year wthn the meanng of secton 211(b) of the
Interna Revenue Code. s to what consttutes a permanent estab-
shment, see rtce 11(1) () of the conventon.
In the case of dvdends pad on or after anuary 1, 19 7, by a
Netherands corporaton no wthhodng of Unted States ta s re-
qured rrespectve of the ctzenshp or resdence of the owner of the
stock. See rtce II of the conventon.
(b) Dvdends pad by a Unted States subsdary corf oraton.
Under the provsons of rtce II (1) of the conventon, dvdends
pad by a domestc corporaton to a Netherands corporaton, contro-
ng, drecty or ndrecty, at the tme the dvdend s pad, 9 percent
or more of the entre votng power n such domestc corporaton,
are sub|ect to ta at the rate or ony percent, f (1) not more than
2 percent of the gross ncome of such payng corporaton for the 3-year
perod mmedatey precedng the ta abe year n whch the dvdend
s pad conssts of dvdends and nterest (other than dvdends and
nterest pad to such domestc corporaton by ts own subsdary
corporatons, f any) and (2) the reatonshp between such domestc
corporaton and such Netherands corporaton has not been arranged
or mantaned prmary wth the ntenton of securng such reduced
rate of percent.
ny domestc corporaton whch cams or contempates camng
that dvdends pad or to be pad by t on or after anuary 1, 19 7,
are sub|ect ony to the percent rate sha fe, as soon as practcabe,
wth the Commssoner of Interna Revenue, the foowng nforma-
ton: (1) the date and pace of ts organzaton; (2) the number of
outstandng shares of stock of the domestc corporaton havng votng
power and the votng power thereof; (3) the person or persons bene-
fcay ownng such stock of the domestc corporaton and ther rea-
tonshp to the Netherands corporaton; ( ) the amount of gross
ncome, by years, of the payng corporaton for the 3-year perod
mmedatey precedng the ta abe year n whch the dvdend s
pad; ( ) the amount of nterest and dvdends, by years, ncuded n
the gross ncome of such domestc corporaton, and the amount of
nterest and dvdends, by years, receved by such corporaton from
ts subsdary corporatons, f any; and (6) the reatonshp between
the domestc corporaton and the Netherands corporaton to whch
t pays the dvdend.
s soon as practcabe after such nformaton s fed, the Comms-
soner of Interna Revenue w determne whether the dvdends con-
cerned fa wthn the scope of the provso of rtce II (1) of the
conventon and may authorze the reease of e cess ta wthhed wth
respect to dvdends whch come wthn such provso. In any case
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29.1 3-1.
n whch the Commssoner of Interna Revenue has notfed such
domestc corporaton that t comes wthn such provso, the reduced
rate of percent appes to any dvdends subsequenty pad by such
corporaton to the Netherands corporaton uness the stock ownershp
of the domestc corporaton, or the character of ts ncome materay
changes, and, f such change or changes occur, such corporaton sha
prompty notfy the Commssoner of Interna Revenue of the then
e stng facts wth respect to such stock ownershp or ncome.
(c) ffect an wthhodng n case of dvdends of address n Nether-
ands. For the purposes of wthhodng of the ta n the case of
dvdends, every monresdent aen (ncudng a nonresdent aen
ndvdua, fducary, or partnershp) whose address s n the Nether-
ands sha be deemed by Unted States wthhodng agents to be a
resdent of the Netherands not engaged n trade or busness n the
Unted States through a permanent estabshment theren and every
corporaton whose address s n the Netherands sha be deemed by
such wthhodng agents to be a Netherands corporaton not so en-
gaged n trade or busness n the Unted States.
(d) Rate of wthhodng. On and after anuary 1,19 9, wthhod-
ng n the case of dvdends pad to nonresdent aens (ncudng a
nonresdent aen ndvdua, fducary, or partnershp), and to foregn
corporatons, whose addresses are n the Netherands, sha (e cept (1)
n any case n whch, pror to the date of payment of such dvdend, the
Commssoner of Interna Revenue has notfed the payng corporaton
that such dvdend fas wthn the provso of rtce II (1) of the
conventon, and (2) n any case n whch the Commssoner notfes
the wthhodng agent that the reduced rate sha not appy), be at
the rate of 1 percent.
The precedng provsons reatve to resdents of the Netherands,
and to Netherands corporatons are based upon the assumpton that
the payee of the dvdend s the actua owner of the capta stock from
whch the dvdend s derved and consequenty s the person abe
to the ta upon such dvdend. s to acton by the recpent who s
not the owner of the dvdend, see secton 7.807.
Sec. 7.802. Interest. (a) Genera. Interest (other than nterest
fang wthn the scope of paragraph (c) of ths secton and other
than nterest from mortgage notes (not ncudng bonds) secured by
rea property), whether on bonds, securtes, notes, debentures, or any
other form of ndebtedness (ncudng nterest on obgatons of the
Unted States and on obgatons of nstrumentates of the Unted
States) receved on or after anuary 1, 19 7, 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 Netherands, or (2) a Netherands corporaton, s e empt from
Unted States ta under the provsons of rtce III of the conven-
ton f such aen or corporaton at no tme durng the ta abe year
n whch such nterest s so receved had a permanent estabshment
n the Unted States. Such nterest s, therefore, not sub|ect to the
wthhodng provsons of the Interna Revenue Code.
(b) empton from wthhodng. To obvate wthhodng at the
source n the case of coupon bond nterest, the nonresdent aen res-
dent n the Netherands or the Netherands corporaton sha submt
Form 1001-N, n dupcate, to the payng agent wth each presenta-
ton of nterest coupons. Such form sha be sgned by the owner of
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29.1 3-1.
9S
the nterest, trustee, or agent, and sha show the name and address
of the obgor, and the name and address of the owner of such nterest
and the amount of such nterest. Such form sha contan a statement
that the owner s a resdent of the Netherands or a Netherands cor-
poraton and that such owner has no permanent estabshment n the
Unted States.
The e empton from Unted States ta contempated by rtce
III of the conventon, nsofar as t concerns coupon bond nterest,
s an e empton appcabe ony to the owner of such nterest. The
person presentng such coupon or on whose behaf t s presented
sha, for the purpose of the e empton, be deemed to be the owner
of the nterest ony f he s, at the tme the coupon s presented for
payment, the owner of the bond from whch the coupon has been
detached. If the person presentng the coupon s not the owner of
the bond, Form 1001, and not Form 1001-N, sha be e ecuted.
The orgna and dupcate ownershp certfcates. Form 1001-N,
must be forwarded to the Commssoner wth the quartery return,
Form 1012, as provded n e stng reguatons wth respect to Form
1001. See secton 29.1 3-7 of ths chapter ( eguatons 111). Form
1001-N need not be sted on Form 1012.
In the case of nterest cofpons presented n the Netherands by a
nonresdent aen who s not a resdent of the Netherands, or by a
foregn corporaton other than a Netherands corporaton ownershp
certfcates, Form 1001, sha be fed as provded n e stng regua-
tons wthout reference to the provsons of the conventon. See
secton 29.1 3- of ths chapter (Reguatons 111).
To avod wthhodng at the source n the case of nterest, other than
nterest payabe by means of coupons and other than nterest from
mortgage notes (not ncudng bonds) secured by rea property, the
nonresdent aen who s a resdent of the Netherands, or the Nether-
ands corporaton sha fe Form 1001 -N, n dupcate, wth the
wthhodng agent n the Unted States. Such form sha be sgned
by the owner of the ncome, trustee, or agent, and sha show the name
and address of the obgor and the name and address of the owner
of such nterest. Such form sha contan a statement that the owner
s a resdent of the Netherands, or s a Netherands corporaton, not
havng a permanent estabshment n the Unted States.
Form 1001 -N 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 perod. If the ta payer fes such
form wth the wthhodng agent n the caendar year 19 8 or n any
subsequent caendar year no addtona Form 1001 -N 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 the Commssoner
notfes the wthhodng agent that an addtona Form 1001 -N must
be fed by the ta payer at. an earer date. The dupcate of Form
1001 -N shoud be mmedatey forwarded by the wthhodng agent
to the Commssoner of Interna Revenue, Records Dvson, Washng-
ton 2 , D. C.
In the case of nterest pad on or after anuary 1,19 7, by a Nether-
ands corporaton no wthhodng of Unted States ta s requred
rrespectve of the ctzenshp or resdence of the owner of the nterest
(see rtce II of the conventon).
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99
29.1 3-1.
(c) empton not appcabe to nterest pad by subsdary cor-
poraton to ts parent corporaton. rtce III() of the conven-
ton provdes n part that the e empton from Unted States ta of
nterest sha not appy to nterest pad by a domestc corporaton
to a Netherands corporaton f such foregn corporaton contros,
drecty or ndrecty, more than 0 percent of the votng power of
a casses of stock of such domestc corporaton. The e empton
provsons of rtce III(1) of the conventon have, therefore, no
appcaton to such nterest. In any case n whch (1) a Netherands
corporaton derves nterest from a domestc corporaton, and (2)
the reatonshp e stng between the Netherands corporaton and
the domestc corporaton s such as to render uncertan whether the
e empton appes to such nterest, nether Form 1001-N nor Form
1001 -N shoud be e ecuted by the Netherands corporaton. In such
case a statement of the facts shoud be fed wth the Commssoner
of Interna Revenue, Washngton 2 , D. C. s soon as practcabe
after such statement s fed the Commssoner of Interna Revenue
w determne whether the nterest nvoved s entted to e empton
under the provsons of rtce III() of the conventon, and
w notfy such Netherands corporaton whether the e empton
provded n rtce III (1) of the conventon appes n such case. If
n such case the Commssoner of Interna Revenue determnes that
such e empton appes, then Form 1001.Y-N shoud be fed together
wth a copy of the etter from the Commssoner of Interna Revenue.
Sec. 7.803. Patent and Copyrght Royates and Fn-M Rent-
as. Royates and other ke amounts receved on or after anuary 1,
19 7, by (a) a nonresdent aen (ncudng a nonresdent aen nd-
vdua, fducary, and partnershp) who s a resdent of the Nether-
ands or (b) a Netherands corporaton, as consderaton for the use of,
or for the prvege of usng copyrghts, patents, desgns, secret proc-
esses and formuae, trade-marks, and other ke property, and roya-
tes, ncudng rentas, n respect of moton pcture fms or for the use
of ndustra, commerca, or scentfc equpment, are e empt from
Unted States ta under the provsons of rtce I of the conventon
f such aen or corporaton had at no tme durng the ta abe year n
whch such royaty or other amount was so receved a permanent
estabshment wthn the Unted States.
Such tems are, therefore, not sub|ect to the wthhodng provsons
of the Interna Revenue Code. s to what consttutes a permanent
estabshment, see rtce I( 1) () of the conventon.
To obvate wthhodng at the source, the nonresdent aen who s a
resdent of the Netherands, or the Netherands corporaton, sha fe
Form 1001 -N, n dupcate, wth the wthhodng agent n the Unted
States. Such form sha be sgned by the owner of the ncome, trusteb,
or agent and sha contan the statements provded on such form wth
respect to nterest as set forth n secton 7.802 of these reguatons, the
provsons of whch wth respect to the effectve perod of such form
are equay appcabe wth respect to the ncome fang wthn the
scope of ths secton.
The dupcate copy of Form 1001 -N shoud be mmedatey for-
warded by the wthhodng agent to the Commssoner of Interna
Revenue, Records Dvson, Washngton 2 , D. C,
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29.1 3-1.
100
Sec. 7.80 . Pensons and Lfe nnutes. rtce (2) of the
conventon provdes that prvate pensons and fe annutes derved
on or after anuary 1,19 7, from sources wthn the Unted States by
a nonresdent aen ndvdua who s a resdent of the Netherands
sha be e empt from Unted States ta .
The person payng such ncome shoud be notfed by etter from the
resdent of the Netherands that the ncome s e empt from ta aton
under the provsons of the conventon. Such etter sha contan the
address of the ndvdua and a statement that such ndvdua s a
resdent of the Netherands. The etter of notfcaton, or a copy
thereof, shoud be mmedatey forwarded by the recpent to the Com-
mssoner of Interna Revenue, Records Dvson, Washngton 2 , D. C.
Such etter sha consttute authorzaton to the payor of the ncome to
pay such ncome wthout deducton of the ta at the source uness the
Commssoner subsequenty notfes such payor that the ta shoud be
wthhed wth respect to payments made after such notfcaton.
Sec. 7.80 . Natura Resource Royates and Rea Property
Rentas. The conventon does not change the rate of ta mposed
under e stng aw upon natura resource royates and rea property
rentas. The wthhodng of the ta wth respect to such tems derved
from sources wthn the Unted States by nonresdent aens who are
resdents of the Netherands and by Netherands corporatons s not
affected by the conventon. See sectons 211(a) and 231(a) of the
Interna Revenue Code.
Sec. 7.806. Reease op cess Ta Wthhed at Source. (a)
Genera. In order to brng the conventon nto force and effect at the
earest practcabe date
(1) The reduced rate of ta of 1 percent to be wthhed at the
source on dvdends, and
(2) empton from ta otherwse wthhed at the source on
nterest, patent royates, copyrght royates, fm rentas, and
the ke,
are hereby made effectve begnnng anuary 1, 19 8, n any case n
whch such dvdends, nterest, patent royates, copyrght royates,
fm rentas, and the ke are derved from sources wthn the Unted
States by () a nonresdent aen (ncudng a nonresdent aen nd-
vdua, fducary, and partnershp) who s a resdent of the Nether-
ands, or () a Netherands corporaton.
ccordngy, n the case of dvdends pad to a nonresdent aen
(ncudng a nonresdent aen ndvdua, fducary, and partnershp)
whose address at the tme of payment was n the Netherands, or to a
Netherands corporaton whose address at the tme of payment was
n the Netherands, where ta at the rate of 30 percent has been wth-
hed on or after anuary 1, 19 8, from such dvdends, there sha be
reeased by the wthhodng agent and pad over to the person from
whom t was wthhed an amount equa to 1 percent of such dvdends.
In the case of every such ta payer who furnshes to the wthhodng
agent Form 1001 -N, as prescrbed n secton 7.802, or 7.803, where
ta at the rate of 30 percent has been wthhed on or after anuary 1,
19 8, there sha be reeased by the wthhodng agent and pad over
to the person from whom there was wthhed an amount equa to the
amount so wthhed n the case of nterest (as to coupon bond nterest,
see ne t paragraph), patent royates, copyrght royates, fm rentas,
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101
29.1 3-1.
In the case of every such ta payer descrbed n the frst paragraph
of ths secton who furnshes to the wthhodng agent Form 1001-N,
n dupcate, where ta at the rate of 28 percent or 30 percent, as the
case may be, has been wthhed on or after anuary 1, 19 8, from
coupon bond nterest, there sha be reeased by the wthhodng agent
and pad over to the person from whom t was wthhed an amount
equa to the ta wthhed from such nterest. Form 1001-N used for
ths purpose shoud be ceary marked Substtute n order to repace
Forms 1001 prevousy fed. One Form 1001-N, n dupcate, may be
used to repace two or more Forms 1001. The form marked Subst-
tute s to be used soey for the reease of e cess ta wthhed n 19 8.
The use of Form 1001-N for the purpose of e empton upon presenta-
ton of nterest coupons s set forth m secton 7.802(6).
(b) Prvate pensons and fe annutes pad n dfS or subsequent
years. In order to brng the conventon nto force and effect at the
earest practcabe date, the e empton from ta otherwse wthhed
at the source on prvate pensons and fe annutes s made effectve
begnnng anuary 1, 19 8, n any case n whch such pensons and
fe annutes are derved from sources wthn the Unted States by
a nonresdent aen ndvdua who s a resdent of the Netherands.
The person payng such ncome shoud be notfed by etter from the
resdent of the Netherands that the ncome s e empt from ta aton
under the provsons of rtce (2), (3), and ( ) of the conven-
ton. See secton 7.80 . Such etter w consttute authorzaton to
the payor of the ncome to reease the ta wthhed on or after anuary
1,19 8, from such pensons and fe annutes.
(c) Subsdary s dvdends. Wth respect to a dvdend pad on or
after anuary 1,19 8, by a domestc corporaton to a Netherands cor-
poraton whose address s n the Netherands, ta sha be wthhed
n accordance wth the provsons of secton 7.801 uness pror to the
date of payment of such dvdend the Commssoner of Interna Reve-
nue has notfed the payng corporaton that such dvdend fas wthn
the scope of the provso of rtce II() of the conventon. s soon
as practcabe after nformaton requred under secton 7.801(6) s
fed, the Commssoner of Interna Revenue w determne whether
the dvdend nvoved fas wthn the scope of such provso and may
authorze the reease of the e cess ta wthhed wth respect to dv-
dends whch come wthn the scope of such provso.
Sec. 7.807. ddressee n the Netherands Not ctua Owner.
(a) Netherands admnstraton offce. If the recpent n the Nether-
ands of any dvdend or nterest from sources wthn the Unted States
s a Netherands admnstraton offce and the person benefcay en-
tted to such dvdend or nterest s not entted to the reduced rate of
ta provded n rtce II of the conventon nor to the e empton pro-
vded n rtce III, the banker or commssoner wth whom the cer-
tfcate ssued by the admnstraton offce s deposted n the Nether-
ands, or the banker n the Netherands to whom the dvdend coupon or
the nterest coupon s frst presented for payment or sae, w wthhod
an addtona ta . Ths addtona ta s equvaent to the dfference
between the Unted States ta whch woud have been wthhed had
the conventon not been n effect (30 percent as at the date of approva
of ths Treasury Decson) and the Unted States ta actuay wth-
hed from such dvdend or nterest. The amounts so wthhed by the
banker or commssoner w, on or before the ffteenth day after the
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29.1 3-1.
102
cose of the caendar year quarter n whch such wthhodng has
taken pace, be deposted, by the banker or commssoner, wth the
Netherands ank (account: Inspector of Ta es at msterdam,
Unted States ta ), wthout convertng such amounts nto doars.
ach banker or commssoner makng such depost sha fe wth the
nspector of ta es at msterdam a return, contanng the tota amount
of addtona ta so wthhed by hm, and a specfcaton of the add-
tona ta for each type of securty. It has been arranged that the
Netherands Ta dmnstraton w, on or before the ffteenth day
after the end of the caendar year quarter n whch such depost s so
made wth the Netherands ank, remt by draft n Unted States
doars the amounts so pad to the Coector of Interna Revenue,
atmore, Md., U. S. ., together wth the aggregate of any other
amounts of Unted States ta wthhed or recovered by the Netherands
Ta dmnstraton.
(6) Other Netherands addressees not actua owner. If the re-
cpent n the Netherands (ncudng a fducary (I)u. bewndveerder,
beheerder van een onverdeede boede, e ecuteur-testamentar, fas-
sements-curator, krachtens de wet aangested beheerder, benoemd
voogd) and a partnershp) of the dvdends s a nomnee /h. op
egen naam handeend tussenpersoon) or agent (Du. gemachtgde)
through whom the dvdend fows to a person other than the person
descrbed n secton 7.801(a) as beng entted to the reduced rate of
1 percent provded n rtce II of the conventon, such recpent
n the Netherands w wthhod an addtona Unted States ta
equvaent to the dfference between the Unted States ta whch woud
have been wthhed had the conventon not been n effect and the 1
percent wthhed at the source wth respect to such dvdend as pro-
vded n secton 7.801 of these reguatons.
In any case n whch a fducary or a partnershp wth an address
n the Netherands receves, otherwse than as a nomnee or as an
agent, a dvdend from a Unted States corporaton, f a benefcary
of such fducary or a partner n such partnershp s not entted to
the reduced rate of ta provded n rtce II of the conventon,
the fducary or partnershp w wthhod an addtona ta wth
respect to the porton of such dvdend ncuded n such benefcary s
or partner s net dstrbutve share of the ncome of such fducary or
partnershp, as the case may be. The rate of the addtona ta s
cacuated n the same manner as s appcabe under the frst paragraph
of the present subsecton.
The amounts so wthhed by such wthhodng agent n the Nether-
ands w be deposted wth the Netherands ank (account: Inspec-
tor of Ta es at msterdam, Unted States ta ) n the same manner,
and sub|ect to the same provsons, as are appcabe n the case of
amounts deposted as provded n subsecton (a) of ths secton.
The wthhodng agent makng such depost sha fe a return n the
same manner and sub|ect to the same provsons as are appcabe under
subsecton (a) of ths secton. The amounts so deposted w be
remtted to the Coector of Interna Revenue, atmore, Md., U. S. .,
as are deposts under subsecton (a) of ths secton.
Sec. 7.808. Return of Ta Wthhed and Informaton Return
Wth Respect to Persons Whose ddresses re n the Nether-
ands. very Unted States wthhodng agent sha make and fe
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103
29.1 3-1.
wth the coector, n dupcate, an nformaton return on Form 10 2 ,
n addton to the wthhodng return, Form 10 2, for the caendar
year 19 8 and each subsequent caendar year, wth respect to:
(a) dvdends from whch a ta of 1 percent was wthhed
from persons whose addresses are n the Netherands ( percent n
the case of dvdends fang wthn the scope of the provso of
rtce II (1) of the conventon);
(b) royates and ke amounts and nterest (other than coupon
bond nterest reported on Form 1001-N) from whch no ta was
wthhed from persons who have furnshed to the wthhodng
agent Form 1001 -N; and
(c) a other f ed or determnabe annua or perodca ncome
pad to such persons.
Sec. 7.809. Refund of cess Ta Wthhed. If the ta wth-
hed at the source upon dvdends, nterest, royates, prvate pensons,
or fe annutes pad durng the caendar year 19 7 s n e cess of
the ta due from the ta payer under the conventon, t w be neces-
sary for the ta payer, n order to compute the ta propery, to fe
an ncome ta return. Form 10 0N (Netherands), for ndvduas,
and Form 1120N (Netherands), for corporatons, for such ta abe
year. The ta payer s tota f ed or determnabe annua or perodca
ncome from sources wthn the Unted States shoud be reported on
such return and n the event securtes are hed n the name of a person
other than the actua owner, the name of such person shoud be
furnshed. There sha be ncuded n such return the foowng
statements:
(a) That the ta payer s a nonresdent aen (ncudng a non-
resdent aen ndvdua, fducary, or partnershp) resdent n
the Netherands or s a corporaton organzed n or under the aws
of the Netherands;
(b) That the ta payer was engaged n trade or busness through
a permanent estabshment n the Unted States at no tme durng
the ta abe year n whch the ncome was receved.
owever, the statement requred by (b) s not appcabe n the case
of a ta payer whose ncome from sources wthn the Unted States
durng the caendar year 19 7 conssted e cusvey of prvate pensons
and fe annutes. s to addtona nformaton requred n the case
of a Netherands corporaton camng a rate of percent on dvdends
pad by ts domestc subsdary corporaton, see secton 7.801(6).
For the purposes of refund of e cess ta wthhed resutng from the
ta conventon, a propery e ecuted return on Form 10 0N (Nether-
ands) or Form 1120N (Netherands) sha consttute a cam for
refund or credt wthn the meanng of secton 322 of the Interna
Revenue Code for the amount of the overpayment dscosed by such
return. ny ta pad n e cess of that due from the owner of the
ncome w be refunded by the Unted States Government as requred
by aw.
Sec. 7.810. enefcares of a Domestc state or Trust.
nonresdent aen who s a resdent of the Netherands 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
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29.1 3-1.
10
n rtces II, III, and I of the conventon wth respect to dv-
dends, nterest, and royates to the e tent such tem or tems are
ncuded n hs dstrbutve share of ncome of such estate or trust.
In such case such benefcary must, n order to be entted to the e emp-
ton or reducton n the rate of ta n the case of nterest or royates,
e ecute Form 1001 -N and fe such form wth the fducary of such
estate or trust n the Unted States.
Snce the purpose of ths Treasury Decson s to make effectve the
e emptons and reduced rates of ta provded n the ncome ta con-
venton between the Unted States and the ngdom of the Nether-
ands, procamed by the Presdent of the UntedStates on December
8, 19 8, ths Treasury Decson s not sub|ect to the effectve date
mtaton of secton (c) of the dmnstratve Procedure ct, ap-
proved une 11,19 6.
(Ths Treasury Decson s ssued under the authorty of secton 62
of the Interna Revenue Code ( 3 Stat. 32; 26 U. S. C. 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 2,19 9.
Thomas . Ltnch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 7, 19 9, 8 : 1 a. m.)
Secton 29.1 3-1: Wthhodng ta at source. 19 9-7-130
( so Secton 1 , Secton 29.1 -1.) T. D. 092
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 D NM R ; T L Y RS
GINNING FT R D C M R 31, 19 7
Reease of e cess ta wthhed, and e empton from, or reducton
In rate of, wthhodng under sectons 1 3 and 1 of the Interna
Revenue Code n the ease of resdents of Denmark and of Dansh
corporatons, as affected hy the recproca ncome ta conventon
between the Unted States and the ngdom of Denmark, procamed
by the Presdent of the Unted States on December 8, 19 8.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna. Revenue and Others Concerned:
On December 28, 19 8, notce of proposed rue makng under the
ncome ta conventon between the Unted States and the ngdom
of Denmark, procamed by the Presdent of the Unted States on
December 8, 19 8, was pubshed n the Federa Regster (13 F. R.
8398). fter consderaton of a such reevant matter as was pre-
sented by nterested persons regardng the proposa, the foowng
reguatons are adopted for the purposes of such conventon. These
reguatons are necessary to prescrbe rues wth respect, to reease
of e cess ta wthhed, and e empton from, or reducton n the rate
of, wthhodng under sectons 1 3 and 1 of the Interna Revenue
Code n the case of resdents of Denmark and Dansh corporatons,
as affected by such conventon.
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10
29.1 3-1.
Tabe op Contents
Secton.
7.900. Introductory.
7.901. Dvdends.
7.902. Interest.
7.903. Patent and copyrght royates and fm rentas.
7.90 . Prvate pensons and fe annutes.
7.90 . Reease of e cess ta wthhed at source.
7.906. ddressee not actua owner.
7.907. enefcares of a domestc estate or trust.
Secton 7.900. Introductory. The ncome ta conventon between
the Unted States and the ngdom of Denmark, sgned May 6, 19 8,
procamed by the Presdent of the Unted States on December 8,19 8,
and effectve as to ta abe years begnnng after December 31, 19 7
herenafter referred to as the conventon), provdes n part as
oows:
rtce I
(1) The ta es referred to In ths conventon are:
(a) In the case of the Unted States of merca:
The Federa ncome ta , ncudng surta es.
(6) In the case of Denmark:
The natona ncome ta , ncudng the war profts ta .
The ntercommuna ncome ta .
The communa ncome ta .
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng state subsequenty to
the date of sgnature of the present conventon.
rtce II
(1) s used n ths conventon :
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense ncudes ony the States, the Terrtores
of aska and awa, and the Dstrct of Coumba.
(6) The term Denmark means the ngdom of Denmark; the provsons
of the conventon sha not, however, e tend to the Faroe Isands; nor do
they appy to Greenand.
(c) The term permanent estabshment means a branch offce, factory,
warehouse, or other f ed pace of busness, but does not ncude the casua
and temporary use of merey storage factes, nor does t ncude an agency
uness the agent 1ms and e ercses a genera authorty to negotate and
concude contracts on behaf of an enterprse or has a stock of merchandse
from whch he reguary fs orders on ts behaf. n enterprse of one of
the contractng states sha not he deemed to have a permanent estabshment
n the other state merey because t carres on busness deangs n such
other state 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 states mantans n the other state 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 estabshment
of such enterprse. The fact that a corporaton of one contractng state has
a subsdary corporaton whch s a corporaton of the other state or whch s
engaged n trade or busness n the other state sha not of tsef consttute
that subsdary corporaton a permanent estabshment of ts parent
corporaton.
(d) The term enterprse of one of the contractng states means, as the
case may be, Unted States enterprse or Dansh enterprse.
(e) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp, corporaton, or any other entty.
(f) The term Unted States enterprse means an enterprse carred on
In the Unted States of merca by a resdent of the Unted States of merca
or by a Unted States corporaton or other entty ; the term Unted States
corporaton or other entty means a partnershp, corporaton, or other
8 16 9 8
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29.1 3-1.
106
entty created or organzed n the Unted States of merca or under the
aw of the Unted States of merca or of any State or Terrtory of the
Unted States of merca.
(g) The term Dansh enterprse means an enterprse carred on n
Denmark by a resdent of Denmark or by a Dansh corporaton or other
entty; the term Dansh corporaton or other entty means a partnershp,
corporaton, or other entty created or organzed n Denmark or under
Dansh aws.
(h) The term competent authortes means, n the case of the Unted
States the Commssoner of Interna Revenue or hs authorzed represent-
atve ; and n the case of Denmark, the Chef of the Ta aton Department
of the Mnstry of Fnance (Generadrekt0ren for Skattevaesenet) or hs
authorzed representatve.
(2) In the appcaton of the provsons of the present conventon by one of
the contractng states any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch such term has under ts own ta
aws.

rtce I
(1) Dvdends sha be ta abe ony n the contractng state n whch the
sharehoder s resdent or, f the sharehoder s a corporaton or other entty,
n the contractng state n whch such corporaton or other entty s ncor-
porated or organzed.
(2) ach of the contractng states reserves, however, the rght to coect and
retan the ta whch, under ts revenue aws, s deductbe at the source wth
respect to such dvdends, but the ta sha not e ceed 1 percent of the
amount of dvdends derved from sources wthn such state by a resdenr.
corporaton, or other entty of the other state, f the recpent has no permanent
estabshment In the contractng state from whch the dvdends are derved.
(3) It s agreed, however, that the rate of dvdend ta at the source sha
not e ceed percent f the sharehoder s a corporaton controng, drecty
or ndrecty, at east 9 percent of the entre votng power n the corporaton
payng the dvdend, and f not more than 2 percent of the gross Income of
such payng corporaton s derved from nterest and dvdends, other than n-
terest and dvdends receved from ts own subsdary corporatons. Such re-
ducton of the rate to percent sha not appy f the reatonshp of the two
corporatons has been arranged or s mantaned prmary wth the ntenton
of securng such reduced rate.
rtce II
Interest on bonds, securtes, notes, debentures, or any other form of ndebted-
ness derved from sources wthn one of the contractng states by a resdent or
corporaton or other entty of the other contractng state not havng a perma-
nent estabshment n the former state sha be e empt from ta by such former
state.
bttcuc TII
Royates and other amounts derved as consderaton for the rght to use
copyrghts, patents, desgns, secret processes and formuas, trade-marks, and
other ke property (ncudng rentas and ke payments n respect of moton
pcture fms) derved from sources wthn one of the contractng states by a
resdent or corporaton or other entty of the other contractng state not
havng a permanent estabshment n the former state sha be e empt from
ta aton n such former state.

rtce

(2) Prvate pensons and fe annutes derved from wthn one of the
contractng states and pad to ndvduas resdng n the other contractng
state sha be e empt from ta aton n the former state.
(3) The term fe annutes as used heren means a stated sum payabe
perodcay at stated tmes durng fe, or durng a specfed number of years,
under an obgaton to make the payments n consderaton of a gross sum
pad for such obgaton.

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107
29.1 3-1.
etce II
The competent authortes of the two contractng states may prescrbe regu-
atons necessary to nterpret and carry out the provsons of ths conventon.
Wth respect to the provsons of ths conventon reatng to e change of n-
formaton and mutua assstance n the coecton of ta es, such authortes
may, by common agreement, prescrbe rues concernng matters of procedure,
forms of appcaton and repes thereto, converson of currency, dsposton of
amounts coected, mnmum amounts sub|ect to coecton, and reated matters.
(1) The present conventon sha be ratfed and the nstruments of ratfcaton
sha be e changed at Washngton as soon as possbe.
(2) Upon the e change of Instruments of ratfcaton, the present conven-
ton sha have effect
(a) n the case of Unted States ta , for the ta abe years begnnng
on or after the 1st day of anuary of the year n whch such e change takes
pace;
(6) n the case of Dansh ta , for the ta abe years begnnng on or
after the 1st day of pr of the year n whch such e change takes pace.
(3) The present conventon sha contnue effectve for a perod of years
and ndefntey after that perod, but may be termnated by ether of the con-
tractng states at the end of the -year perod or at any tme thereafter, pro-
vded that at east 6 months pror notce of termnaton has been gven and,
n 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 ne t foowng the e praton of the 6-month
perod;
b) as respects Dansh ta , for the ta abe years begnnng on or after
the 1st day of pr ne t foowng the e praton of the 6-month perod.

s used n ths Treasury Decson, uness the conte t otherwse
requres, the terms denned n the above artces of the conventon sha
have the meanngs so assgned to them.
Sec. 7.901. Dvdends. (a) Genera. The rate of ta mposed by
secton 211(a) of the Interna Revenue Code (reatng to nonresdent
aen ndvduas not engaged n trade or busness wthn the Unted
States) and by secton 231(a) of the Interna Revenue Code (reatng
to foregn corporatons not engaged n trade or busness wthn the
Unted States) s 30 percent. Such rate s reduced under rtce I
of the conventon to 1 percent n the case of dvdends receved on
or after anuary 1, 19 8, from sources wthn the Unted States by
a nonresdent aen (ncudng a nonresdent aen ndvdua, fduc-
ary, and partnershp) who s a resdent of Denmark or by a Dansh
corporaton f such aen or corporaton at no tme durng the ta abe
year had a permanent estabshment wthn the Unted States. s
to what s a Dansh corporaton, see rtce 11(1) (g) of the con-
venton. Thus, f a nonresdent aen who s a resdent of Denmark,
performs persona servces wthn the Unted States durng the ca-
endar year 19 8, but has at no tme durng such year a permanent
estabshment wthn the Unted States, he s entted to the reduced
rate of ta wth respect to dvdends derved n that year from
the. Unted States he s engaged n trade or busness theren n that
year wthn the meanng of secton 211(b) of the Interna Revenue
Code. s to what consttutes a permanent estabshment, see rtce
11(1) (c) of the conventon.
rtce III
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I 29.1 3-1.
108
(6) Dvdends pad by a Unted States subsdary corporaton.
Under the provsons of rtce I (3) of the conventon, dvdends
pad by a domestc corporaton to a Dansh corporaton controng,
drecty or ndrecty, at the tme the dvdend s pad, 9 percent or
more of the entre votng power n such domestc corporaton, are
sub|ect to ta at the rate of ony percent, f (1) not more than 2
percent of the gross ncome of such payng corporaton for the 3-year
perod mmedatey precedng the ta abe year n whch the dvdend
s pad conssts of dvdends and nterest (other than dvdends and
nterest pad to such domestc corporaton by ts own subsdary cor-
poratons, f any) and (2) the reatonshp between such domestc
corporaton and such Dansh corporaton has not been arranged or
mantaned prmary wth the ntenton of securng such reduced rate
of percent.
ny domestc corporaton whch cams or contempates camng
that dvdends pad or to be pad by t on or after anuary 1, 19 8,
are sub|ect ony to the percent rate sha fe, as soon as practcabe,
wth the Commssoner of Interna Revenue, the foowng nforma-
ton: (1) The date and pace of ts organzaton; (2) the number of
outstandng shares of stock of the domestc corporaton havng votng
power and the votng power thereof; (3) the person or persons bene-
fcay ownng such stock of the domestc corporaton and ther re-
atonshp to the Dansh corporaton; ( ) the amount of gross ncome,
by years, of the payng corporaton for the 3-year perod mmedatey
precedng the ta abe year n whch the dvdend s pad; ( ) the
amount of nterest and dvdends, by years, ncuded n the gross
ncome of such domestc corporaton and the amount of nterest and
dvdends, by years, receved by such corporaton from ts subsdary
corporatons, f any- and (6) the reatonshp between the domestc
corporaton and the Dansh corporaton to whch t pays the dvdend.
s soon as practcabe after such nformaton s fed, the Com-
mssoner of Interna Revenue w determne whether the dvdends
concerned fa wthn the provsons of rtce I(3) of the con-
venton and may authorze the reease of e cess ta wthhed wth
respect to dvdends whch come wthn such provson. In any case
n whch the Commssoner of Interna Revenue has notfed such
domestc corporaton that the dvdends come wthn such provson,
the reduced rate of percent appes to any dvdends subsequenty
pad by such corporaton to the Dansh corporaton uness the stock
ownershp of the domestc corporaton, or the character of ts ncome,
materay changes, and, f such change or changes occur, such cor-
poraton sha prompty notfy the Commssoner of Interna Revenue
of the then e stng facts wth respect to such stock ownershp or
ncome.
(c) ffect on wthhodng n case of dvdends of address n Den-
mark. For the purposes of wthhodng of the ta n the case of
dvdends, every nonresdent aen (ncudng a nonresdent aen n-
dvdua, fducary, or partnershp) whose address s n Denmark
sha be deemed by Unted States wthhodng agents to be a resdent
of Denmark not havng a permanent estabshment n the Unted
States and every corporaton whose address s n Denmark sha be
deemed by such wthhodng agents to be a Dansh corporaton not
havng a permanent estabshment n the Unted States.
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109
29.1 3-1.
(d) Rate of wthhodng. On and after anuary 1, 19 9, wth-
hodng n the case of dvdends pad to nonresdent aens (ncudng
a nonresdent aen ndvdua, fducary, or partnershp) and to
foregn corporatons, whose addresses are n Denmark, sha (e cept
1) n any case n whch pror to the date of payment of such dv-
end, the Commssoner of Interna Revenue has notfed the payng
corporaton that such dvdend fas wthn the provsons of rtce
I(3) of the conventon and (2) n any case n whch the Com-
mssoner notfes the wthhodng agent that the reduced rate sha
not appy), be at the rate of 1 percent.
The precedng provsons reatve to resdents of Denmark and
to Dansh corporatons are based upon the assumpton that the payee
of the dvdend s the actua owner of the capta stock from whch
the dvdend s derved and consequenty s tne person abe to the
ta upon such dvdend. s to acton by the recpent who s not
the owner of the dvdend, see secton 7.906.
Sec. 7.902. Interest. (a) Genera. Interest, whether on bonds,
securtes, notes, debentures, or any other form of ndebtedness (n-
cudng nterest on obgatons of the Unted States and on obga-
tons of nstrumentates of the Unted States), receved on or after
anuary 1,19 8, from sources wthn the Unted States by (1) a non-
resdent aen (ncudng a nonresdent aen ndvdua, fducary,
and partnershp) who s a resdent of Denmark, or (2) a Dansh
corporaton, s e empt from Unted States ta under the provsons
of rtce II of the conventon f such aen or corporaton at no
tme durng the ta abe year n whch such nterest s so receved had
a permanent estabshment n the Unted States. Such nterest s,
therefore, not sub|ect to the wthhodng provsons of the Interna
Revenue Code.
( ) empton from wthhodng. To obvate wthhodng at the
source n the case of coupon bond nterest, the nonresdent aen res-
dent n Denmark or the Dansh corporaton sha submt Form 1001-D,
n dupcate, to the payng agent wth each presentaton of nterest
coupons. Such form sha be sgned by the owner of the nterest,
trustee, or agent, and sha show the name and address of the obgor,
and the name and address of the owner of such nterest and the
amount of such nterest. Such form sha contan a statement that
the owner s a resdent of Denmark or a Dansh corporaton and that
such owner has no permanent estabshment n the Unted States.
The e empton from Unted States ta contempated by rtce II
of the conventon, nsofar as t concerns coupon bond nterest, s an
e empton appcabe ony to the owner of such nterest. The person
presentng such coupon or on whose behaf t s presented sha, for
the purpose of the e empton, be deemed to be the owner of the nterest
ony f he s, at the tme the coupon s presented for payment, the
owner of the bond from whch the coupon has been detached. If the
person presentng the coupon s not the owner of the bond. Form 1001,
and not Form 1001-D, sha be e ecuted.
The orgna and dupcate ownershp certfcates, Form 1001-D,
must be forwarded to the Commssoner wth the quartery return,
Form 1012, as provded n e stng reguatons wth respect to Form
1001. See secton 29.1 3-7 of ths chapter (Reguatons 111). Form
1001-D need not be sted on Form 1012.
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29.1 3-1.
110
In the case of nterest coupons presented n Denmark by a nonres-
dent aen who s not a resdent or Denmark or by a foregn corpora-
ton other than a Dansh corporaton, ownershp certfcates, Form
1001, sha be fed as provded n e stng reguatons wthout ref-
erence to the provsons of the conventon. See secton 29.1 3 of
ths chapter (Reguatons 111).
To avod wthhodng at the source n the case of nterest other
than nterest payabe by means of coupons, the nonresdent aen who
s a resdent of Denmark, or the Dansh corporaton, sha fe Form
1001 -D, n dupcate, wth the wthhodng agent n the Unted
States. Such form sha be sgned by the owner of the ncome, trustee,
or agent, and sha show the name and address of the obgor and the
name and address of the owner of such nterest. Such form sha
contan a statement that the owner s a resdent of Denmark or s
a Dansh corporaton and that the owner has no permanent estabsh-
ment n the Unted States.
Form 1001 -D 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 perod. If the ta payer fes such form
wth the wthhodng agent n the caendar year 19 8 or n any subse-
quent caendar year no addtona Form 1001 -D need be fed pror
to the end of the two caendar years mmedatey foowng the caen-
dar year n whch such form s so fed uness the Commssoner notfes
the wthhodng agent that an addtona Form 1001 -D must be
fed by the ta payer at any earer date. The dupcate of Form
1001 -D shoud be mmedatey forwarded by the wthhodng agent
to the Commssoner of Interna Revenue, Records Dvson, Wash-
ngton 2 , D. C.
Sec. 7.903. Patent and Copyrght Royates and Fm Rentas.
Royates and other ke amounts receved on or after anuary 1,19 8,
by (a) a nonresdent aen (ncudng a nonresdent aen ndvdua,
fducary, and partnershp) who s a resdent of Denmark or (b) a
Dansh corporaton, as consderaton for the rght to use copyrghts,
atents, desgns, secret processes and formuae, trade-marks, and other
ke property, ncudng rentas and ke payments n respect of moton
pcture fms, are e empt from Unted States ta under the provsons
of rtce III of the conventon f such aen or corporaton had
at no tme durng the ta abe year n whch such royaty or other
amount was so receved a permanent estabshment n the Unted
States.
Such tems are, therefore, not sub|ect to the wthhodng provsons
of the Interna Revenue Code. s to what consttutes a permanent
estabshment, see rtce 11(1) (c) of the conventon.
To obvate wthhodng at the source, the nonresdent aen who s
a resdent of Denmark, or the Dansh corporaton, sha fe Form
1001 -D, n dupcate, wth the wthhodng agent n the Unted
States. Such form sha be sgned by the owner of the ncome, trustee,
or agent and sha contan the statements provded on such form wth
respect to nterest as set forth n secton 7.902 of these reguatons,
the provsons of whch wth respect to the effectve perod of such
form are equay appcabe wth respect to the ncome fang wthn
the scope of ths secton. The dupcate copy of Form 1001 -D
shoud be mmedatey forwarded by the wthhodng agent to the
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29.1 3-1.
Commssoner of Interna Revenue, Records Dvson, Washngton
: .D.C.
Sec. 7.90 . Prvate Pensons and Lfe nnutes. Under rtce
v. (2) of the conventon prvate pensons and fe annutes derved on
or fter anuary 1, 19 8, from sources wthn the Unted States by a
nonresdent aen ndvdua who s a resdent of Denmark are e empt
from Unted States ta .
The person payng such ncome shoud be notfed by etter from the
resdent of Denmark that the ncome s e empt from ta aton under
the provsons of rtce (2) of the conventon. Such etter sha
contan the address of the ndvdua and a statement that such nd-
vdua s a resdent of Denmark. The etter of notfcaton, or a copy
thereof, shoud be mmedatey forwarded by the recpent to the
Commssoner of Interna Revenue, Records Dvson, Washngton 2 ,
D. C. Such etter sha consttute authorzaton to the payor of the
ncome to pay such ncome wthout deducton of the ta at the source
uness the Commssoner subsequenty notfes such payor that the ta
shoud be wthhed wth respect to payments made after such
notfcaton.
Sec. 7.90 . Reease of cess Ta Wthhed at Source. (a)
Genera. In order to brng the conventon nto force and effect at the
earest practcabe date:
(1) The reduced rate of ta of 1 percent to be wthhed at the
source on dvdends, and
(2) empton from ta otherwse wthhed at the source on
nterest, patent royates, copyrght royates, fm rentas, and the
ke,
are hereby made effectve begnnng anuary 1, 19 8, n any case n
whch such dvdends, nterest, patent royates, copyrght royates,
fm rentas, and the ke are derved from sources wthn the Unted
States by () a nonresdent aen (ncudng a nonresdent aen nd-
vdua, fducary, and partnershp) who s a resdent of Denmark,
or () a Dansh corporaton.
ccordngy, n the case of dvdends pad to a nonresdent aen
(ncudng a nonresdent aen ndvdua, fducary, and partnershp)
whose address at the tme of payment was n Denmark, or to a
Dansh corporaton whose address at the tme of payment was n
Denmark, where ta at the rate of 30 percent has been wthhed on
or after anuary 1, 19 8, from dvdends, there sha be reeased by
the wthhodng agent and pad over to the person from whom t
was wthhed an amount equa to 1 percent of such dvdends.
In the case of every such ta payer who furnshes to the wthhodng
agent Form 1001 -D, as prescrbed n secton 7.902, or 7.903, where
ta at the rate of 30 percent has been wthhed on or after anuary
1, 19 8, there sha be reeased by the wthhodng agent and pad
over to the person from whom wthhed an amount equato the amount
so wthhed n the case of nterest (as to coupon bond nterest, see
ne t paragraph), patent royates, copyrght royates, fm rentas,
and the ke.
In the case of every such ta payer who furnshes to the wthhodng
agent Form 1001-D, n dupcate, where ta at the rate of 28 percent
or 30 percent, as the case may be, has been wthhed on or after anuary
1,19 8, from coupon bond nterest, there sha be reeased by the wth-
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29.1 3-1.
112
hodng agent and pad over to the person from whom t was wthhed
an amount equa to the ta wthhed from such nterest. Form
1001-D used for ths purpose shoud be ceary marked Substtute
n order to repace Forms 1001 prevousy fed. One Form 1001-D,
n dupcate, may be used to repace two or more Forms 1001. The
form marked Substtute s to be used soey for the reease of e cess
ta wthhed n 19 8. The use of Form 1001-D for the purpose of
e empton upon presentaton of nterest coupons s set forth n secton
7.902(6).
(b) Prvate pensons and fe annutes pad n 19 8 or subsequent
years. In order to brng the conventon nto force and effect at the
earest practcabe date, the e empton from ta otherwse wthhed
at the source on prvate pensons and fe annutes s made effectve
begnnng anuary 1,19 8, n any case n whch such pensons and fe
annutes are derved from sources wthn the Unted States by a non-
resdent aen ndvdua who s a resdent of Denmark.
The person payng such ncome shoud be notfed by etter from the
resdent of Denmark that the ncome s e empt from ta aton under
the provsons of rtce ( 2) of the conventon. See secton 7.90 .
Such etter w consttute authorzaton to the payor of the ncome to
reease the ta wthhed on or after anuary 1, 19 8, wth respect to
such pensons or fe annutes.
(c) Subsdary s dvdends. Wth respect to a dvdend pad on or
after anuary 1,19 8, by a domestc corporaton to a Dansh corpora-
ton whose address s n Denmark, ta sha be wthhed n accordance
wth the provsons of secton 7.901 uness pror to the date of payment
of such dvdend the Commssoner of Interna Revenue has notfed
the payng corporaton that such dvdend fas wthn the scope of
rtce I(3) of the conventon. s soon as practcabe after n-
formaton requred under secton 7.901(6) s fed, the Commssoner
of Interna Revenue w determne whether the dvdend nvoved
fas wthn the scope of rtce I (3) and may authorze the reease
wthn the scope of such provson.
Sec. 7.900. ddressee Not ctua Owner. If the recpent n Den-
mark of any dvdend from sources wthn the Unted States s a
nomnee or representatve through whom the dvdend fows to a per-
son other than a person descrbed n secton 7.901 (a) as beng entted
to the reduced rate of 1 percent provded n rtce I of the con-
venton, such recpent n Denmark w wthhod an addtona
amount of Unted States ta equvaent to the dfference between the
Unted States ta whch woud have been wthhed had the conven-
ton not been n effect (30 percent as at the date of approva of ths
Treasury Decson) and the 1 percent wthhed at the source wth
respect to such dvdend pursuant to secton 7.901 of these reguatons.
In any case n whch a fducary or a partnershp wth an address
n Denmark receves, otherwse than as a nomnee or representatve,
a dvdend from a Unted States corporaton, f a benefcary of such
fducary or a partner n such partnershp s not entted to the re-
duced rate of ta provded n rtce I of the conventon, the fdu-
cary or partnershp w wthhod an addtona amount of Unted
States ta wth respect to the porton of such dvdend ncuded n
such benefcary s or partner s net dstrbutve share of the ncome
of such fducary or partnershp, as the case may be. The rate of the
of the e cess ta wthhed
whch come
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113
29.1 -1.
addtona ta s cacuated n the same manner as under the preced-
ng paragraph.
The amounts so wthhed by the wthhodng agent n Denmark
w, on or before the ffteenth day, after the cose of the caendar
year quarter n whch such wthhodng has taken pace, be deposted
wth the Dansh Natona ank Danmarks Natonabank wthout
convertng such amounts nto doars. ach wthhodng agent mak-
ng such depost w accompany such depost wth the approprate
Dansh form e ecuted as requred by the Dansh Natona ank. The
Dansh Natona ank has arranged to remt, on or before the end
of the caendar month n whch such depost s so made, by draft n
Unted States doars, the amounts so deposted to the Coector of
Interna Revenue, atmore, Md., U. S. ., forwardng wth
such draft the approprate Dansh form fed by the wthhodng
agents.
Sec. 7.907. enefcares of a Domestc state or Trust.
nonresdent aen who s a resdent of Denmark and who s a bene-
fcary 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, and III of the conventon wth respect to dvdends, n-
terest, and royates to the e tent such tem or tems are ncuded n
hs dstrbutve share of ncome of such estate or trust. In such case
such benefcary must, n order to be entted to the e empton or re-
ducton n the rate of ta , n the case of nterest or royates, e ecute
Form 1001 -D and fe such form wth the fducary of such estate
or trust n the Unted States.
Snce the purpose of ths Treasury Decson s to make effectve the
e emptons and reduced rates of ta provded n the ncome ta
conventon between the Unted States and the ngdom of Denmark,
procamed by the Presdent of the Unted States on December 8,
19 8, ths Treasury Decson s not sub|ect to the effectve date mta-
ton of secton (c) of the dmnstratve Procedure ct, approved
une 11, 19 6.
(Ths Treasury Decson s ssued under the authorty of secton 62
of the Interna Revenue Code ( 3 Stat, 32; 26 U. S. C. 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 8,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 11, 19 9, 9:00 a. m.)
S CTION 1 . P YM NT OF CORPOR TION INC OM
T T SOURC
Secton 29.1 -1: Wthhodng n the case of 19 9-1-13023
nonresdent foregn corporatons. I. T. 39 0
( so Secton 119, Secton 29.119-2.)
INT RN L R NU COD
Interest payments made by checks dvnwn on a New York bank
by a domestc corporaton wth respect to a oan whch was obtaned
from a nonresdent foregn corporaton, the proceeds of the oan
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29.1 -1.
11
havng been credted to the domestc corporaton s account wth the
foregn corporaton, consttute f ed or determnabe annua or
perodca ncome from sources wthn the Unted States, and such
payments are sub|ect to wthhodng of ncome ta at the source
under secton 1 of the Interna Revenue Code.
dvce s requested whether nterest, pad by a domestc corpora-
ton on a oan obtaned from a nonresdent foregn corporaton, under
the crcumstances herenafter stated, consttutes ncome from sources
wthn the Unted States whch s sub|ect to wthhodng of ncome
ta at the source.
In the nstant case, the domestc corporaton, through ts repre-
sentatve n Cuba, obtaned a oan from a Cuban bank, a nonresdent
foregn corporaton, the proceeds of the oan beng credted to the
domestc corporaton s account wth the credtor bank. The amount
of the oan was secured by the pedge of securtes deposted n the
custody of the bank, and nterest was payabe n avana. The secur-
tes pedged as coatera were sod, and the proceeds were used to pay
the prncpa of the oan. Interest payments on the oan were made
by the domestc corporaton by checks drawn on a New York bank to
the order of the Cuban bank.
It s evdent that the oan n queston was an nterest-bearng ob-
gaton of the domestc corporaton and that the nterest payabe
thereon fas wthn the purvew of secton 119(a) (1) of the Interna
Revenue Code whch provdes n pa as foows:
(a) Gross Income from Sources n Unted States. The foowng tems of
gross Income sha be treated as ncome from sources wthn the Unted States:
(1) Interest. Interest from the Unted States, any Terrtory, any pot-
ca subdvson of a Terrtory, or the Dstrct of Coumba, and nterest on
bonds, notes, or other nterest-bearng obgatons of resdents, corporate or
otherwse
Secton 1 of the Interna Revenue Code, reatng to payment of
corporaton ncome ta at the source, provdes n part as foows:
In the case of foresrn corporatons sub|ect to ta aton under ths chapter
Chapter 1 of the Code not engaged n trade or busness wthn the Unted
States, there sha be deducted and wthhed at the source n the same manner
and upon the same tems of ncome as s provded n secton 1 3 a ta equa to
30 per centum thereof
Secton 1 3(b) of the Code provdes n part for wthhodng of ncome
ta at the source of a ma mum of 30 percent from payments of n-
terest, dvdends, rent, saares, wages, premums, annutes, com-
pensatons, remuneratons, emouments, or other f ed or determnabe
annua or perodca gans, profts, and ncome, to the e tent that such
tems consttute gross ncome from sources wthn the Unted States,
pad to any nonresdent aen ndvdua.
The nstant case s smar to that of . C. Monk Co., Inc., v.
Commssoner (10 T. C. 77). In that case, the pettoner, a domestc
corporaton whch mantaned a branch or saes agency n Chna, pad
to ts saes agent, a Chnese natona, nterest on deposts made by hm
as securty. These payments were made by checks drawn by the
domestc corporaton on ts bank accounts n Chnese banks and were
charged on ts books to the e pense of ts Chnese branch. The Ta
Court hed that the nterest thus pad consttuted ncome to the
Chnese natona from sources wthn the Unted States, and the
domestc corporaton shoud have wthhed ncome ta therefrom.
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11
29.162-1.
In I. T. 30 9 (C. . 1937-1, 111), wheren nterest on bonds of a
domestc corporaton was pad to a foregn corporaton, not engaged
n trade or busness n the Unted States, by another foregn corpora-
ton (guarantor), t was hed that the source of the ncome s deter-
mned by the stus of the debtor who s obgated to pay the nterest,
and that snce the debtor was a domestc corporaton, such nterest
payments were sub|ect to wthhodng of ncome ta at the source.
(Cf. I. T. 3280, C. . 1939-1 (Part 1), 197.)
ccordngy, t s hed that nterest pad by the domestc corpora-
ton n the nstant case to the nonresdent foregn (Cuban) bank con-
sttutes f ed or determnabe annua or perodca ncome from sources
wthn the Unted States, whch s sub|ect to wthhodng of ncome
ta at the source under secton 1 of the Interna Revenue Code.
Secton 29.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD
Reguatons reatng to reease of e cess ta wthhed and e emp-
ton from, or reducton n rate of, wthhodng n the case of Nether-
ands corporatons, as affected by the recproca ncome ta conven-
ton between the Unted States and the ngdom of the Netherands.
(See T.D. 690, page 92.)
Secton 29.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD
Reguatons reatng to reease of e cess ta wthhed and e empton
from, or reducton n rate of, wthhodng n the case of Dansh cor-
poratons, as affected by the recproca ncome ta conventon between
the Unted States and the ngdom of Denmark. (See T. D. 692,
page 10 .)
SUPPL M NT . ST T S ND TRUSTS
S CTION 162. N T INCOM
Secton 29.162-1: Income of estates and 19 9- -13032
trusts. T. D. 688
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 31, 19 1
mendng secton 29.1G2-1 of Reguatons 111, reatng to ncome of
estates and trusts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 29.162-1 of Reguatons 111, as amended by Treasury De-
cson 88 C. . 19 6-1, 19 , approved December 29, 19 26 CFR
29.162-1 , s further amended as foows:
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29.162-1.
116
( ) y strkng from the thrd sentence of the frst paragraph
the words wth the return n whch the tem s camed as a deducton.
( ) y nsertng mmedatey after such thrd sentence the
foowng:
Such statement and waver shoud be fed wth the return for the year for whch
the tem s camed as a deducton or wth the Commssoner, or wth the
coector for the dstrct n whch such return was fed, for assocaton wth
the return.
(Ths Treasury Decson s ssued under the authorty of sectons
62 and 162(e) of the Interna Revenue Code ( 3 Stat. 32; 6 Stat.
861; 26 U. S. C. 62, 162(e)).)
ecause the amendments made by ths Treasury Decson merey
reeve ta payers from a mtaton appcabe under e stng regua-
tons, 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.
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved Feburary 16, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 23, 19 9, 8: 6 a. m.)
Secton 29.162-1: Income of estates and 19 9-11-1309
trusts. G. C. M. 2 999
( so Secton 171, Secton 29.171-2.)
INT RN L R NU COD
Perodc payments made out of ncome by the estate of a deceased
husband to hs former wfe, n dscharge of a ega obgaton whch
was mposed upon the husband by a decree of dvorce, are de-
ductbe under secton 162(b) of the Interna Revenue Code n com-
putng the net ncome of the estate. Such payments are ta abe to
the dvorced wfe under secton 22(k) of the Code.
Consderaton has been gven to the effect, for Federa ncome ta
purposes, of the decson of the Crcut Court of ppeas, Nnth Cr-
cut, n state of omer Laughn v. Commssoner (167 Fed. (2d)
S28) whch nvoved the treatment under sectons 22(k), 23(u),
162(b), and 171(b) of the Interna Revenue Code of perodc pay-
ments to a former wfe under a decree of dvorce.
The facts n that case may be brefy stated as foows: On pr 1,
192 , omer Laughn and hs then wfe, da Laughn, entered nto
a property settement agreement whch was ater ncorporated nto
a fna decree of dvorce. The agreement provded that the husband,
or hs estate, shoud pay to the wfe 800 a month durng her natura
fe for her support and mantenance, such amount to be reduced
to 300 a month shoud she remarry, a contngency whch dd not
occur. omer Laughn ded on December 27, 1932. s estate pad
to the wfe the sum of 9,600 durng the year 19 2 pursuant to the
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117
29.162-1.
agreement and the dvorce decree The estate of omer Laughn
camed the sum of 9,600 as a deducton n ts Federa ncome ta
return for the year 19 2, whch deducton was dsaowed by the Com-
mssoner.
The husband (Laughn), f vng, woud have been entted to
deduct, under secton 23 (u) of the Interna Revenue Code, payments
made by hm. owever, t was contended by the Government that
the deducton camed by hs estate was not aowabe. (See secton
29.23(u)-, Reguatons 111.) The Court, n ts opnon, stated as
foows:
We do not agree. We thnk the deducton here camed s ceary authorzed.
Secton 22(k) of the Interna Revenue Code provdes for the ncuson n the
gross ncome of a dvorced or egay separated wfe of perodc payments re-
ceved from her husband n dscharge of a ega obgaton whch, because of the
marta or famy reatonshp, s mposed upon or ncurred by such husband
under such decree or under a wrtten nstrument ncdent to such decree
The court recognzed that secton 23(u) of the Code appes ony
durng a husband s fetme. The court stated, however, that t was
cear that the payments made by the estate were n dscharge of a ega
obgaton mposed by a decree of dvorce because of the marta rea-
tonshp. ut the court consdered t necessary to refer to sectons
162(b) and 171(b) of the Code for the purpose of determnng
whether the deducton coud be taken by the husband s estate after
hs death. The court observed that, under the provsons of secton
171 (b) of the Code, n computng the net ncome of an estate or trust
and the net ncome of the wfe descrbed n secton 22(k) or secton
171(a) of the Code, the wfe s consdered a benefcary. It s to
be noted that the amounts pad to the decedent s wfe durng the ta -
abe year 19 2 were pad out of ncome of the estate. The court
stated that the dstrbutabe ncome of the estate, after a other deduc-
tons, was substantay n e cess of the 9,600 pad to da Laughn.
ad the amounts been pad out of corpus, t woud seem that the
deducton coud not have been aowed under ether secton 23 (u) or
secton 162(b) of the Code. It s cear that secton 23(u) of the Code
appes ony durng the husband s fetme, and that the deducton pro-
vded by secton 162(b) of the Code s aowabe to an estate or trust
ony f the payments are made out of ncome.
Secton 162(b) of the Code, reatng to the computaton of the net
ncome of an estate or trust, provdes n part as foows:
There sha be aowed as an addtona deducton n computng the net Income
of the estate or trust the amount of the ncome of the estate or trust for ts ta -
abe year whch s to be dstrbuted currenty by the fducary to the egatees,
hers, or benefcares, but the amount so aowed as a deducton sha be ncuded
n computng the net ncome of the egatees, hers, or benefcares whether ds-
trbuted to them or not. Itacs supped.
Inasmuch as the wfe n the nstant case was treated as a benef-
cary of the estate, and the perodc payments were made to her out
of the ncome of the estate, such payments are propery deductbe
under secton 162(b) of the Code. For the purpose of the deducton
aowabe to the husband durng hs fetme under secton 23(u) of
the Code, t s mmatera whether perodc payments are made out of
ncome or capta. Lkewse, for the purpose of secton 22 (k) of the
Code, the payments made to the wfe are treated as ta abe ncome to
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29.16 -2.
118
her, regardess of whether they are made out of ncome or capta,
and even though she s pad by an estate or trust after the death of
the husband. owever, such payments, n order to be deductbe
under secton 162(b) of the Code, must be made out of the ncome
of the estate or trust. In determnng whether the payments are
made out of ncome or capta, secton 162(d) of the Code s appcabe.
The prncpes dscussed heren, whch were enuncated by the
court n state of omer Laughn v. Commssoner, supra, have been
accepted by the ureau.
Chares Opant,
Chwf Counse, ureau of Interna Revenue.
S CTION 16 . MPLOY S T USTS
Secton 29.16 -2: Impossbty of dverson 19 9-13-13113
under the trust nstrument. Mm. 639
Requrements for compance wth the provsons of secton
16 (a) (2) of the Interna Revenue Code.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, May SI, 19 9.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
1. It s recognzed that n many |ursdctons an ora agreement may
be a suffcent bass for the estabshment of a vad trust. owever,
secton 16 (a) (2) of the Interna Revenue Code provdes that a trust
s e empt under secton 16 (a) of the Code ony f under the trust
nstrument t s mpossbe, at any tme pror to the satsfacton of a
abtes wth respect to empoyees and ther benefcares under the
trust, for any part of the corpus or ncome to be (wthn the ta abe
year or thereafter) used for, or dverted to, purposes other than for
the e cusve beneft of hs empoyees or ther benefcares. Sec-
ton 29.16 -2 of Reguatons 111 nterprets the phrase f under the
trust nstrument t s mpossbe to mean that the trust nstrument
must defntey and affrmatvey make t mpossbe for the none empt
dverson or use to occur Secton 29.16 -1(6) of Regua-
tons 111 provdes n part: n e empt status must be mantaned
throughout the entre ta abe year of the trust n order for the trust
to obtan any e empton for such year. Moreover, contrbutons are
deductbe wthn specfed mts under secton 23 (p) (1) ( ) of the
Code for a ta abe year ony f such ta abe year ends wthn or wth
a ta abe year of the trust for whch the trust s e empt under sec-
ton 16 (a) Secton 23(p)()(C) of the Code contans a
smar requrement. Thus, a of the foowng condtons must be
met pror to the end of the ta abe year n order that contrbutons
may be deductbe under secton 23(p)() ( ) or (C) of the Code
for such year:
(a) There must be a vad trust recognzed as such under the
aw prevang n the |ursdcton to whch the trust s sub|ect;
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29.202-1.
(6) The trust must be evdenced by an e ecuted nstrument ;
and
(c) The nstrument must defntey and affrmatvey precude
the prohbted dverson.
2. The term trust nstrument, as used n secton 16 (a) (2) of the
Code and secton 29.16 -2 of Reguatons 111, means a document or
documents ceary settng forth the terms of the trust. Whe the
nstrument (document or documents) evdencng the trust agree-
ment must be n wrtng contanng suffcent words to make the pro-
hbted dverson mpossbe, and be sgned by persons competent to
bnd the partes before the cose of the ta abe year under consdera-
ton, t s not requred to be n a specfed form but must be n such
form that the provsons of the trust agreement coud be enforced on
the bass of such wrtten evdence aone.
3. Correspondence from the foowng regardng ths mmeograph
shoud refer to ts number and the symbos ndcated: Coectors of
nterna revenue, C: Co; nterna revenue agents n charge,
IT : PS; heads of fed dvsons of the Technca Staff, TS: RM.
Geo. . Schoeneman,
C omm ssoner.
S CTION 171. INCOM OF N ST T OR TRUST IN
C S OF DI ORC , TC.
Secton 29.171-2: ppcaton of trust rues
to amony payments.
INT RN L R NU COD
Income of estate pad to deceased dvorced husband s former wfe.
(See G. C. M. 2 999, page 116.)
SUPPL M NT G. INSUR NC COMP NI S
S CTION 202. D UST D NORM L-T
N T INCOM
Secton 29.202-1: Reserve and other pocy 19 9- -1303
abty credt for ad|usted norma-ta net T. I). 689
ncome.
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
Fgure to be used n determnng reserve and other pocy abty
credt for fe nsurance companes.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C, February 21, Of.
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 the
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29.27 -1.
120
Revenue ct of 19 2 ( 3 Stat. 71, 6 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 nsurance com-
panes for the ta abe year 19 8 sha be 1.02 3.
Pak. 2. It s found that notce and pubc procedure are unneces-
sary, 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 7 whch are not open to pubc nspecton.
The pubc accordngy cannot effectvey partcpate n the determ-
naton of such fgure.
ohn W. Snyder,
Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 23, 19 9, 10:19 a. m.)
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
aen ndvduas.
INT RN L R NU COD
Saary receved by foregn branch manager whe n Unted States.
(See I. T. 39 3, page 83.)
SUPPL M NT L. SS SSM NT ND COLL CTION OF D FICI NCI S
S CTION 27 . N RUPTCY ND R C I RS IPS
Secton 29.27 -1: ankruptcy and recever- 19 9-8-13062
shp proceedngs. Ct. D. 171
F D R L T S N RUPTCY CT OF 1898 M NDM NT OF 1926 C ND-
L R CT ( PPRO D UN 22, 1938) D CISION OF SUPR M COURT
ankruptcy Cams fob Ta es Interest.
Ta cams n a proceedng n whch the ta payer has been ad-
|udged a bankrupt bear nterest ony unt the date of bankruptcy,
that s, the date when the petton was ted nsttutng the pro-
ceedng. The rue that such cams bear nterest to date of pay-
ment, a rue prevousy apped n moat ower courts, was based upon
an nterpretaton of the provsons of secton 6 a of the ankruptcy
ct of 1898 whch s no onger appcabe snce the 1926 amendment
of secton 6 a of the ankruptcy ct and the amendments of sec-
tons 6 a and 7n of the ankruptcy ct, as amended, whch are con-
taned n the Chander ct (Pubc No. 696, Seventy-ffth Congress,
thrd sesson, approved une 22, 1938), assmated ta es to debts
for a purposes, ncudng dena of post-bankruptcy nterest.
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121
29.27 -1.
Supreme Court of the Unted States
168. The Cty of New York, pettoner, v. Lews . Super, as Trustee n ank-
ruptcy of Spotght Productons, Inc.
200. State of New York, pettoner, v. Leonard . Carter, as Trustee n ank-
ruptcy of Unon Fabrcs, Inc.
201. The Unted States of merca, pettoner, v. Leonard . Carter, as Trustee
n ankruptcy of Unon Fabrcs, Inc.
On wrts of certorar to the Unted States Court of ppeas for the Second Crcut
March 7, 19 9
OPINION
Mr. ustce ackson devered the opnon of the Court.
The utmate ssue n these three cases s whether ta cams aganst a bank-
rupt bear nterest unt the (ate of bankruptcy1 as hed by the court beow, or
unt payment, as prevousy hed by another court of appeas.3 We granted
certorar to resove the confct, the matter beng of consderabe practca m-
portance n the admnstraton of the ankruptcy ct.
If the queston were one of frst mpresson to be decded n the ght of the
present statute aone, we shoud have no dffcuty n affrmng the court beow.
More than 0 years ago Mr. ustce omes wrote for ths Court that the rue
stoppng nterest at bankruptcy had then been foowed for more than a century
and a haf. e sad the rue was not a matter of egsatve command or statu-
tory constructon but, rather, a fundamenta prncpe of the ngsh bankruptcy
system whch we coped. Se ton v. Dreyfuss, 219 U. S. 339, 3 . Our present
statute contans no provson e pressy repudatng that prncpe or aowng an
e cepton n favor of ta cams. very ogca mpcaton from reevant pro-
vsons s to the contrary. Secton 03(a)(1), 11 U. S. C. secton 103(a)(1) a-
ows nterest on |udgments and wrtten nstruments8 ony to date of bankruptcy.
Secton 03(a)( ), 11 . S. C. secton 103(a)( ) aows nterest ony to that
1 The terms date of bankruptcy and bankruptcy, wth reference to tme, mean the
date when the petton was fed, 30 Stat. , as amended 2 Stat. 8 0-8 1, and are used
accordngy n ths opnon.
In No. 168 the dstrct udge aowed New York Ctv nterest to the date of payment,
7 Fed. Supp. 8, and the court of appeas reversed, 168 Fed. (2d) 268. In Nos. 200-201,
the dstrct |udge aowed the t nted States and the State of New York nterest ony to the
date of bankruptcy, 73 Fed. Supp. 08 , and the court of appeas affrmed, 3 68 Fed. (2d) 272.
Dave v. Green, 133 Fed. (2d I 1.
33 T . S. 811-812.
s Those most mmedatey concerned wth admnstraton of the ct have frequenty
e pressed dssatsfacton over the nroads ta es and nterest thereon make n the fund
avaabe for credtors. For dscussons of that and smar practca probems fee 1
. N. . Ref. ankr. 3; 17 d. 129; 18 d. 17 ; 19 d. 31: 21 d. 106 : 22 d. 1 ; Com. L. .
11 ; and d. 370. See aso udge rgt s opnon beow, 73 Fed. Supp. 68 , and ref-
erees comments n atter of Dorse, 6 m. . R. (N. S.) 1 6, and Mutter of D. 0. Sum-
mers, m. . R. (N. S.) 123. The whoe sub|ect of ta cams and nterest s dscussed
at ength n 3 Coer, ankruptcy (1 th ed.. 1)1- 1 and 19 8 Cum. Supp.) sectons 7.22,
7.30. 63.16, 63.26, 6 . 0 , 6 . 07, 6 . 08. Comments appear n 61 arv. L. Rev. 3 ; 21
Temp. L. . 28 ; 29 a. L. Rev. 206 ; 3 d. 83 : 23 N. Y. U. L. . Rev. 16.
ankruptcy ct of 1898, c. 1. 30 Stat. , as amended by the Chander ct of une
22. 1938. c. 7 . 2 Stat. 8 0, 11 U. S. C. secton 1 et seq.
1 In ngand the practce was we estahsu-d. 2 aekstone, Commentares 88;
romey v. Goodcrc, 1 tk. 7 : parte ennet, 2 tk. 27 ; and apped to mortgages
as we as unsecured debts, parte auer, es. r. 16 ; parte amsbottom, 2
Mont. yrt. 71) : parte Pen fod, De( . Sn. 282 ; parte Lubbock, 9 ur. N. S. 8 ;
In re Savn L. R. 7 Ch. 760, 76 : parte ath, 22 Ch. Dv. 0, ; uartermane s
Case 1892 3 Ch. 639: In re onacno, 1 Manson 9. Two e ceptons were recognzed:
If the aeged bankrupt proved sovent, credtors receved post-bankruptcy Interest before
any surpus reverted to the debtor, romey v. Goodere, 1 tk. 7 ; parte Ms, 2 es.
r. 29 ; parte Carke, es. r. 676 ; and f securtes hod by a credtor as coatera
produced nterest or dvdends durng bankruptcy such amounts were apped to post-
bankruptcy nterest, parte Ramsbottom, 2 Mont. yrt. 70 ; parte Penfod, DeG.
Sm. 228 ; uartermanc s Cane 1892 1 Ch. 639. These e ceptons have Seen carred
over nto our svstem. See mercan Iron Co. v. Seaboard r Lne, 233 U. S. 261, 267;
Se ton v. Dreyfuss. 219 U. S. 339, 3 6.
Debts of the bankrupt may be proved and aowed aganst hs estate whch are
founded upon (1) a f ed abty, as evdenced by a |udgment or an nstrument n wrtng,
absoutey owng at the tme of the fng of the petton by or aganst hm, whether then
payabe or not. wth any nterest thereon whch woud have been recoverabe at that date
or wth a rebate of nterest upon such us were not then payabe and dd not bear n-
terest
8 16 9 9
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29.27 -1.
122
date on debts reduced to |udgment after bankruptcy.10 No provson permts
post-bankruptcy nterest on other cams n genera or ta cams n partcuar.
Secton 7(|), 11 U. S. G. secton 93(|) forbddng aowance of governmenta
penates or forfetures permts 11 aowance of osses sustaned by the acts pen-
azed, wth actua costs and such nterest as may have accrued thereon accordng
to aw. owever, on ts face ths appears to demt even such aowabe debts
as of the date of bankruptcy and to aow no more nterest than does secton 63
wth respect to the cams there specfed. Moreover, there s no nterest e cept
that whch accrues accordng to aw t s e acty such nterest that the funda-
menta prncpe cuts off as of bankruptcy. Secton 7(n), 11 U. S. C. sec-
ton 93(n) requres governmenta cams to be proved n the same manner and
wthn the same tme as other debts and ony for cause shown may a reasonabe
e tenson be granted. Ta cams are treated the same as other debts e cept
for the fourth prorty of payment, secton 6 (a), 11 U. S. C. secton 10 (a), and
the provson makng ta es nondschargeabe, secton 17, 11 U. S. C. secton 3 .
ut each of these sectons s sent ns to nterest.
The ong-standng rue aganst post-bankruptcy nterest thus appears mpct
n our current ankruptcy ct. To read nto such a statute an e cepton to that
rue woud be unwarranted and, as an orgna proposton, we shoud decne to
do so. owever, the ssue comes here after 0 years of bankruptcy admnstra-
ton under the ct of 1898 foowed by 10 years under the 193S Chander amend-
ments. Pettoners contend that |udca decsons durng those perods have
now been ncorporated nto a egsatve pocy aowng nterest on ta cams
to payment, thereby producng a rue of aw beyond further |udca scrutny.
It s contended that decsons under the ct of 1898 defntey estabshed such
a rue. nd pettoners chaenge the ower court s hodng, despte those dec-
sons, that the Congress through the Chander ct competed the assmaton of
ta es to debts and manfested an ntenton that such cams e treated, nterest-
wse, the same as other debts. They assert that the pre-Chander ct aow-
ance of nterest to date of payment was grounded n |udca constructon of sec-
ton 7(|), approved at east sub sento by ths Court n Unted States v. Chd s,
266 U. S. 30 T. D. 3671 (C. . I -1. 2 1 (192 )) , and adopted by congressona
reenactment of that secton n the Chander ct. They aso contend that even
after the Chander ct the ower courts, and ths Court n Mrnk v. Unempoy-
ment Commsson, 31 U. S. 6 , affrmed the aeged pror nterpretaton of secton
7(|). In such a stuaton, t s sad, the courts cannot modfy what has now
become egsatve pocy even though orgnay t may have been a |udcay
deveoped rue and one whch now, as a matter of statutory constructon, we
shoud re|ect.
t the outset t may be admtted that n practce under the ct of 1898 the
ower courts generay dd aow nterest on ta cams unt pad. The partes
and the ower courts trace that practce to In re aak, 1 7 Fed. 276, and cases
foowng that decson. ut we do not beeve those cases support pettoners
contenton that the pre-Chander aowance of post-bankruptcy nterest refects a
constructon of secton 7-(|). The aak opnon tsef refutes that contenton
nsofar as t may be based on that ne of cases. The court there frst decded
that snce secton 6 (a) of the ct of 189S gave ta es absoute prorty over
cams of every knd, pubc ta es do not consttute a cam n bankruptcy.
1 7 Fed. 276, 277. The statute dd not requre that ta es be proved but that the
trustee shoud seek them out and pay them n fu. In vew of that requrement
( ) provabe debts reduced to udgments after the fng of te petton
and before the consderaton of the bankrupt s appcaton for dscharge, ess costs n-
curred and nterest accrued after the tng of the petton and up to the tme of the
entry of such |udgments
though the provsons of secton 6.1(a)(1) requrng a rebate of unearned nterest,
and of secton 03(a)( ) emnatng certan |ost-bankruptcy nterest, may n practce be
operatve but nfrequenty, they refect a prncpe of ong standng. See 2 ackstone,
Commentares, 88.
11 Debts owng to the Unted States or any State or subdvson thereof as a penaty or
forfeture sha not be aowed, e cept for the amount of the pecunary oss sustaned
by the act. transacton, or proceedng out of whch the penaty or forfeture arose, wth
reasonabe and actua costs occasoned thereby and such Interest as may have accrued
thereon accordng to aw.
13 Sec. 6 . Debts Whch ave Prorty. a. The court sha order the trustee to
pay a ta es egay due and owng by the bankrupt to the Unted States, State, county,
dstrct, or muncpaty n advance of payment of dvdends to credtors b. The
debts to have prorty and to he pad n fu out of bankrupt estates, and the
order of payment sha be (1) costs of preservng the estate, (2) certan
tng fees, (3) admnstraton e penses ncudng attorneys fees, ( ) wages ns specfed,
( ) debts entted to prorty under State or Federa aws 3U Stut. , 63.
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123
29.27 -1.
and snce ta es were not cams, the court saw no reason why the rue stoppng
nterest on ordnary cams shoud appy. The court found that rue was based
on consderatons of e pedency and practca convenence not present n the case
of ta es. Frst, t sad that aowance of such nterest at the varyng rates ap-
pcabe to the dfferent cams sharng the estate woud prevent defnte deter-
mnaton of each camant s proportonate share. Secondy, such recurrng read-
|ustments woud compcate admnstraton of the estate. Snce nether dffcuty
woud resut from aowng post-bankruptcy nterest on ta es not sharng the
fund wth other obgatons, the rue aganst such nterest was hed to be nap-
pcabe. Ths concuson was grounded entrey n reasons of practca con-
venence. If the case nvoved constructon of any part of the ct of 1898, t
ceary was secton 6 (a) wth ts requrements of absoute prorty n payment
of a ta es egay due and owng, whch, together wth the dspensaton from
proof, the court consdered as ndcatng that ta es en|oyed a status entrey df-
ferent from that accorded ordnary cams. Those provsons were consdered
controng, whe secton 7(|) was not mentoned n the opnon. Consequenty
the atter secton s reenactment coud not be consdered a egsatve adopton of
any |udca goss on that secton resutng from the aak ne of cases. The
ony secton reed upon n aak, secton ( (a), has been sgnfcanty amended
to deprve ta es of ther preferred status, frst by the amendment of 1026, and
ater by the Chander ct. The former e pressy provded that ta es yed
prorty to admnstraton e penses and certan wages, nether of whch bear
nterest. The atter amendments fnazed the subordnaton of ta es to other
prorty tems. They aso wrote nto secton 7(n) the requrement of proof,
formery dspensed wth under secton 6 (a). Consequenty the argument based
on aeged Chander ct recognton of ower court nterpretatons of secton
7(|) seems entrey wthout force. nd, on the contrary, that enactment dd
sgnfcanty change the provsons of secton 6 (a) whch were decsve n aak
and smar cases.
Pettoners rey most heavy, however, upon ths Court s decson n Unted
State v. Chd , 266 U. S. 30 , reversng In re . Men t d Co., 200 Fed. 0 7. It
s urged that ths decson refected a constructon by ths Court of secton 7(|)
whch the Congress adopted n enactng the Chander amendments. We do not
beeve ths contenton survves scrutny of that case or that t s supported by
the egsatve hstory of the Chander ct. The court of appeas stated that the
ony ssue before t was whether an e acton of 1 percent a month as the prce
of deay amounts to a penaty. 200 Fed. 0 7, 0 0. It decded that anythng n
e cess of 6 percent per annum woud he a penaty barred by secton 7(|). It s
true that court aso stated the aowabe nterest coud run unt payment. ow-
ever, that statement was aso based on the hghy preferred status of ta es
and the requrement of secton 6 (a) that absoute prorty be gven to a
ta es egay due and owng. Secton 7(|) was consdered as estabshng that
12 percent, as a penaty, coud not be aowed but that 6 percent was a pecunary
oss wthn the meanng of that secton, and aowabe as such, n fu. ut
the Government chaenged n ths Court ony the hodng that the 12 percent
nterest was a penaty barred by secton 7(|). Ths Court reversed as to that
pont and the opnon makes t cear that t was the ony ssue consdered and
decded here. The queston whether nterest coud run to payment, athough
dscussed n respondent s bref on the merts, was not the ssue whch nduced the
court to brng the case here, and t s not dscussed n the opnon. We cannot
agree that the case represents even a sub-sento approva of aowance of post-
hankruptcy nterest. ven assumng, aryurndo, such approva to be mpct n
the decson, t woud not hep pettoners, reyng soey on reenactment of sec-
ton 7(|), snce we have shown the ower court s hodng was based argey on
Secton 1 of the ct of May 27. 1920, c. 06. Stat. 602, 666.
u In re shand mery rf Corundum Co., 229 Fed. 829, rees entrey on secton 0 (a)
and the aak case. In re Cark Reaty Co., 2 3 Fed. 938, dscusses secton 6 (a) but
not secton 7(|) and rees, erroneousy, on Dnuton v. Stanard. 211 U. S. 88, as to whcb
see te t. In re . Men t Co., 290 Fed. 9 7. reyng on secton 0 (a). Is dscussed n the
te t. In re . . Fountan, Inc., 29 Fed. 873. does not dscuss the Issue, decdng ony
that ta es bear smpe nterest. Iorne v. oone County, Fed. (2) 920. dscusses ony
whether the evy there was penaty or Interest. In re Martn. 7 Fed. (2d) 018, does not
dscuss the ssue. In re demon, 11 Fed. Snpp. 18, modfed 80 Fed. (2d) 81, was based
on the Revenue ct of 1928 and the court of appeas decded ony that the evy there was
not a penaty. In re eardseu f Wocott M g. Co., 82 Fed. (2d) 239, aso nvoved ony
the penaty ssue. Compare In re Wam F. Fsher cf Co., 1 8 Fed. 907, denyng the
camed nterest because secton 0 (a) contaned no provson aowng t; and dctum
as to Interest In McCormck v. Purtan Coa f n. Co., 1 Fed. (2d) 213, 21 .
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29.27 -1.
12
provsons of secton 6 (a) whch have snce been changed by the ct of 1926 and
the Chander ct
Other decsons of ths court cted by pettoners on ths pont do not hep
ther cause and requre tte dscusson. Dayton v. Puebo County, 2 1 U. S. 88,
approved payment of nterest to ndvduas who, durng the course of a bank-
ruptcy, pad off ta ens bndng property of the bankrupt. The court s decson
was ony that such partes, whose ta deeds were nvadated because at the
tme they were ssued the property was n custoda egs, coud be rembursed out
of the estate s genera fund for both ther advances and nterest at the ega rate.
Ths was smpe equty snce the camants had pad ta es whch the then secton
6 (a) requred the trustee to seek out and pay n fu. reu York v. ersatot, 263
U. S. 93, s ceary a hodng mted to the determnaton that the cam there
asserted was a penaty not aowabe under secton 7(|). The case was so de-
scrbed n the Chds opnon, 266 U. S. 30 , 309, and the dscusson there confrms
our concuson that the atter decson was smary mted to that pont. Coder
v. rts, 213 U. S. 223, states as a subsdary pont ony that, where the estate was
adequate, nterest coud propery be aowed on a mortgage whch the court had
hed not to be a vodabe preference.
It s thus cear that when the Chander amendments were under consdera-
ton n Congress the reported cases estabshed ony that ower courts were a-
owng nterest on ta cams unt payment, ether as a matter of practca con-
venence or because secton 6 (a) gave those cams absoute prorty and ds-
pensed wth proof. There was no bass for beef that the ower courts, much
ess ths court, had apped any |udca goss to secton 7(|) requrng smar
preferred treatment, nterest-wse, for ta cams. If any concuson coud have
been drawn from the cases t was that secton 6 (a) mght have |ustfed a |udca
beef that ta es need not be consdered, for any purpose, the same as other debts.
nd, as we have seen, both sgnfcant provsons of that secton were amended
wth adverse effects on the status of ta cams. Consequenty, reenactment
of secton 7(|) does not support pettoners poston on ths Issue. Ths con-
cuson s confrmed by the compete ack of any ndcaton n the egsatve hs-
tory that Congress consdered secton 7(|) n ths connecton. Pettoners are
n fact assertng that addng to an aeged sub-scnto rung here on secton
7(.) congressona sence n reenactng that secton, precptated a egsatve
command that post-bankruptcy nterest be aowed on ta cams whch, at the
same tme, were deberatey beng reduced to the eve of other debts. Mere
statement of the proposton ndcates ts re|ecton.
The court of appeas concuded that by the 1926 amendment and the Chander
ct, Congress assmated ta es to other debts for a purposes, ncudng dena
of post-bankruptcy nterest. We thnk ths s a sound and ogca nterpretaton
of the ct after those amendments to sectons 6 (a) and 7(n). Consdered n
con|uncton wth the genera rue aganst post-bankruptcy nterest1 as we as
secton 63 s mtatons of nterest on other cams to date of bankruptcy, they
compe our concuson, aready stated, that the statute as amended dd not con-
tempate any e cepton n favor of ta cams.
Pettoners fna contenton s that even after the Chander ct the ower courts
contnued to aow post-bankruptcy nterest, that ths Court n Menk v. Un-
empoyment Commsson, 31 T . S. 6 , approved the practce, and that co-gres-
sona recognton of that nterpretaton s refected n an unsuccessfu attempt
to modfy secton 7(|). It may be admtted that ower courts, other than the
one whose |udgment s now beng revewed, dd contnue to aow such nterest
after the 1938 amendment.16 ut ths Court has not, n the Menk case or
otherwse, passed on the queston. That case nvoved the same ssue that had
been presented n Chds: whether or not the nterest there chaenged was n
fact a penaty proscrbed by secton 7(|) whch had been eft substantay un-
changed by the Chander ct. We decded ony that queston.
ut, rrespectve of that decson, pettoners contend that Congress has con-
sdered the ower courts post-Chunder ct decsons as a statutory nterpre-
taton whch can be overrued ony by egsaton. The argument s based on a
Commttee Report accompanyng a b approved by the ouse durng the
11 See note 7 and te t; and see Thomas v. Western Car. Co., 1 9 U. S. 9 ; Se ton v.
Dret/fuss, 219 U. S. 339 ; mercan Iron Co. v. Seaboard r Lne, 233 U. S. 261.
16 See, for e ampe, In re L. Oandof. d Co.. Inc., 2 Fed. Supp. 706; In re Fat/ton, 2
Fed. Supp. 1002 ; Da c v. Green, 133 Fed. (2d) 1. ut see Referee s decson. In Matter
of Unon everage Co., Inc.. 0 m. . R. (N. S.) 82 , 829. nd see dscusson by the
court beow In ammer v. Tuffy, 1 Fed. (2d) 7, 9, and n Unted States v. Roth,
16 Fed. (2d) 7 , 77- 78.
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12
29.27 -1.
ghteth Congress but not acted upon In the Senate. mong ankruptcy ct
amendments proposed n ths b was one desgned both to carfy and modfy
secton 7(|). The change, t was sad In the ouse Report, was to make t
cear that the secton referred to nterest on the pecunary oss and that such
nterest stops at bankruptcy. The carfyng cause was ntended to overrue
an obsoete rue as to nterest on denquent ta es. It was stated that athough
sectons 6 (a) and 7(n) as amended by the Chander ct rendered the reason-
ng of the aak case obsoete, nevertheess Its rue had not been changed and
egsaton was necessary, ctng Dave v. Green, 133 Fed. (2d) 1, the case whch
confcts wth the decson now beng revewed. The te t of the secton of the
report devoted to ths proposed amendment s prnted n the margn.17 We be-
eve a far readng of t eads to the concuson that the commttee beeved, not
that the Chander ct ether aowed post-bankruptcy nterest or eft the matter
open, but that the courts n aowng such nterest were gnorng the necessary
and ntended mpcatons from the Chander amendments to sectons 7(n) and
t (a). The court beow dd not have ths report before t, but n a we-con-
sdered opnon readed the same concuson. We beeve that concuson s
confrred by the report and that pettoners contentons fnd no support n
ether the Chander ct or ths abortve attempt at carfcaton.
The case thus presents ony the confct between two courts of appeas as to
the proper nterpretaton of the current statute. We agree wth the court beow
and resove the confct by affrmng ts |udgments.18
ffrmed.
-Mr. ustce Reed dssents for the reasons gven n Dave v. Green, 133 Fed.
(2d) 1.
11. Secton 11(a) of the b Is ntended both to carfy and modfy secton 7 of
the act. The change n 7 (ct Is to make cear that the mtaton on Interest up to the
date of bankruptcy reates ony tn nterest on the pecunary oss, and further that such
nterest stops at the date of bankruptcy. The addton of cause (2) In the b Is n-
tended to overrue an obsoete rue as to nterest on denquent ta debts. Interest on
genera unsecured debts, on unsecured Government debts other than ta es, and on debts
entted to prorty under secton 6 a, Is suspended at the date of bankruptcy so that,
e cept n the rare case of a sovent estate, nterest Is aowabe onv to such date. (Sec.
63a; tanta v. Napa Cantna Wneres (C. C. ., I)th Cr.), 30 m. . R. (N. S.) 8 ; In re
andoft d Co., Inc. (S. D., N. Y.) 1 m. . R. (N. S.) 21 (governmenta debts and other
ebts entted to prorty) ; 3 Coer on ankruptcy, 1 th ed., 183 et seq. ; 2 Remngton on
ankruptcy, th ed., sees. 771. 71) .) owever, nterest on denquent ta debts s aow-
abe tn the date of pnvment In re aak (D. ( ., N. D., 1906) 17 m. . R. 1 ; In re
shand mery and Corundum Co. (D. C, Mass. 1916) 36 m. . R. 19 ; In re Cark
Reaty Co. (C. C. . 7th Cr., 1918) 2 m. . R. 03 ; sub sento, Unted State v. Chds,
260 . S. 30 . 307 (192 ). m. . R. (N. S.) ). though, under the Chander ct,
a ta debt s requred to be proved (secton 7n) and ts order of prorty ranks beow
a admnstraton costs and e penses, wages and costs and e penses of credtors success-
fuy opposng a settement or dscharge, or procurng a convcton for an offense (secton
Ma (1), (2), (3)), thereby renderng obsoete the reasonng n the aak case, never-
theess ts rue has not been changed, and therefore requres ths statutory modfcaton.
Fur further dscusson see In re D. 0. ummers t ef., N. D. Oho, 1939), 6 m. . R.
(N. S.) 123 ; In re Dorsey (Ref W. D. Wash., 19 0). 6 m. . R. (N. S.) 1 6 ; I)avsfc
v. Green (C. C. . 1st Cr., 19 3) 2 m. . R. (N. S.) 603. nd on overrung the aak
rase see In re Unon Fabrcs, Inc. (S. D., N. 1 ., 19 7), 73 Fed. Supp. 68, ). appea pendng.
The udca Conference has more than once e pressy approved ths amendment to
secton .r7|. Its most recent reaffrmaton of ts poston was n October 19 6. (See
Report of the udca Conference, October 19 6, page 1 .) The dmnstratve Offce
of the Unted States Courts has stated that the anguage of secton 11 of the b s
satsfactory on ths score. . R. Rept. No. 2083, 80th Cong., 2d sess., page .
The Unted States ctes, as confrmng the constructon t has paced on secton 7(|),
Federa ta ng statutes begnnng wth the Revenue ct of 192 whch drect that upon
nonpayment or the ta there sha be added, as part of the ta , Interest at the specfed rate
from due date to date of payment. It hus been hod that Federa ta es ordnnrv bear
nterest even n the absence of statute. See ngs v. Unted atcs, 2.12 U. S. 201
-8 -288, ut we do not thnk ether such a rue or statutory provson coud be permtted
t negatve the ankruptcy ct s requrement n that respect If the atter be to the con-
trary, as we thnk t s. That ct was eary hed to take nto consderaton the whoe
range of ndebtedness of the bankrupt, Natona, State and Indvdua, Guaranty Co. .
Ue Guaranty Co., 22 U. S. 1 2, 160, and to have been passed wth the Unted States
In the mnd of Congress, Davs . Prnge, 268 U. S. 31 317. We do not beeve the
Revenue ct of 192 and smar enactments were Intended to amend the comprehensve
scheme of the ankruptcy ct, wth an effect ceary contrary to specfc amendments
such as the ct of 1926 and the Chander ct. Ths woud ndeed be a strange way to
requre, as It woud, that Federa ta cams be preferred over State and muncpa cams
when the ankruptcy ct Itsef treats a ta cams equay. Ths contenton, standng
hy tsef, or n support of the argument based on secton 7(|), cannot be accepted.
Snce we have concuded that nether the aeged egsatve treatment of ths Issue nor
Pror rungs of ths Court support the contrary resut, ths decson nvoves no consdera-
ton of the prncpe of stare decss. If t dd. the responsbe e ercse of the |udca proc-
ess, evcrng v. aock, 309 U. S. 106, 139 rCt. D. 1 0. C. . 19 0-1, 2231. woud dc-
tate that the e press prncpes and ogca mpcatons of the Chander ct preva over
earer nconcusve ower court hodngs and congressona faure to correct them.
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29.322-3.
126
SUPPL M NT 0. O RP YM NTS
S CTION 322. R FUNDS ND CR DITS
Secton 29.322-3: Cams for refund by ta - 19 9-1-1300
payers. T. D. 680
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, 1 1
mendng secton 29.322-3 of Reguatons 111, reatng to cams
for refund.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton. 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 29.322-3 of Reguatons 111, as amended by
Treasury Decson 2 C. . 19 , 10 , approved December 29. 19
26 CFR 29.322-3 , s further amended as foows:
( ) y nsertng the word short mmedatey before Form
10 0 wherever t appears theren.
( ) y nsertng mmedatey after Form W-2 (Rev.) wher-
ever t appears theren the foowng: or mpoyee s Optona Form
10 0 .
(C) y strkng out the eghth sentence of the second paragraph
readng: n amended return, so caed, sha not be consdered a
cam for refund or credt.
ecause the amendments made by ths Treasury Decson are ether
of a technca nature or merey reeve ta payers from a mtaton
appcabe under e stng reguatons, t s found that t s unnecessary
to ssue ths Treasury Decson wth notce and pubc procedure there-
on 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.
(Ths Treasury Decson s ssued under the authorty of secton 62
of the Interna Revenue Code ( 3 Stat. 32; 26 IT. S. C. 62).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved December 2 , 19 8.
Thomas . Ly nch,
ctng /Secretary of the Treasury.
(Fed wth the Dvson .f the Federa Regster December 30, 19 S, 8: 2 a. m.)
Secton 29.322-3: Cams for refund by ta - 19 9-6-130 2
payers. Mm. 6361
( so Secton 22(d), Secton 29.22(d)-7.)
Interm aowance n respect of overpayment of ta under secton
22(d) (6) of the Interna Revenue Code.
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127
29.322-3.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, February 7, 191,9.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
1. The provsons of secton 22(d) (6) of the Interna Revenue Code
were enacted by the Congress to afford ta payers usng the eectve
nventory method, commony referred to as the ast-n, frst-out
(LIFO) nventory method, authorzed by secton 22(d)(1) of the
Code, a measure of reef from the consequences of the nvountary
qudaton of goods, nventored by the LIFO method, attrbutabe
whoy to war condtons beyond the contro of ta payers.
2. Under such provsons, n respect of nvountary qudatons
occurrng n ta abe years begnnng after December 31, 19 0, and
pror to anuary 1, 19 8, ta payers are permtted, n ta abe years
endng pror to anuary 1, 19 1, to repace, for Federa ncome and
e cess profts ta purposes, at the nventory cost bass of the goods
repaced, tems of merchandse nvountary qudated and sub-
|ect to repacement wthn the meanng of secton 22(d)(6) of the
Code. In such cases, net ncome for the year of qudaton s de-
creased by the amount of any e cess repacement costs ncurred to
whch ta payers may be sub|ected n effectng the repacement, and
net ncome for the year of qudaton s ncreased by any e cess of the
orgna nventory cost fgure over the actua repacement cost n-
curred. It s provded that an ad|ustment must be made of the ta
abty for the year of qudaton and for a ntervenng years
nsofar as such years are affected by the repacement ad|ustment.
Under the provsons of secton 22(d) (G) of the Code, no nterest s
aowed on overpayments attrbutabe to the repacement ad|ustment,
and, kewse, no nterest s charged on any defcences n respect of
such ad|ustment.
3. Ta payers adoptng and usng the eectve nventory method are
requred under the aw to ncude n ta abe ncome reguary n ther
returns for the year of qudaton the profts or ncome derved as a
consequence of nvountary qudatons, pay the ta thereon, and then
wat unt merchandse s acqured n repacement of the tems of
merchandse nvountary qudated before a request may be made
for the credt or refund of the ta whch, under norma condtons,
woud not have been mposed upon such ta payers. In addton, ta -
payers, after havng made repacements n whoe or n part, must
face a substanta deay pendng a fna determnaton of ther ta
abtes before a credt or refund can be made of any overpayment
whch, under the e stng statute, s aowed or made wthout nterest.
Under the stated crcumstances, the admnstraton of the fu meas-
ure of reef contempated by the statute may be deayed for severa
years.
. The purpose of ths mmeograph s to estabsh an nterm or ac-
ceerated refund program n reference to overpayments camed by
ta payers entted to the benefts of secton 22(d)(6) of the Code,
based upon a showng that ther Federa ncome and e cess profts
ta es have been overpad. Under such program, an nterm or ac-
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29.322-3.
128
ceerated aowance of 7 percent of the net reducton n ta es attrbu-
tabe to the ad|ustment w be made to such ta payers based upon
representatons submtted wth respect to any camed overpayment
of ta es under secton 22(d) (6) of the Code. In determnng such
net reducton, a decrease n any one ta , e. g., the e cess profts ta ,
w be-offset by any ncrease n any other ta , e. g., the norma ta
and surta , resutng from such ad|ustment. Lkewse, overassess-
ments attrbutabe to the repacement ad|ustment n any year w be
apped as credts to defcences for other years whch are deemed
attrbutabe to the ad|ustment.
. Ta payers entted to the benefts of secton 22(d) (6) of the Code
and who desre an nterm aowance n respect of any overpayment of
ta under the provsons of such secton must fe an appcaton n the
manner and n the form outned n the ppcaton for In-
term owance n Respect of Overpayment of Ta es under Sec-
ton 22(d)(6) of the Interna Revenue Code, pubshed herewth.
Such appcaton shoud set forth fuy and ceary a of the nforma-
ton and data substantatng the ta payer s representatons that an
nterm aowance n respect of an overpayment of ta shoud be
made as a resut of nvountary qudatons and repacements. p-
pcatons must be fed, under oath, wth the coector of nterna
revenue for the dstrct n whch assessment was made or ta pad.
Coectors are nstructed to transmt, wthout deay, such appcatons,
together wth a certfcaton as to assessment and payment of ta , to
the Deputy Commssoner of the Income Ta Unt, ashngton 2 ,
D. C, for attenton of the Cearng Dvson, Read|ustment Secton.
In those cases n whch nvountary qudatons occurred n more than
1 year, separate appcatons must be fed for each year. There
must be attached to each appcaton two copes of a duy e ecuted
agreement, prepared n the manner and n the form outned n the
greement as to Interm owance n Respect of Overpayment of
Ta under Secton 22 (d) (6) of the Interna Revenue Code, pubshed
herewth.
6. If the appcaton and supportng data, ncudng a propery
e ecuted agreement form, consttute a suffcenty compete represen-
taton of a potenta overpayment, and a mted e amnaton nd-
cates that such representaton has mert as determned by reference
to secton 22(d) (6) of the Code, an nterm aowance of 7 percent
of such potenta overpayment w be made mmedatey. The
amount of any nterm aowance w be apped aganst any out-
standng Federa ncome or e cess profts ta then due, and any
baance remanng w be refunded mmedatey to the ta payer.
7. The ad|ustments authorzed heren w be made by the Cearng
Dvson of the Income Ta Unt. correspondence shoud refer
to the number of ths mmeograph and the symbos IT: CI: R: LIFO.
Geo. . Schoeneman,
C oTnmssoner.
pproved February 7,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
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129
29.322-3.
ttachment to Coro.-Mra., Co. No. 6381
ppcaton for Interm owance n Respect of Overpayment of Ta es
Under Secton 22(d)(6) of the Interna Revenue Code
To be fed wth the coector of nterna revenue where
assessment was made or ta pad
Coector s stamp
II nvountary quda-
ton occurred n more
(Date receved)
than one year, fe
separate appcaton
(or each year o qu-
daton
(Name of ta payer)
(Cty, town, or post offce) (State)
(Street and numbor)
The undersgned ta payer hereby makes appcaton pursuant to Mmeograph
6361, dated February 7, 19 9, for nterm aowance n respect of overpayment
nf ta es under secton 22(d) (tt) of the Interna Revenue Code and as a bass
therefor represents as foows:
L The ta abe year of nvountary converson covered by ths appcaton s
2. State the date on whch appcaton for adopton and use of the eectve
method of takng nventores (LIFO) was fed. ( ttach copy of Form
970 and accompanyng anayss of a nventores prevousy fed)
3. Dd you compy wth the provsons of secton 22(d) (2) ( ) of the Interna
Revenue Code n your annua report for the frst year the eectve method
was adopted ( nswer Yes or No ) Was the report specfed
n such secton ever revsed or restated for the frst year ( nswer Yes
or No ) . If so, e pn fuy .
. Indcate the manner n whch notfcaton was made of Intenton to effect a
repacement of qudated stock, n whoe or n part, and a desre to have
apped the provsons of secton 22(d)(6) of the Interna Revenue Code
. mount by whch ta es prevousy determned for the year of qudaton,
for precedng ta abe years, and for a ta abe years ntervenng between
the year of qudaton and the year of repacement, are ncreased or de-
creased by reason of the nvountary qudaton and repacement ad|ust-
ment and any reated ad|ustments. ( ttach schedues showng computa-
ton of ta es prevousy determned and of the ncreases and decreases n
such ta es.)
Ta abe year
ended
Date of fng
return
Income ta
Decared vaue e cess-
profts ta
cess profts ta
Increase
Decrease
Increase
Decrease
Increase
Decrease

3-
If any other ta s affected by reason of nvountary qudaton and repace-
ment ad|ustment, attach schedue showng computaton of ncrease or de-
crease n such ta as prevousy determned.
6. cess of the aggregate of the decreases over the aggregate of the ncreases
entered n Item , above
7. If a cam for refund or credt, Form 8 3, has been fed for overpayment n
any ta abe year resutng from nvountary qudatons and repacements,
attach copy of such cam together wth supportng schedues as part of
ths appcaton. If a cam has not been fed, a propery e ecuted cam
on Form 8 3 shoud be fed wth ths appcaton.
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29.322-3.
130
8. n anayss of nventores (L1FO), showng quanttes and cost accordng to
acquston eves, begnnng wth the openng nventory for the frst year
of the camed qudaton and endng wth the cosng nventory for the
ast year of camed repacement of nventory tems prevousy qudated,
accompanes and by reference s made a part of ths appcaton. nter
here a st of a supportng schedues
9. ttach fnanca statement of current date and other nformaton affectng
fnanca condton, together wth anayss and statement showng need
for nterm aowance.
10. The agreement requred by Mmeograph 6361, dated February 7,19 9, e ecuted
n dupcate by the ta payer, accompanes, and s hereby ncorporated by
reference n, ths appcaton.
Sgned
Date
Sworn to and subscrbed before me ths day of , 19.
(Sgnature of offcer admnsterng oath)
(Tte)
ppcatons of ndvduas must be sgned and sworn to by the Indvdua or
hs duy authorzed agent.
ppcatons of corporatons must be sgned wth the corporate name, fo-
owed by the sgnature and tte of the offcer havng authorty to sgn for the
corporaton.
ttachment to : Com.-Mm., Co. No. 6361
greement as to Interm owance n Respect op Overpayment of Ta
Under Secton 22(d) (6) of the Interna Revenue Code
Ths agreement made n dupcate by and between the ta payer
, of , and the Commssoner of Interna
Revenue,
Wtnesseth, that
Whereas the ta payer has fed an appcaton dated
for an nterm aowance n respect of overpayment of hs (or ts) ncome and
e cess profts ta abty for the ta abe year(s) under the
provsons of secton 22(d)(6) of the Interna Revenue Code, such aowance
to be based on a tentatve ad|ustment and sub|ect to fna ad|ustment upon
the competon of the Commssoner s fna audt for sad ta abe year(s) , and
Whereas the ta payer represents that snce the ta abe year
he (or t) has, under and n pursuance of the reguatons n that regard pre-
scrbed by the Commssoner wth the approva of the Secretary of the Trensury,
foowed the ast-n frst-out method of nventoryng goods permtted by secton
22(d) (1) of the Interna Revenue Code; and
Whereas the ta payer represents that he (or t) propery eected by due
and tmey notce to the Commssoner at the tme of fng hs (or ts) ncome
ta return(s) for the ta abe year(s) (or wthn 6 months
foowng the enactment of the Revenue ct of 19 3, n the case of a ta abe
year begnnng n 19 1), to ava hmsef (or tsef) of the nvountary qu-
daton and repacement provsons of secton 22(d) (6) of the Code, and fur-
ther represents that the decrease durng such ta abe year(s) n hs (or ts)
ast-n frst-out nventory was attrbutabe to an nvountary qudaton as
defned n subparagraph ( ) of sad secton 22(d) (6) ; and
Whereas the Commssoner has not competed the fna audt of the ta -
payer s ncome and e cess profts ta abty for the ta abe year(s)
, the year(s) of the camed nvountary qudaton, and such
acton may be further deayed for an ndefnte perod; and
Whereas n reance upon the ta payer s representatons t has been ten-
tatvey determned by the Commssoner that under the provsons of secton
22(d) (f), the ta payer has made an overpayment of ncome and e cess profts
ta es, n the amount of (to be fed n by the Commssoner) for
the sad ta abe year(s) ; and
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131
29.322-3.
Whereas the provsons of secton 22(d)(6) of the Interna Revenue Code
were enacted by the Congress as a reef provson for the reef of ta payers
who had reguary adopted the ast-n frst-out nventory method from n-
vountary qudatons due to wartme condtons beyond the contro of such
ta payers, as defned n subparagraph ( ) of secton 22(d)(6), wth the n-
tenton that read|ustments of the ncome and e cess profts ta es for the ta a-
be years of the nvountary qudatons by repacements to restore such qu-
datons woud be made as soon as possbe; and
Whereas, based upon the representatons of the ta payer, It appears that re-
tenton by the Unted States of the sad amount(s), pendng fna determna-
ton of the ta payer s ncome and e cess profts ta abty for the ta abe
year(s) by the Commssoner w resut n substanta hard-
shp to the ta payer,
Now, therefore, the ta payer and the Commssoner mutuay agree:
That upon the e ecuton of ths agreement the Commssoner w prompty
make an nterm aowance to the ta payer of 7 percent, of the amount(s)
tentatvey determned, as aforesad, to be the amount(s) by whch the ta -
payer has overpad hs (or ts) ncome and e cess profts ta abty for the
ta abe year(s) under the provsons of secton 22(d)(6)
of the Interna Revenue Code;
That the ta payer hereby agrees and consents to e tend the tme for the
assessment of a defcency under the provsons of secton 22(d)(6)( ) of
the Interna Revenue Code unt December 31, 19 , n order to aow the Com-
mssoner suffcent tme wthn whch to make hs fna audt of the ta payer s
ncome and e cess profts ta abty for the ta abe yenr(s) ,
and the ta payer hereby aso agrees that he (or t) w furnsh the Com-
mssoner at hs request a further e tenson of tme for a reasonabe perod
under sad provson of aw f by December 31, 19 , the sad fna audt for
the ta abe year(s) has not been competed, and
That f at any tme t s determned by the Commssoner that the nterm
aowance n respect of ncome and e cess profts ta es for sad ta abe year(s)
as tentatvey determned under secton 22(d) (6) of the Interna Revenue Code
s n e cess of the amount(s) propery due the ta payer as overpayment of
such ta es for sad ta abe yenr(s) under sad provson of aw, the ta payer
n consderaton of the nterm aowance hereby agrees upon notce and demand
wth or wthout assessment prompty to repay such e cess to the coector
wth nterest at the rate of R percent from the tme of the nterm aowance
and notwthstandng such agreement the ta payer further agrees and hereby
consents to e tend the tme for the assessment of such e cess nterm aowance
and for fng sut for the recovery thereof wth or wthout assessment for and
unt December 31, 19 .
condton of ths undertakng s that contemporaneousy wth the e ecu-
ton of ths agreement the ta payer w furnsh the Commssoner wth a wrtten
statement under oath of ts fnanca condton and whch w show to the
satsfacton of the Commssoner that the ta payer s n a sound fnanca cond-
ton and that the repayment to the Commssoner of a or any part of the nterm
aowance w not be |eopardzed. The ta payer further agrees that he (or It)
w furnsh from tme to tme durng the contnuance of ths agreement, at the
request of the Commssoner, new statements under oath of hs (or ts) fnanca
condton to the end that the Commssoner may be apprsed at a tmes of
the current fnanca condton of the ta payer.
The ta payer further agrees that he (or t) w furnsh to the Commssoner,
f n the dscreton of the Commssoner at any tme ater the makng of the
nterm aowance and pror to the competon of the Commssoner s fna audt
for the ta abe year(s) such acton s necessary to the pro-
tecton of the Government s nterests, such securty as the Commssoner may
requre to assure the repayment to the coector of any e cess payment that
may be determned by the Commssoner to have been made In the Interm
aowance whch s made under ths agreement.
It s understood and agreed by and between the partes hereto that the pro-
vsons of ths agreement wth respect to the assessment or recovery by the
Commssoner of any e cess payment that may be nvoved n the nterm
aowance for the ta abe year(s) are n addton to and n-
dependent of the rght of the Commssoner under the Interna Revenue Code
to make other or further assessments aganst the ta payer wth respect to the
ta abe year(s) It s further understood and agreed by and
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3 .710- , Regs. 112. 132
between the partes hereto that the Commssoner reserves and retans any and
a rghts under the Interna Revenue Code or otherwse to recover by sut n
court any part of ths Interm aowance n e cess of the amount fnay de-
termned to be due the ta payer under the Interna Revenue Code.
In wtness hereof the above partes have subscrbed ther names to these
presents n dupcate.
Sgned ths day of 19
(Ta payer)
Sgned
(Date)
Commssoner of Interna Revenue.
Secton 29.322-3: Cams for refund by ta payers.
INT RN L R NU COD
Ta pad by ndvdua pror to bankruptcy. (See I. T. 39 9,
page 90).
C PT R 2. DDITION L INCOM T S
SU C PT R . C SS PROFITS T
P RT I
S CTION 710. IMPOSITION OF T
Secton 3 .710- , Reguatons 112: Deferment of 19 9-1-13001
payment of ta n case of base perod or nvested T. D. 679
capta abnormaty.
( so Secton 729, Secton 3 .729-2.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 3 . -
C SS PROFITS T ; T L Y RS GINNING FT R D C M R 31,
19 1
Reguatons 112 amended. tenson of tme for assessment of
deferred e cess profts ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On October 8, 19 8, notce of proposed rue makng regardng the
e tenson of tme for assessment of deferred e cess profts ta was
pubshed n the Federa Regster (13 F. R. 882). No ob|ecton to the
rues proposed havng been receved, the foowng amendments to
Reguatons 112 (26 CFR, Part 3 ) are hereby adopted. The amend-
ments are desgned to conform Reguatons 112 to secton 3 of Pubc
Law 63 ( ghteth Congress) C. . 19 8-2, 317 , approved une
12,19 8.
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133
3 .710- , Regs. 112.
Paragkaph 1. There s nserted mmedatey before secton 3 .710-1
26 CFR 3 .710-1 the foowng:
S C. 3. T NSION OF TIM FO SS SSM NT OF D F RR D
C SS PROFITS T . (PU LIC L W 63 ( IG TI T
CONGR SS), PPRO D UN 12, 19 8.)
(a) Secton 710(a)( ) of the Interna Revenue Code Is hereby
amended by addng at the end thereof the foowng: Notwthstandng
any other provson of aw or rue of aw, to the e tent that any amount
of ta remanng unpad pursuant to ths paragraph s n e cess of the
reducton n ta fnay determned under secton 722, such e cess may
be assessed at any tme before the e praton of one year after such fna
determnaton.
(b) The amendment made by ths secton sha be effectve as f made
by secton 222(b) of the Revenue ct of 19 2.
S C. 201. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 2. TITL II PPLIC L TO
S CTION 222(b), R NU CT OF 19 2.)
cept as otherwse e pressy provded, the amendments made by ths
tte sha be appcabe ony wth respect to ta abe years begnnng
after December 31, 19 1.
Par. 2. Secton 3 .710- , as amended by Treasury Decson 90
C. . 19 6-1, 179 , approved anuary 2 , 19 6 26 CFR 3 .710- , s
further amended by addng at the end thereof the foowng new
paragraph:
If the ta payer defers under secton 710(a)( ) payment of an amount n
e cess of the reducton n ta fnay determned under secton 722, such e cess
may be assessed at any tme before the e praton of 1 year after such fna deter-
mnaton. Such assessment may be made regardess of whether the assessment
of a defcency for such ta abe year Is otherwse barred by the runnng of any
perod of mtatons, by the decson of any court, ncudng the Ta Court, or by
any other provson (such as secton 272(f)) or rue of aw. The reducton n
ta under secton 722 s fnay determned, n cases n whch the Commssoner s
acton Is sub|ect to revew by the Ta Court under secton 732, upon the e pra-
ton of the perod for fng petton for revew wth the Ta Court or, f such
petton s fed, upon the decson of the Ta Court becomng fna, and n n
other cases upon the Commssoner s sendng notce by regstered ma to the
ta payer of hs fna acton on the appcaton for reef under secton 722. If the
Commssoner shoud, at the request of the ta payer, agree because of unusua
crcumstances to reconsder hs acton on an appcaton, the mmedatey pre-
cedng sentence sha be apped wth respect to the Commssoner s second
determnaton.
Par. 3. Secton 3 .729-2 26 CFR 3 .729-2 s amended by addng at
the end thereof the foowng new sentence:
For speca rues wth respect to cases In whch the payment of e cess profts ta
s deferred under secton 710(a) ( ), see secton 3 .710- .
(Ths Treasury Decson s ssued under the authorty of secton 62
of the Interna Revenue Code ( 3 Stat. 32; 26 U. S. C. 62), as made
appcabe by secton 729(a) of the Interna Revenue Code ( Stat.
989: 26U. S. C. 729 (a)).)
ecause the amendments made by ths Treasury Decson conform
Reguatons 112 to the provsons of secton 3 of Pubc Law 63
( ghteth Congress), approved une 12, 19 8, whch provsons are
appcabe to ta abe years begnnng after December 31, 19 1, ths
Treasury Decson s not sub|ect to the effectve date mtaton of sec-
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Msc. 13
ton (c) of the dmnstratve Procedure ct, approved une 11,
19 6.
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved December 16,19 8.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 22, 19 8, 8 : 1 a. m.)
C SS PROFITS T COUNCIL
19 9-1-13002
. P. C. 3
Revson of Part II of the uetn on Secton 722
1. Part II( ) of the uetn on Secton 722 (pp. 130-131.
G. P. O. prntng) s revsed to read as foows:
( ) Genera Rue.
In order for a ta payer to obtan reef under the provsons of secton 722
(c), t must be one not entted to use the e cess profts credt based on ncome
and t must estabsh
(1) That ts e cess profts credt based on nvested capta s an nade-
quate standard for determnng e cess profts because of one or more of the
factors enumerated n secton 722(c) ; and
(2) The far and |ust amount representng norma earnngs to be used
as a constructve average base perod net ncome.
Corporatons whch are thus mted to the use of an e cess profts credt
based on nvested capta, and accordngy the ta payers to whch secton
722(c) s appcabe, are:
(1) Domestc corporatons comng nto e stence after December 31,
1939, whch are not acqurng corporatons under secton 7 0(a) ; and
(2) Domestc corporatons comng nto e stence pror to anuary 1,
19 0, but whch (a) never engaged n busness pror to that date and (6)
are not acqurng corporatons under secton 7 0(a) ; and
(3) Foregn corporatons requred to use an e cess profts credt based
on nvested capta under the provsons of secton 712(b).
Secton 722(c) s ntended to afford reef to certan of these corporatons by
appyng the standard appcabe to corporatons entted to use an e cess
profts credt based on ncome under secton 713, . e., a far and |ust amount
representng norma earnngs.
ach of the Congressona Commttee Reports on ths secton (C. . 19 2-2,
p. 80 and p. 6T 3) contans the foowng statement:
Under e stng aw, a ta payer not entted to use the e cess profts credt
based on ncome s not entted to reef. Ths paces n a dsadvantageous
compettve poston corporatons commencng busness after anuary 1, 19 0,
as we as other corporatons deprved of such credt, f the busness s of a
type showng a hgh return on nvested capta, or f, for some reason pecuar
to the corporaton, the nvested capta s unusuay ow. The prvege of usng
the e cess profts credt based on ncome s, therefore, e tended to a ta payer
presenty not entted to use such credt, f the e cess profts credt based upon the
nvested capta of such ta payer furnshes an nadequate standard for the
computaton of e cess profts because of one or more of the foowng
reasons: .
The rght to use a constructve average base perod net ncome s mted to
those cases n whch
(1) the busness of the ta payer s of a cass n whch ntangbe assets
not ncudbe n nvested capta under secton 718 make mportant con-
trbutons to ncome; or
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(2) the busness of the ta payer s of a cass n whch capta s not an
mportant ncome-producng factor; or
(3) the nvested capta of the ta payer s abnormay ow.
The term nvested capta as used n secton 122(c) means the nvested
capta as determned for e cess profts ta purposes.
2. Part II ( ) of the uetn on Secton 722 (pp. 132-13 , G. P. O.
prntng) s revsed to read as foows:
(b) bu8nes8 of a cass n whch ntangbe assets make mportant
Contrbutons to Income.
The foowng dscusson outnes some of the eements whch are to be con-
sdered n cases where quafcaton s camed under secton 722(e) (1).
The term ntangbe assets Is used n secton 722 n the sense n whch t s
ordnary understood. Whe generay accepted ega and accountng defntons
are vauabe gudes, they are not consdered controng for ths purpose. Pat-
ents, copyrghts, censes, goodw, franchses, contracts, secret formuas, secret
processes, trade-marks, brand names, trade names, subscrpton sts, and smar
assets are ustratve of such ntangbes; but the foregong st Is not a-
ncusve.
The persona characterstcs of ndvduas or of groups of ndvduas generay
do not consttute ntangbe assets. So-caed know-how, specazed knowedge,
sk, e perence, reputaton, credt standng, and the ke are ordnary and
e pected characterstcs of persons undertakng the conduct of a busness.
The ta payer s rghts n the ntangbe asset, whether ega tte, equtabe tte,
cense or prvege of use, or any other, must be such that the ncome contrbuted
by the ntangbe s propery ncudbe n the ta payer s ncome. It s not suf-
fcent f ta payer s merey the assgnee of the ncome of the ntangbe. The
contrbuton of the ntangbe asset to ncome, whe t may be drect or ndrect,
must be mportant n the sense that t s sgnfcant n reaton to the ta payer s
tota ncome.
For the purpose of secton 722(c), an asset s ncudbe n Invested capta
uness t has, n the hands of the ta payer, (a) no unad|usted bass, (6) an
unad|usted bass of zero, or (e) an unad|usted bass whch s ceary a nomna
amount.
The provson that ta payer s busness must be of a cass does not mpy
that there be a dvson of busnesses nto trades or ndustres, or that any other
separaton nto specfed groups s requred. ere, the word cass s used n
the sense of type, character, or nature, rather than wth any requrement that
busnesses must be segregated nto casses. If the nature of the ta payer s bus-
ness functon, the character of ts organzaton, or the methods t empoys n
operaton are such that ntangbe assets of the character n queston make
mportant contrbutons to ncome, It s consdered that t fas wthn the purvew
of the statute.
3. Part II (C) of the uetn on Secton 722 (p. 13 , G. P. O. prnt-
ng) s revsed to read as foows:
(C) usness of a Cass n Whch Capta Is Not an Important Income-
Producng Factor.
Secton 722(c)(2) deas wth those corporatons n whch capta s not m-
portant as an ncome-producng factor. The prncpes outned n secton
tt.72 -2(c) of Reguatons 112 for determnng whether capta s a matera
ncome-producng factor shoud be apped aso under secton 722(c) (2).
The words cass and mportant, as used n secton 722(c) (2), have the same
genera meanng as In secton 722(c) (1).
. Part II (D) of the uetn on Secton 722 (p. 13 , G. P. O.
prntng) s revsed to read as foows:
(D) bnormay Low Invested Capta.
Secton 722(c) (3) deas wth corporatons havng abnormay ow nvested
capta. In such cases there must be present some dentfabe abnormaty n
the ta payer s busness stuaton whch affects the amount of ts nvested capta.
It s suffcent f the abnormaty s estabshed by anayss of the crcumstances
affectng the ta payer s own nvested capta, athough comparsons wth other
corporatons may be used. For e ampe, the fact that nvested capta s abnor-
may ow mght be estabshed by showng an abnormay hgh rato of borrowed
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136
capta to tota Invested capta or by showng that a tangbe asset, whch makes
an mportant contrbuton to the ta payer s ncome, s not ncudbe, as defned
In ( ) above, n the ta payer s nvested capta.
. Part II ( ) of the uetn on Secton 722 (pp. 136-1 1, G. P. O.
prntng) s revsed to read as foows:
( ) Determnaton of Constructve verage ase Perod Net Income.
Secton 722(c) provdes that ta payers estabshng a quafyng factor under
secton 722(c) (1), (2), or (3) sha be consdered to be entted to use the
e cess profts credt based on ncome, usng the constructve average base perod
net ncome determned under subsecton (a). Thus, whe the grounds for
quafcaton necessary dffer, the measure of reef appcabe to a corporatons
entted to consderaton under secton 722 s the same. It foows that the con-
structve average base perod net ncome for a ta payer quafyng for reef
under secton 722(c) shoud be determned, as neary as possbe, as f such
ta payer had quafed for reef under secton 722(b).
The procedures descrbed n the foowng paragraphs reate prmary to
domestc corporatons but, e cept where otherwse stated, are Intended aso as
gudes n cases nvovng foregn corporatons.
Secton 722(a), In deang wth the post-1939 prohbton and the e ceptons
thereto, provdes that n cases descrbed n secton 722(c) regard sha be had
to the nature of the ta payer and the character of ts busness
to the e tent necessary to estabsh the norma earnngs to be used as the
constructve average base perod net ncome.
The factors to be taken nto account n determnng the nature of the ta payer
and the character of Its busness are numerous and w vary n each case. In
many nstances the event or condton whch s advanced as the quafyng factor
under secton 722(c) w be the best gude n segregatng matera from mma-
tera eements. perence has, however, suggested the foowng as ndcatve
of the matters to be consdered.
(a) Product or Servce.
(1) Whoesaer, retaer, manufacturer, assember, broker, or engneerng
consutant.
(2) uaty, novety, newness, and saes appea.
(3) Speca protecton, such as patent, franchse, and cense.
(b) Management.
(1) Degree of success ndcated by past performance and e perence.
(2) ssstance avaabe from reated or nterested enterprses.
(3) ffectveness of personne poces wth respect to effcent utzaton
of abor, etc.
(c) Fnances.
(1) mount and adequacy of avaabe equty and workng capta.
(2) vaabe credt and probabe burden of debt charges.
(d) Pant.
(1) ffcency, sze, and capacty of physca factes and processes.
(2) Locaton wth respect to market, abor, matera, and power.
(e) Matera.
(1) vaabty, cost, and transportaton.
(/) Dstrbuton.
(1) vaabty and sze of market, merchandsng program, and probabe
degree of market penetraton.
(2) Character of competton, probabe reacton to new enterprse, product,
and process.
The nature of the ta payer and the character of ts busness w be determned
as of the date on whch the ta payer commenced busness. In ths stuaton the
term commenced busness as the same sgnfcance as n secton 722(b) ( ).
Ordnary, the nature of the ta payer and the character of Its busness shoud
be fuy determnabe by reference to condtons e stng durng ts frst e cess
profts ta ta abe year and, once determned, there generay s no necessty for
a new determnaton for a subsequent e cess profts ta ta abe year.
The ta payer s capacty for producton or operaton on the date ts nature and
the character of ts busness are estabshed w be consdered to ncude any
change n capacty consummated subsequenty as a resut of a course of acton
to whch the ta payer was commtted on such date. In determnng whether
such a change n capacty shoud be regarded, the term commtted shoud be
apped n the same manner as s approprate n cases under secton 722(b) ( ).
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In the case of certan foregn corporatons whch engaged n busness pror
to anuary 1, 19 0, there s no necessty for consderng events or condtons
occurrng after December 31, 1939. Thus, where a foregn corporaton, but for
the provsons of secton 712(b), coud have determned ts e cess profts credt
under secton 713, t w be deemed to have such a credt and generay w be
permtted to empoy the factors enumerated n secton 722(b) n the event that
the resut otherwse obtaned woud not be the equvaent of norma earnngs
for the ta payer as t e sted on December 31, 1939.
The constructve average base perod net ncome of a ta payer quafyng
for reef under secton 722(c) w be determned n the same manner as n
the case of a corporaton whch commenced busness on December 31, 1939,
quafyng for reef under secton 722(b) ( ). The ta payer w be deemed to
have had under commtment on that date any change n capacty for producton
or operaton actuay under commtment on the date ts nature and the char-
acter of ts busness were estabshed. For the purpose of determnng the
constructve eve of earnngs as of December 31, 19: 9, the commencement of
busness or the consummaton of any change n capacty to whch ta payer
was commtted may be assumed to have occurred on December 31, 1937.
Reconstructon based upon the nature of the ta payer and the character of
ts busness nvoves probems smar to those encountered n antedatng events
where the push-back rue s used n cases under secton 722(b)( ). The new
busness s moved back nto the pre-19 0 economy but ts effect on competng or
reated enterprses must be recognzed. ements, such as war demand, whch
cannot be moved back under the push-back rue, cannot be moved back under
secton 722(c). In short, the probem Is to determne what the performance of
the partcuar busness woud have been under pre-19 0 economc condtons, as
these condtons woud have been had t performed durng that perod.
In reconstructon, approprate ad|ustments w be made, where necessary,
to avod dupcaton of benefts whch mght arse by reason of affatons wth
other ta payers, deductons for nterest on abnormay arge amounts of bor-
rowed capta, and the ke.
The varabe credt rue w appy wth respect to any e cess profts ta
ta abe year for whch the constructve deveopment assumed In estabshng
norma earnngs woud not have been reached by the ta payer. The prncpes
governng the use of the varabe credt rue n push-back cases under secton
722(b)( ) w be empoyed. Lkewse, the varabe credt rue w be app-
cabe wth respect to any e cess profts ta ta abe year for whch a commtted
change n capacty has not been fuy consummated. In ths atter nstance,
the procedure w be the same as n commtment cases under secton 722(b) ( ).
No ad|ustment to the e cess profts credt based on ncome shoud be made
under secton 713(g) or 7 3 for capta addtons occurrng durng the perod
whch s used n determnng the nature of the ta payer and the character of
ts busness. Furthermore, when addtona capta s acqured subsequent to
that perod for the purpose of consummatng commtments, approprate ad|ust-
ments to prevent dupcaton of credt are requred.
When a ta payer quafyng under secton 722(c) estabshes that because
of ndustry-wde varant cyce, sporadc proft condtons, or other smar cr-
cumstances, the four caendar years 193( through 1939 do not consttute an
approprate perod for the determnaton of norma earnngs, ad|ustment w
he made pursuant to the prncpes appcabe n cases of quafcaton under
secton 722(b) (2) or secton 722(b) (3).
enry . Merry,
Charman, cess Profts Ta Cownc.
December 1 ,19 8.
19 9-6-130 3
. P. C. 36
Under the facts gven, the Counc rues that the ta payer s
busness Is of a cass n whch ntangbe assets not ncudbe n
nvested capta make mportant contrbutons to ncome.
1. In 1928 two ndvduas, and Y, formed a partnershp and
entered the restaurant busness n the cty of M, ocated on the New
8 6 16 9 10
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138
ngand seacoast. The M restaurant was wdey advertsed and n
a reatvey short tme acqured a natona reputaton. In 1936, the
partnershp opened a second restaurant, aso known as the M Res-
taurant, but ocated on the Guf Coast. Ths second restaurant was
ntended, so far as was possbe, to captaze upon the reputaton
created by the partnershp n the operaton of the orgna estabsh-
ment. Its budng was desgned to resembe the New ngand
budng; t used the same recpes, menus, and advertsng, and en-
|oyed the reputaton created by the frst restaurant.
2. In 19 1, , Y, and a thrd ndvdua, Z, who aso had restaurant
e perence, formed a corporaton known as Corporaton. Z con-
trbuted the capta for preferred stock. The common stock was
ssued for a nomna consderaton to , Y, and Z n equa shares. The
corporaton opened a restaurant n a South tantc resort cty. The
restaurant was desgned and operated on the same pan, and wth the
same name, decoratons, menus, and recpes as the restaurants of the
partnershp of and Y. The partnershp contnued to own and op-
erate the other unts. The corporaton pad nothng to the partnershp
for the use of the name, recpes, and menus.
3. The Corporaton was proftabe from ts ncepton. Its res-
taurant was so cosey dentfed wth the frst two M restaurants that
the genera pubc was not aware of the dfference n enttes. It has
been estabshed that the Corporaton s earnngs were substantay
attrbutabe to the use of the name M Restaurant and the reputaton
estabshed by the partnershp.
. The Corporaton fed an appcaton for reef under secton
722, aegng that ts e cess profts credt based on nvested capta
s an nadequate standard for determnng e cess profts because ts
busness s of a cass n whch ntangbe assets not ncudbe n
nvested capta under secton 718 make mportant contrbutons to
ncome.
. In . P. C. 3 (page 13 , ths uetn), the Counc hed that own-
ershp of the ntangbe asset, n a strct ega sense, s not requred by
secton 722(c) (1). The asset here nvoved s, n fact, the reputaton,
or goodw, of the partnershp whch the ta payer s usng by per-
msson of the partnershp. so nvoved are the recpes of the
partnershp, whch mght be compared wth secret formuas of a
manufacturer. It s therefore hed that the Corporatons busness
s of a cass n whch ntangbe assets not ncudbe n nvested
capta make mportant contrbutons to ncome.
enry . Merry,
Charman, cess Profts Ta Counc.
February 1 , 19 9.
19 9-6-130
. P. C. 37
Under the facts gven, the Counc rues that the busness of ta -
payer s of a cass n whch capta s not an mportant ncome-
producng factor.
1. Three ndvduas, pror to 19 2, were engaged n the busness
of an advertsng agency as partners. In that year, wth a fourth
ndvdua, they formed the L Corporaton to conduct the busness,
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Msc.
transferrng to t cash n the amount of 0,000 and offce furnture
and f tures havng a far market vaue of 10,000. The entre capta
stock of the L Corporaton was ssued n equa shares to the four
ndvduas.
2. s a part of the standard ssue determnaton, t was hed that
the transacton was not wthn the provsons of secton 112(b) ( );
that there was no gan or oss upon the e change of offce furnture
and f tures; and that there was no goodw or other ntangbe
ncudbe n the vaue of the stock receved. The L Corporaton had
no sgnfcant amount of borrowed capta.
3. The L Corporaton s busness conssted of advsng cents on
seng and advertsng campagns, preparng advertsng matera,
and arrangng for ts pubcaton. For ths t was pad fees based
generay upon the charges of the advertsng meda for pubcaton.
For 19 2. gross recepts from ts busness appro mated ,000,000 and
net earnngs 200,000; that s, four tmes ts nvested capta. In carry-
ng on ts actvtes the corporaton s assets, other than offce furnture
and f tures and the ke, were used to pay the charges of advertsng
meda n advance of coectons from the advertsers and for genera
workng capta. The L Corporaton reguary empoyed numerous
persons who were not sharehoders.
. In ts appcaton for reef under secton 722, the L Corporaton
aeges that ts e cess profts credt based on nvested capta s an n-
adequate standard for determnng e cess profts because ts busness
s of a cass n whch capta s not an mportant ncome-producng
factor. The ta payer has conceded that t coud not have operated
as t dd uness some capta were empoyed, but argues that the rea-
tvey sma amount requred and used by t negatves any presump-
ton that capta s an mportant ncome-producng factor, as that term
s empoyed n secton 722(c).
. It s not the poston of the Counc that the ta payer must con-
duct ts busness whoy wthout capta n order to meet the requre-
ments of secton 722(c) (2). The queston for decson s whether the
use of capta s ncdenta and reatvey unmportant, and ths can
be determned ony n ght of a the facts and crcumstances set forth
n the record.
6. Consderng the facts of ths case as a whoe, t s the opnon of
the Counc that the busness of the L Corporaton s of a cass n
whch capta s not an mportant ncome-producng factor.
enry . Merry,
Charman, cess Profts Tana Counc.
February 1 ,19 9.
19 9-0-130
. P. C. 38
Under the facts gven, the Counc rues that the ta payer s n-
vested capta s abnormay ow.
1. The M Corporaton, a manufacturer of cardboard contaners
organzed n 19 0. fed appcaton for reef under secton 722, aeg-
ng ts e cess profts credt based on nvested capta to be an nade-
quate standard for determnng e cess profts because ts nvested
capta s abnormay ow.

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1 0
2. The ta payer s entre capta stock was ssued to the subscrb-
ers for 10,000 cash. It was gven and and factory budngs havng
a far market vaue of 7 ,000 by a nonproft corporaton, formed to
promote the ndustra nterests of the cty, n order to nduce the
ta payer to ocate there. The M Corporaton nstaed machnery
n the factory budngs and commenced busness eary n 19 1.
3. s a part of the standard ssue determnaton t was hed that,
under the crcumstances n ths case, the conveyance of the and and
factory budngs to the M Corporaton was not a contrbuton to ts
capta, or otherwse ncudbe n equty nvested capta wthn the
meanng of secton 718. It was further hed that the ta payer was
not entted to deduct deprecaton on the factory budngs because
they had no bass. The M Corporaton had no sgnfcant amount
of borrowed capta.
. It s the opnon of the Counc that the nvested capta of the
M Corporaton s abnormay ow wthn the meanng of secton
722(c) (3) for the reason that t had the use of the and and factory
budngs, whch made mportant contrbutons to ncome and were
not refected n nvested capta, wthout cost ether as purchase prce
or as rent.
enry . Merry,
Charman, cess Profts Ta CowrwU.
February 1 ,19 9.
19 9-6-130 6
. P. C. 39
G N R L PROC DUR
1. Introducton. In Mmeograph 60 (C. . 19 6-2, 97), and
n . P. C. 2 (C. . 19 6-2, 110), procedure s set forth governng the
processng of appcatons for reef by Secton 722 Fed Commt-
tees and the preparaton of reports of fed e amnaton to be fur-
nshed to ta payers who have fed cams under secton 722. The
present memorandum deas wth certan aspects of that procedure
whch t s consdered advsabe to carfy and suppement as we as
wth the procedure foowed n processng appcatons for reef
foowng certfcaton to the Counc. (See aso Mmeograph 6323,
C. . 19 8-2, 102, and . P. C. 3 , C. . 19 8-2, 106.) Ths memo-
randum does not appy to cases whch are pendng before The Ta
Court of the Unted States.
2. eport of Fed amnaton. s provded n . P. C. 2,
a comprehensve report of fed e amnaton w be prepared by the
e amnng agent for the approva of the commttee member havng
supervson of the partcuar case. Foowng such approva, ths
report s to be revewed by the commttee charman, or by another
commttee member desgnated by the charman, whereupon t be-
comes the report of the Secton 722 Fed Commttee and, as such,
s transmtted by the nterna revenue agent n charge to the ta -
payer under cover of a speca 30-day etter. Durng the course of
the fed e amnaton, and pror to transmtta of the report to the
ta payer, the commttee member assgned to the case shoud hod
such dscussons and premnary conferences wth the ta payer as
are desrabe and practcabe.
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3. Suppementa Report of Fed amnaton. It s the ob-
gaton of the ta payer to submt a evdence and argument durng
the course of the fed e amnaton and at any premnary conferences
hed n connecton therewth. Otherwse, the report of fed e am-
naton cannot dea adequatey wth the cam. It s recognzed, how-
ever, that n unusua cases addtona evdence w be dscovered after
the report of fed e amnaton has been competed, and that ths
data may be of such mportance that a far determnaton cannot be
made f t s e cuded. In such nstances, f the report has not a-
ready been transmtted to the ta payer, t shoud be amended to n-
cude dscusson of the addtona data. If a copy of the orgna
report has aready been furnshed to the ta payer, such addtona
evdence shoud be made the sub|ect of a suppementa report of fed
e amnaton, aso for transmsson to the ta payer.
. Fed Conferences. In cases where the ta payer s n agreement
wth the determnaton recommended n the report of fed e amnaton
and does not desre to fe a protest wth the nterna revenue agent
n charge, no fed conference s requred and the report of fed e am-
naton sets forth the bass of the determnaton. In cases where no
agreement s obtaned from the ta payer and a fed conference s
desred, the report of fed e amnaton s the bass upon whch the
ta payer shoud fe ts forma protest wth the nterna revenue agent
n charge. In order to serve as the bass for the ta payer s protest,
the report of fed e amnaton shoud adequatey refect the pos-
ton or the Secton 722 Fed Commttee wth respect to the case record
as t e sts at the tme the report s transmtted to the ta payer. The
ta payer s protest shoud ndcate the areas of dsagreement that are
to be the sub|ect matter for dscusson at the fed conference. The
fed conference shoud afford the ta payer and the, conferee repre-
sentng the Secton 722 Fed Commttee the opportunty for fu and
frank dscusson of the case n order that a areas of dsagreement
may be thoroughy e pored.
. Secton 722 Fed Commttee Cosng Letter. Whether or not
an agreement has been reached, the Secton 722 Fed Commttee w
n each case recommend to the Counc the amount of constructve
average base perod net ncome t determnes to be aowabe and w
certfy to the Counc, through the nterna revenue agent n charge,
the secton 722 case record. t the same tme the commttee w
send to the ta payer, through the nterna revenue agent n charge,
a cosng etter nformng the ta payer that the case s beng for-
warded to the Counc at that tme and statng the commttee s fna
poston wth respect to the case, ncudng the amount, f any, of
constructve average base perod net ncome recommended. If the
ta payer has agreed wth the determnaton of the commttee, the
cosng etter shoud refer to the agreement by date. Whether or not
an agreement has been reached, the cosng etter shoud state whether
the report of fed e amnaton has been sustaned or modfed and,
f modfed, shoud summarze the modfcatons.
6. Counc Procedure. The Counc serves n a revew capacty
and consders each agreed or unagreed case on the bass of the record
made before the Secton 722 Fed Commttee for the purpose of
ascertanng whether the recommendaton of the fed commttee
conforms to estabshed prncpes and s supported by such record.
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1 2
In every controverted case the ta payer w be afforded an oppor-
tunty to appear before a Counc member pane and present ora argu-
ment n support of ts poston. t these hearngs t s the pocy of
the Counc to provde the ta payer every reasonabe opportunty to
present ts vews. t the concuson of the ora hearng, the Counc
member pane w dscuss wth the ta payer the pane s poston
on each ma|or ssue upon whch a dfference of vews e sts. If the
ta payer waves ora hearng before representatves of the Counc,
a Counc member pane w make a determnaton upon the bass
of the secton 722 case record. cept where the cam s aowed n
fu, the fna determnaton made wth respect to each appcaton
for reef s set forth n a statutory notce ssued to the ta payer n
accordance wth the provsons of secton 732.
enry . Merry,
CTarmam, cess Pro-fts Ta Cotmc.
February 23,19 9.
19 9-11-1309
. P. C. 0
Under the facts gven, the Counc rues that reconstructon shoud
be based upon the assumpton that the ta payer commenced busness
on December 31, 1939, under ts franchse n ts orgna form and
wth a the rghts and obgatons created by the franchse.
1. The N Corporaton was organzed n 19 1 to se and servce a
natonay advertsed home appance under an e cusve franchse.
y the terms of the franchse, the ta payer obgated tsef to se
ony appances and parts purchased from the partcuar manufac-
turer and the manufacturer, n turn, undertook to dever to the N
Corporaton a mnmum number of new appances each month, to-
gether wth the necessary factory-guaranteed parts for the servce
department.
2. The N Corporaton operated under the franchse accordng to
ts terms for appro matey 6 months when, due to the scarcty of
certan materas, producton of new appances decned and monthy
deveres were reduced to a eve beow the guaranteed mnmum.
y the mdde of 19 2, the manufacturer was forced to dscontnue the
producton of new appances atogether, wth the resut that the ta -
payer s busness was restrcted to the sae of parts and servce. In
order to meet ths condton, the manufacturer agreed that the N
Corporaton shoud aso se parts and servce for competng ap-
pances, but ony for the duraton of the emergency. The franchse,
as so modfed, was n effect durng the entre e cess profts ta perod.
3. In connecton wth ts appcatons for reef under secton 722
the ta payer has estabshed that ts franchse s an ntangbe asset
not ncudbe n nvested capta and that ts busness s of a cass n
whch such ntangbes make mportant contrbutons to ncome. The
queston at ssue nvoves the determnaton of the nature of the ta -
payer and the character of ts busness premnary to the determna-
ton of ts constructve average base perod net ncome.
_ . In . P. C. 3 page 13 , ths uetn the Counc took the pos-
ton that the nature of the ta payer and the character of ts busness,
for purposes of reconstructon, are to be determned as of the date on
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whch the ta payer commenced busness. It was further stated n
that rung that such ascertanment shoud be made n the ght of the
quafyng factor advanced. Ths ta payer quafes because of ts
franchse and as t commenced busness and carred on busness for
the 6 months thereafter t was a saes and servce agency for one
partcuar home appance. The nature of ths ta payer and the
character of ts busness were fuy determnabe on or before the end
of ths 6-month perod and the fact that crcumstances ater dctated
the descrbed modfcatons n the performance under ths franchse
shoud not, n the vew of the Counc, ater that determnaton.
. It s the vew of the Counc, therefore, that reconstructon n
ths case shoud be based upon the assumpton that the N Corporaton
commenced busness on December 31, 1939, under ts franchse n ts
orgna form and wth a the rghts and obgatons created by t.
For purposes of determnng the ta payer s constructve eve of earn-
ngs as of December 31, 1939, t shoud be accorded a deveopment
perod begnnng on December 31,1937.
enry . Merry,
Charman, cess Profts Ta Counc.
March 17,19 9.
19 9-11-13096
. P. C. 1
Under the facts Rven, the Counc rues that the ta payer s not
entted to reef snce ts nature and the character of ts busness
are such that, had t commenced busness durng the base perod,
t woud have had no net ncome.
1. Throughout the base perod the Corporaton was engaged n
the manufacture and sae of a certan product. Its busness was o-
cated n the cty of and t en|oyed a natona reputaton. Pror to
19 0, the Corporaton aways had been abe to f prompty a the
orders t coud procure. Durng 19 1 demand for ts product n-
creased to the e tent that even wth two-shft operaton the backog
of unfed orders rose to the pont where t equaed 3 months
producton.
2. In October, 19 1, M, an ndvdua and the soe sharehoder of
the Corporaton, formed a new company, the O Corporaton, whch
eased a pant n a suburb of the cty of and n anuary, 19 2, com-
menced busness as a manufacturer of the same product. The entre
capta stock of the O Corporaton was ssued to M. The O Corpora-
ton derved ts busness by reference from the Corporaton whch
sent t many prospectve customers whose orders the Corporaton
coud not f. In addton, the Corporaton bought fnshed prod-
ucts from the O Corporaton for resae to the Corporaton s cus-
tomers. oth the Corporaton and the O Corporaton operated
at or near capacty throughout 19 2.
3. For 19 2 the O Corporaton fed appcaton for reef under
secton 722 and for purposes of ths memorandum t may be assumed
that t has estabshed that ts nvested capta s abnormay ow.
Its e cess profts credt based on nvested capta for 19 2 s 320 and
ts net ncome for that year s 13 ,000. The Corporaton s average
base perod net ncome computed for purposes of ts e cess profts
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1
credt for 19 2 s 7 ,000 and ts net ncome for that year s 22 ,000.
The Corporaton has not fed appcaton for reef.
. The O Corporaton contends that ts norma earnngs shoud be
at east ,000, computed as foows:
(a) 19 2 net ncome of Corporaton 22 ,000
(6) verage base perod net ncome of Corporaton 7 ,0OO
(c) Rato of (6) to (a)
Id) 19 2 net ncome of O Corporaton 13 ,000
(e) Constructve average base perod net ncome of O Corporaton
( 13 ,000) ,000
. In the aternatve, the O Corporaton submtted a reconstructon
resutng n a constructve average base perod net ncome of 7, 2 ,
computed as foows:
(a) 19 2 saes of the ndustry of whch O Corporaton s a member 6,2 0, 000
(6) 19 2 saes of O Corporaton 1,12 , 000
(c) Rato of (6) to (a) 0.02
(rf) 1939 saes of the ndustry of whch O Corporaton was a
member 32, 00,000
(e) 1939 constructve saes of O Corporaton (0.02 32, 00,000) 6 0,000
f ) 1939 average rato of net ncome for the ndustry 0. 08
(g) 1939 constructve net ncome of O Corporaton (0.08 6 0,000)- 2,000
(h) Constructve average base perod net ncome (0.912 2,000) _ 7, 2
6. It s the vew of the Counc that the O Corporaton s not
entted to any constructve average base perod net ncome.2 The
nature of the ta payer and the character of ts busness are such
that t procured ony the busness passed over to t by the Corpora-
ton because the atter durng 19 2 acked capacty to hande ts
orders. There s no reason why the O Corporaton s norma earn-
ngs shoud bear the same reatonshp to ts net ncome for 19 2 that
e sted n the case of the Corporaton. Nether s there any |ust-
fcaton under the facts for the assumpton that such a margna pro-
ducer woud have captured a proporton of the 1939 market equa to
that whch t en|oyed durng 19 2, when over-a demand was at a
much hgher eve. The concuson s nescapabe that O Corporaton,
had t commenced busness durng the base perod, woud have had
no net ncome.
enry . Merry,
Charman, cess Profts Ta Cownc.
March 17,19 9.
19 9-11-13097
. P. C. 2
Recognton of decne n the determnaton of norma earnngs
1. In . P. C. 13 (C. . 19 7-1, 83) the Counc provded that, n
ascertanng norma earnngs for a ta payer appyng for reef under
secton 722, the ta payer s base perod e perence shoud be ad|usted
for changes n the character of the busness, or n busness condtons,
whch resuted n a reatvey permanent ncrease, durng the base
perod, n the eve of the ta payer s earnngs. In connecton wth the
Genera usness Inde , seres C. (See . P. C. 8 C. . 19 7-1, TS .)
For ths reason, the appcaton of . P. C. 20 C. . 19 7-2, 13 need not be consdered.
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1
3 .729-2, Regs. 112.
processng of severa appcatons, ncudng those of certan mutpe-
product corporatons, the Counc has been asked whether ths empha-
ss upon base perod changes havng reatvey permanent effect appes
equay to changes resutng n decreases n the eve of earnngs.
2. In genera, norma earnngs shoud refect the reatvey perma-
nent earnng abty of the ta payer s entre enterprse as that enter-
prse e sted at the end of the base perod. ccordngy, regardess
of the sze or character of the ta payer s busness, or the bass upon
whch reef s sought, ad|ustment shoud be made for a reatvey
permanent base perod changes anaogous to the types set forth n
secton 722(b) ( ) and n . P. C. 13. The changed character and
condtons, to the e tent that they are determned to be reatvey
permanent, shoud be assumed to have e sted throughout the entre
base perod. (See, for e ampe, . P. C. 30, C. . 19 8-1, 92.)
3. The methods to be empoyed n refectng the effects of such
changes necessary w vary accordng to the crcumstances of each
case. If products or actvtes are consdered ndvduay, correcton
shoud be made for a changes whch do not offset each other by ad-
|ustng the tems of ncome or e pense n the varous base perod years
or by reatng the net earnngs of the entre enterprse tor a perod
mmedatey precedng anuary 1, 19 0, to the varous base perod
years through the appcaton of an approprate nde . Where an
nde s so used, t shoud be free of the nfuence of abnormates
and reatvey permanent changes and the order of preference gven
ndces n . P. C. 8 (C. . 19 7-1, 73) must be modfed. Thus,
where the e perence of the ta payer, ts compettors, and ts ndustry
refect the nfuences of abnormates or changes, preference shoud
be gven to the nde based upon seres C, Statstcs of Income (see
Mmeograph 807, C. . 19 , 273) or to some other genera nde
whch s deemed to be reasonaby free of such nfuences.
knry . Merry,
Charman, cess Profts Ta Counc.
May 11,19 9.
S CTION 729. L WS PPLIC L
Secton 3 .729-2, R c.trL ToNS 112: Tme for
payment of ta .
INT RN L, R NU COD
Reguatons 112 amended. (See T. D. 679, page 132.)
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0 .201, Regs. 116. 1 6
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 1622. INCOM T COLL CT D
T SOURC
Secton 0 .201, Reguatons 116: Requrement 19 9-3-13018
of wthhodng. T. D. 68
( so Sectons 0 .202, 0 .203, 0 .20 , 0 .206,
0 .207, and 0 .209, Reguatons 116.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R D. P RT 0 .
COLL CTION OF INCOM T T SOURC ON W G S
Reguatons 116 amended to conform to sectons 202(b), 203, 01,
02, and 03 of the Revenue ct of 19 8 C. . 19 8-1, 211 , reatng
to wthhodng e emptons and reducton n wthhodng of ta at
source on wages.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On October 6, 19 8, notce of proposed rue makng regardng the
Revenue ct of 19 8, enacted pr 2, 19 8 C. . 19 8-1, 211 , was
pubshed n the Federa Regster (13 F. R. 827). No ob|ectons to
the rues proposed have been receved, and the foowng amendments
are hereby adopted. Such amendments are necessary n order to con-
form Reguatons 116 26 CFR, Part 0 to the Revenue ct of 19 8.
Paragraph 1. There s nserted mmedatey precedng secton
0 .201 the foowng:
TITL R DUCTION IN WIT OLDING OF T T SOURC
ON W G S (R NU CT OP 19 8)
S C. 01. P RC NT G M T OD.
Secton 1022(a) and secton 1622(b) (1) of the Interna Revenue Code
(reatng to percentage method of wthhodng) are hereby amended to
read as foows:
(a) Requrement of Wthhodng. very empoyer makng pay-
ment of wages sha deduct and wthhod upon such wages a ta equa
to 1 per centum of the amount by whch the wages e ceed the number of
wthhodng e emptons camed mutped by the amount of one such
e empton as shown n subsecton (b)(1).
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1 7 0 .201, Regs. 116.
(b) (1) The tabe referred to n subsecton (a) Is as foows:
Percentage method wthhodng tabe
Pay-ro perod
mount of one
wthhodng
e empton
Weeky
weeky
Semmonthy .
Monthy..
uartery...
Semannua
nnua. _ _
Day or msceaneous (per day of such perod)
13.00
20.00
28.00
6.00
167.00
333.00
667.00
1.80
S C. 02. W G R C T WIT OLDING.
The tabes contaned n secton 1622(c) (1) of the Interna Revenue
Code (reatng to wage bracket wthhodng) are hereby amended to
read as foows:
// the pay-ro perod wth respect to an empoyee s weeky
nd the wages are
ut ess
than
nd the number of wthhodng e emptons camed s
0
1
2
3

6
7
8
9
10 or
The amount of ta to be wthhed sha be
more
tM
0
0
0
0
O
0
0
0
0
so
2.00
.10
0
0
0
0
0
0
0
0
0
2.20
.30
0
0
0
0
0
0
0
0
0
2.30
. 0
0
0
0
0
0
0
0
0
0
2. 0
. 0
0
0
0
0
0
0
0
0
0
2.60
.70
0
0
0
0
0
0
0
0
0
2.80
..SO
0
0
0
0
0
0
0
0
0
2.90
1.00
0
0
0
0
0
0
0
0
0
3.10
1.10
0
0
0
0
0
0
0
0
0
3.20
1.30
0
0
0
0
0
0
0
0
0
3. 0
1. 0
0
0
0
0
0
0
0
0
0
3. . 0
1.60
0
0
0
0
0
0
0
0
0
3.70
1.70
0
0
0
0
0
0
0
0
0
3.80
1.90
0
0
0
0
0
0
0
0
0
.00
2.00
. 10
0
0
0
0
0
0
0
0
. 10
2.20
.30
0
0
0
0
0
0
0
0
.30
2.30
. 0
0
0
0
0
0
0
0
0
. 0
2. 0
.80
0
0
0
0
0
0
0
0
.60
2.00
.70
0
0
0
0
0
0
0
0
.70
2.80
.90
0
0
0
0
0
0
0
0
.90
2.90
1.00
0
0
0
0
0
0
0
0
.00
3. 10
1.20
0
0
0
0
0
0
0
0
.20
3.20
1.30
0
0
0
0
0
0
0
0
.30
3. 0
1. 0
0
0
0
0
0
0
0
0
. 0
.1. 0
1.00
0
0
0
0
0
0
0
0
.60
3.70
1.80
0
0
0
0
0
0
0
0
.80
3.80
1.90
0
0
0
0
0
0
0
0
.90
.00
2. 10
.20
0
0
0
0
0
0
0
6.10
.10
2,20
.30
0
0
0
0
0
0
0
6.20
.30
2. 0
. 0
0
0
0
0
0
0
0
6.30
. 0
2. 0
.00
0
0
0
0
0
0
0
6. 0
.00
2.70
.80
0
0
0
0
0
0
0
6.00
.70
2.80
.90
0
0
0
0
0
0
0
6. SO
.90
3.00
1.10
0
0
0
0
0
0
0
0.90
.00
3. 10
1.20
0
0
0
0
0
0
0
7. 10
.20
3.30
1. 0
0
0
0
0
0
0
0
7.20
.30
3. 0
1. 0
0
0
0
0
0
0
0
7. 0
. 0
3.60
1.60
0
1)
0
0
0
0
0
7. 0
.60
3.70
1.80
0
0
0
0
0
0
0
7.70
.80
3.90
1.90
0
0
0
0
0
0
0
7.80
.90
.00
2. 10
.20
0
0
(1
0
0
0
8.00
6. 10
.20
2.20
.30
0
0
0
0
0
0
8.10
f.20
.30
2. 0
. 0
0
0
0
0
0
0
8.30
6. 0
. 0
2. 0
.60
0
0
0
0
0
0
8. 0
6. 0
.60
2.70
.80
0
0
0
0
0
0
8.60
6.70
.80
2.80
.90
0
0
0
0
0
0
8.70
6.80
.90
3.00
1.10
0
0
0
0
0
0
13..
1 ..
1 ..
10..
17..
18..
19..
20..
21..
22..
23..
2 ..
2 ..
20..
27..
28..
29..
30..
31..
32..
33..
.1 ..
3 ..
36-.
37.-
38-.
39..
0-.
1-
2..
3..
..
..
0..
7..
8..
9..
0..
1..
2..
3..
..
..
6..
7..
8..
9..
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0 .201, Regs. 116. 1 8
If the pay-ro perod tcth respect to an empoyee s weeky Contnued
nd the wages
nd the number of wthhodng e emptons churned s
0
1
2
3

6
6
7
8
9
10 or
t east
ut ess
than
The amount of ta to be wthhed sha be
more
13 of
9
60
8.90
7.00
.10
3.10
1.20
0
0
0
0
0
0
60
62
9.10
7.20
.30
3. 0
1.60
0
0
0
0
0
0
82
6
9. 0
7. 0
.60
3.70
1.80
0
0
0
0
0
0
6
66
9.70
7.80
.90
.00
2.00
.10
0
0
0
0
0
66
68
10.00
8.10
6.20
.30
2.30
. 0
0
0
0
0
0
68
70
10.30
8. 0
6. 0
.60
2.60
.70
0
0
0
0
0
70
72
10.60
8.70
6.80
.90
2.90
1.00
0
0
0
0
0
72
7
10.90
9.00
7.10
.20
3.20
1.30
0
0
0
0
0
7
76
11.20
9.30
7. 0
. 0
3. 0
1.60
0
0
0
0
0
76
78
11. 0
9.60
7.70
.80
3.80
1.90
0
0
0
0
0
78
80
11.80
9.90
8.00
6. 10
.10
2. 20
.30
0
0
0
0
80
82
12.10
10.20
8.30
6. 0
. 0
2. 0
.60
0
0
0
0
82
8
12. 0
10. 0
8.60
6.70
.70
2.80
.90
0
0
0
0
8
86
12.70
10.80
8.90
7.00
.00
3.10
1.20
0
0
0
0
86
88
13.00
11. 10
9.20
7.30
.30
3. 0
1. 0
0
0
0
0
88...
90
13.30
11. 0
9. 0
7.60
.60
3.70
1.80
0
0
0
0
90
92
13.60
11.70
9.80
7.80
.90
.00
2.10
.20
0
0
0
92 -
9
13.90
12.00
10. 10
8.10
6.20
.30
2. 0
. 0
0
0
0
9
96.
1 .20
12.30
10. 0
8. 0
6. 0
.60
2.70
.80
0
0
0
9
98
1 . 0
12.60
10.70
8.70
6.80
.90
3.00
1. 10
0
0
0
98
100
1 .80
12.90
11.00
9.00
7.10
.20
3.30
1. 0
0
0
0
100...
106
1 .30
13. 0
11. 0
9.60
7.70
. 70
3.80
1.90
0
0
0
106
110
16.10
1 .10
12.20
10.30
8. 0
6. 0
.60
2.70
.70
0
0
110
11
16.80
1 .90
13.00
11.10
9.10
7.20
.30
3. 0
1.60
0
0
11
120
17.60
1 .60
13.70
11.80
9.90
8.00
6.10
.10
2.20
.30
0
120
12
18.30
16. 0
1 . 0
12.60
10.60
8.70
6.80
.90
3.00
1.10
0
12
130
19.00
17.10
1 .20
13.30
11. 0
9. 0
7.60
6.60
3.70
1.80
0
130
13
19.80
17.90
16.00
1 .00
12. 10
10.20
8.30
6. 0
. 0
2.60
.60
13
1 0
20. 0
18.60
16.70
1 .80
12.90
11.00
9.10
7.10
6.20
3.30
1. 0
1 0
1
21.30
19. 0
17. 0
1 . 0
13.60
11.70
9.80
7.90
6.00
.10
2.10
1
1 0
22.00
20.10
18.20
16.30
1 . 0
12. 0
10.80
8.00
6.70
.80
2.90
1 0
160
23.20
21.20
19.30
17. 0
1 . 0
13.60
11.70
9.70
7.80
.90
.00
160
170
2 .70
22.70
20.80
18.90
17.00
1 .10
13.20
11.20
9.30
7.-10
. 0
170
180
26. 10
2 .20
22.30
20. 0
18. 0
16.60
1 .70
12.70
10.80
8.90
7.00
180
190
27.60
2 .70
23.80
21.90
20.00
18.10
16.10
1 .20
12.30
10. 0
8. SO
190
200
29.10
27.20
26.30
23. 0
21. 0
19.60
17.60
1 .70
13.80
11.90
10.00
1 percent of the e cess
over 200 pus
29.90
28.00
26.00
2 .10
22.20
20.30
18. 0
16. 0
1 .60
12.60
10.70
// the pay-ro perod wth respect to an empoyee s bweeky
nd the wages are-
nd the number of wthhodng e emptons camed s
ut ess
than
The amount of ta to be wthhed sha bo
36
U oC
0
0
0
0
0
0
0
0
M
0
28
M. m
.20
0
0
0
0
0
0
0
0
0
30
.30
. 0
0
0
0
0
0
0
0
0
0
32
.60
.80
0
0
0
0
0
0
0
0
0
3
.90
1.10
0
0
0
0
0
0
0
0
0
36
.20
1. 0
0
0
0
0
0
0
0
0
0
38
. 0
1.70
0
0
0
0
0
0
0
0
0
0
.80
2.00
0
0
0
0
0
0
0
0
0
2
6. 10
2.30
0
0
0
0
0
0
0
0
0
. .
6. 0
2.60
0
0
0
0
0
0
0
0
0
6
6.70
2.90
0
0
0
0
0
0
0
0
0
8.-
7.00
3.20
0
0
0
0
0
0
0
0
0
60
7.30
3. 0
0
0
0
0
0
0
0
0
0
2 ...
7.60
3.80
0
0
0
0
0
0
0
0
0

7.90
.10
.30
0
0
0
0
0
0
0
0
6
8.20
. 0
.60
0
0
0
0
0
0
0
0
88
8. 0
.70
.90
0
0
0
0
0
0
0
0
60
8.80
.00
1.20
0
0
0
0
0
0
0
0
82
9.10
.30
1. 0
0
0
0
0
0
0
0
0
6 .
9. 0
6.60
1.80
0
0
0
0
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1 9 0 .201, Regs. 116.
If the pay-ro perod cth respect to an empoyee s bweeky Contnued
nd the wages are
nd the number of wthhodng
e empt
ons ca
med s
0
1
2
3

6
7
8
9
10 or
t east
ut ess
than
The amount of ta to be wthhed sha be
more
I S of
6 ...
86
9.70
.90
2.00
0
0
0
0
10
0
0
0
66
68
10.00
6.20
Z30
0
0
0
0
0
0
0
o
68
70
10.30
6. 0
2.60
0
0
0
0
0
0
0
0
70
72
10.60
6.80
2.90
0
0
0
0
0
0
0
0
7
7
10.90
7.10
3.20
0
0
0
0
II
0
0
II
76 .
11. 20
7. 0
3. 0
0
0
0
0
0
0
0
II
76
78
11. 0
7.70
3.80
0
0
0
0
0
0
0
0
78
80
11. 80
8.00
.10
.30
0
0
0
0
0
0
1)
80...
82
12. 10
8.30
. 0
.60
0
0
0
0
0
0
0
8
12. 0
8.60
.70
.90
0
0
0
0
0
0
o
8
86
12. 70
8.90
.00
1. 20
0
0
0
0
0
0
a
13.00
9. 20
.30
1. 0
0
0
0
0
0
0
o
88
90
13.30
9.60
.60
1.80
0
0
0
0
0
0
0
90
92 ... .
13.60
9.80
.90
2.10
0
0
0
0
0
0
0
02
9
13.90
10. 10
6.20
2. 0
0
0
0
0
0
0
0

96
1 .20
10. 0
6. 0
2.70
0
0
0
0
0
0
0
96
98
1 . 0
10.70
6.80
3.00
0
0
0
0
0
0
0
100
1 .80
11.00
7.10
3.30
0
0
0
0
0
0
0
100
102.
1 . 10
11.30
7. 0
3.60
0
0
0
0
0
0
0
102
10
1 . 0
11.00
7.70
3. 90
.10
0
0
0
0
0
0
10 ..
106
1 .70
11.90
8.00
.20
. 0
0
0
0
0
0
0
106 .. ._
108.
16.00
12.20
8.30
. 0
.70
0
0
0
0
0
0
108
110
16.30
12. 0
8.60
.80
1.00
0
0
0
0
0
a
110
112
16.60
12.80
8. 90
6. 10
1.30
0
0
0
0
0
0
112
11 .
16.90
13.10
9.20
. 0
1.60
0
0
0
0
0
0
11
116
17.20
13. 0
9. 0
.70
1.90
0
0
0
0
0
0
116 .
118
17. 0
13.00
9.80
6.00
2.20
0
0
0
0
0
0
118 .
120
17.80
13.90
10. 10
6.30
2. 0
0
0
0
0
0
0
120
12
18.20
1 . 0
10. 60
6.70
2.90
0
0
0
0
0
0
12
128
18.80
1 .00
11.20
7.30
3. 0
0
0
0
0
0
0
S128
132
19. 0
1 .60
11.80
7.90
.10
.30
0
0
0
0
o
132 _
136
20.00
16. 20
12. 0
8. 0
.70
.90
0
0
0
0
0
136.. .
1 0 ..
20.60
16.80
13.00
9. 10
.30
1. 0
0
0
0
0
0
1 0
1
21.20
17. 0
13.60
9.70
.90
2.10
0
0
0
0
0
1
1 8
21.80
18.00
1 . 20
10.30
6. 0
2.70
0
0
0
0
0
1 8
1 2 ....
22. 0
18.60
1 . 70
10.90
7. 10
3.30
0
0
0
0
0
1 2
1 6
23.00
19. 20
1 .30
11. 0
7.70
3.90
0
0
0
0
0
S1 6
160
23.00
19.80
1 .90
12. 10
8.30
. 0
.60
0
0
0
0
160
16 .. ..
2 .20
20. 0
16. 0
12.70
8.90
.00
1.20
0
0
0
0
16 .
168.
2 .80
21.00
17. 10
13.30
9. 0
.60
1.80
0
0
0
0
168
172
2 . 0
21.60
17.70
13.90
10.10
6.20
2. 0
0
0
0
0
172
176 . ..
26.00
22.20
18.30
1 . 0
10.70
6.80
3.00
0
0
0
II
176
180
26.60
22. SO
18. 90
1 . 10
11.30
7. 0
3.60
0
0
0
0
180
18
27.20
21. 0
19. 0
1 . 70
11.90
8.00
.20
. 0
0
0
0
18 ...
188
27.80
2 .00
20.10
16.30
12. 0
8.60
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1.00
0
0
0
188 .
192 . ..
28. 0
2 . 60
20.70
16.90
13. 10
9. 20
. 0
1.60
0
0
o
192
196
29.00
2 . 20
21.30
17. 0
13.70
9.80
6.00
2.20
0
0
f
196;
200
29.60
2 .80
21. 90
18. 10
1 .30
10. 0
6.00
2.80
0
0
0
200
210
30.60
26.80
23.00
19. 10
1 .30
11. 0
7. (SO
3.80
0
0
0
210.. . .
220
32.10
28.30
2 . 0
20. 60
16.80
13.00
9.10
.30
1.60
0
0
220..
230 ...
33. 60
29. 80
20.00
22. 10
18.30
1 .60
10.60
6.80
3.00
0
0
230
2 0.
3 .10
31. 30
27. 0
23.60
19.80
10.00
12. 10
8.30
. 0
.60
0
2 0
2 0
36.60
32. 80
28.90
2 . 10
21.30
17. 0
13.60
9.80
6.00
2.10
0
2 0
260
38.10
3 .30
30. 0
26.60
22.80
18.90
1 .10
11.30
7. 0
3.60
0
260
270
39.00
3 . 80
31.90
2S. 10
2 .30
20. 0
16.60
12.80
8.90
6.10
1.30
270
280
1.10
37.30
33. 0
29.60
2 .80
21.90
18.10
1 .30
10. 0
6.60
2.80
280
290
2.60
38. 70
3 . 90
31. 10
27.30
23. 0
19.00
1 .80
11.90
8.10
.30
290
300
.10
0.20
36. 0
32.00
28. 70
2 .90
21.10
17. 30
13. 0
9. 60
.80
300
320
6. 30
2. 0
38. 70
3 .80
31.00
27.20
23.30
19. 0
1 .70
11.80
8.00
320
3 0
9.30
. 0
1.60
37. 80
3 .00
SO. 10
26.30
22. 0
18. 70
1 .80
11.00
3 0
360
62.30
8. 0
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0. 80
37.00
33. 10
29. 30
2 . 0
21. 00
17. 80
1 . 00
360
380
. 30
1. 0
7.60
3.80
0. 00
36. 10
32.30
28. 0
2 . 60
20.80
17.00
380
00
8.30
. 0
0.60
6.80
2.90
39.10
3 .30
31. 0
27.60
23.80
20.00
1 percent of the e cess
over 00 pus
MOO and over.
9.80
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2.10
8 30
. 0
0.60
36.80
32.90
29.10
26.30
21. 0
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0 .201, Regs. 116. 1 0
If the pap-ro perod wth reaped to an empoyee s semmonthy-
nd the wages are
nd the number of wthhodng e emptons camed s
t east
ut ess
than
The amount of ta to be wthhed sha be
10 or
more
0
28
1 of
0
0
0
0
0
0
0
0
0
0
28
30
30
.20
0
0
0
0
0
0
0
0
(1
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32
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. 0
0
0
0
0
0
0
(1
0
0
32
3
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.80
0
0
0
0
0
0
0
0
0
3 __
36
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1.10
0
0
0
0
0
0
0
0
0
38 .
38
. 0
1. 0
0
0
0
0
0
0
0
0
0
38
0
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1.70
0
0
0
0
0
0
0
0
0
0
2
6. 10
2.00
0
0
0
0
0
0
0
0
0
2
.
6. 0
2.30
0
0
0
0
0
0
0
0
11

6
6. 70
2.60
0
0
0
0
0
0
0
0
0
6
8
7.00
2 90
0
0
0
0
0
0
0
0
0
8 -
0
7.30
3.20
0
0
0
0
0
0
0
0
0
90
2
7.00
3. 0
0
0
0
0
0
0
0
0
0
2

7.90
3.80
0
0
0
0
0
0
0
0
0
8 .
6
8.20
. 10
0
0
0
0
0
0
0
0
11
6
8
8. 0
. 0
.20
0
0
0
0
0
0
0
0
8
60.
8.80
. 70
. 0
0
0
0
0
0
0
0
0
60
62
9. 10
.00
.80
0
0
0
0
0
0
0
0
62
6
9. 0
.30
1.10
0
0
0
0
0
0
0
(1
6
66
9.70
.60
1. 0
0
0
0
0
0
0
0
0
66 .
68
10. 00
.90
1.70
0
0
0
0
0
0
0
0
68
70
10.30
6.20
2.00
0
0
0
0
0
0
0
II
70 .
72.
10.60
6. 0
2. 30
0
0
0
0
0
0
0
0
72
7
10.90
6.80
2. 60
0
0
0
0
0
0
0
0
7
76
11.20
7. 10
2. 90
0
0
0
0
0
0
0
0
76
78
11. 0
7. 0
3.20
0
0
0
0
0
0
0
0
78
80
11.80
7.70
3. 0
0
0
0
0
0
0
0
0
80..
82
12. 10
8.00
3.80
0
0
0
0
0
0
0
f
82 -
8 .
12. 0
8.30
. 10
0
0
0
0
0
0
0
0
8
86
12.70
8. 0
. 0
.20
0
0
0
0
0
0
0
86
88
13.00
8.80
.70
. 0
0
0
0
0
0
0
0
88
90
13.30
9.10
.00
.80
0
0
0
0
0
0
0
90
92
13.60
). t
.30
1. 10
0
0
0
0
0
0
0
92
9
13.90
9.70
.60
1 10
0
0
0
0
0
0
0
9 .
98
1 .20
10.00
.90
1. 70
0
0
0
0
0
0
0
96
88..
1 . 0
10.30
6.20
2.00
0
0
0
0
0
0
0
98
100
1 .80
10.60
6. 0
2.30
0
0
0
0
0
0
0
100
102
1 . 10
10.90
6. 80
2.60
0
0
0
0
0
0
0
102
10
1 . 0
11.20
7. 10
2.90
0
0
0
0
0
11
0
10
106
1 . 70
11. 0
7. 0
3.20
0
0
0
0
0
0
0
106
108
16.00
11.80
7.70
3. 0
0
0
0
0
0
0
0
108
110
16.30
12 10
8.00
3.80
0
0
0
0
0
0
0
110
112
16. 60
12. 0
8.30
. 10
0
0
0
0
0
0
0
112
11
16.90
12. 70
8.60
. 0
.30
0
0
0
0
0
0
11
116
17. 20
13.00
8.90
.70
.60
0
0
0
0
0
0
116
118
17. 0
13.30
9.20
.00
.90
0
0
0
0
0
II
118
120
17.80
13.60
9. 0
.30
. 2n
0
0
0
0
0
0
120
12
18.20
1 .10
9.90
.80
1.60
0
0
0
0
0
0
12
128
18.80
1 .70
10. 0
6. 0
2.20
0
0
0
0
0
0
128 -
132
19. 0
1 .30
11. 10
7.00
2.80
0
0
0
II
0
0
132
136
20.00
1 .90
11.70
7.60
3. 0
0
0
0
0
0
0
136
1 0
20.60
16. 0
12. :
8. 20
.00
0
0
0
0
0
0
1 0 -
1
21.20
17. 10
12.90
8. 80
.60
. 0
0
0
0
0
0
1
1 8
21.80
17.70
13. 0
9. 0
. 20
1. 10
0
0
0
0
0
1 8
1 2
22. 0
18. 30
1 .10
10. 00
. 80
1. 70
0
0
0
0
n
1 2
1 6
23.00
18.90
1 .70
10.60
6. 0
2.30
0
0
0
0
0
1 6
160...
23.60
19. 0
1 .30
11. 20
7.00
2. 90
0
0
0
0
0
160
M
2 . 211
20.10
1 .90
11.80
7.60
3. 0
0
0
0
0
0
18
168
21 W
20. 70
16. 0
12. 0
8.20
. 10
0
0
0
0
II
168
172
2 . 0
21.20
17.10
12.90
8.80
.60
. 0
0
0
0
0
172
176
26.00
21.80
17.70
13. 0
9. 0
.20
1. 10
0
0
0
0
178
180
26.60
22. 0
18.30
1 . 10
10.00
.80
1.70
0
0
0
0
180
18
27.20
23 m
18.90
1 .70
10.60
6. 0
2.30
0
0
0
0
18
188
27.80
23.60
19. 0
1 . 30
11.20
7.00
2 90
0
0
0

188
192
28. 0
2 .20
20. 10
1 .90
11.80
7.60
3. 0
0
0
0
0
192
196
29.00
2 .80
20.70
16. 0
12. 0
8. 20
. 10
0
0
0
0
196
200
29.60
2 . 0
21.30
17. 10
13.00
M
. 70
. 0
II
0
0
200
210
30.60
26. 0
22.30
18. 20
1 .00
9.90
70
1.60
0
0
0
210
220
32. 10
28.00
23.80
19.70
1 . 0
11. 0
7.20
3. 10
0
0
0
220
230
33.60
29 0
2 .30
21. 20
17.00
12 90
8. 70
.60
. 0
0
0
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1 1 0 .201, Regs. 116.
// the pay-ro perod wth respect to an empoyee s semmonthy Contnued
nd the
nd the number of wthhodng e emptons camed
t east
ut ess
than
The amount o ta to be wthhed sha be
10 or
more
19 of
3 .To
31.00
t
O
22 70
18
0
1 . 0
. 1
20
0
10
1.90
0
0
36.60
32. 0
28
30
2 .20
20
1 1
1 .90
11
70
7
SO
3. 0
0
0
38.10
33.90
29
80
2 .60
21
60
17. 30
13
20
g
no
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0
39.60
3 . 0
31
30
27. 10
a
n
18.80
1
70
10
O
6. 0
2.20
0
1.10
36. 90
32.
SO
28.60
2
0
20.30
I
20
12.
00
7.90
3.70
0
2.60
38. 0
3
30
30.10
26
00
21.80
17
70
13
60
9. 0
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1.10
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39.90
3
80
31.60
27
. 0
23.30
19
20
LI
I
10.90
6.70
260
6.30
2.20
38
( I
33.90
20
7n
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21
0
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30
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9.00
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00
36.90
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28.60
2 .
0
20
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12.00
7.80
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m
39.80
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70
31. 0
27
0
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20
19. 10
1 .90
10.80
.30
1.10
7
oo
2.80
:ts
70
3 . 0
30
0
26

22. 10
17.90
13.80
8.30
. 10
0
00
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1
70
37. 0
33.
0
20
20
2 . 10
20.90
16.80
61.30
7.10
3
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70
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38.
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20
28.10
23.90
19.80
6 .20
60. 10
.
80
1.80
17
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3. 0
N
30
3 .
20
31.00
26.90
22.70
67.20
63. 10
8.
90
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90
80
6. 0
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30
38.
20
3 .00
29.90
2 .70
70.20
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O
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30
1
20
37.00
32.90
28.70
73.20
69. 10
6 .90
60.80
6.
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2. 0
8.
30
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0.00
3 .90
31.70
1 percent of the e cess over 00 pus-
7 . 70
70.60
66. 0
62.30
8. 10
.00
9.80
U
70
1. 0
37. 0
33.20
S230...
2 0...
2 0...
260. _
1270..
S S .
290..
300..
320..
8)0..
360...
389..
MOO..
20..
0..
60..
89..
27n
280
29n
30n
320
3 0
.360
390
00
20
0
00
110 and over.
// the pay-ro perod trth respect to an empoyee s monthy
nd the wages are-
nd the number of wthhodng e emptons camed
ut ess
than
0
1
2
3

0
7
8
9
10 or
more
Tho amount of ta to be wthhed sha be
66
of
0
0
0
0
0
0
0
0
0
0
60
tk70
. 0
0
0
0
0
0
0
0
0
0
6
9.30
1.00
0
0
0
0
0
0
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0
68
9.90
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12.80
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0
0
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92
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0
0
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96
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108
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112
16. 0
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0
0
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116
17.00
8.70
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0
0
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120
17.60
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11.10
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0 .201, Regs. 116. 1 2
If the pay-ro perod wth respect to an empoyee U monthy Contnued
nd the wages are
nd the number of wthhodng e emptons camed s
0
1
2
3

6
7
8
9
10 or
mom
t east
ut ess
than
The amount o( ta to be wthhed sha be-
n of
180
18
27.20
27.80
28. 0
18.90
19.80
20. 10
10. 60
11.20
11.80
2.30
2.90
3. 0
0
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n
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0
18
188
0
0
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0
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188
192
192. - .-
196
29.00
20. 70
12. 0
. 10
0
0
0
0
0
0
0
196
200
29.60
21.30
13.00
.70
0
0
0
0
0
0
0
200
20
30.20
21.90
13.60
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II
0
0
0
0
0
0
30
208
30.80
22. 0
1 .20
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0
0
0
0
0
0
n
208
212.
31. 0
23.10
1 .80
6.80
0
0
0
0
0
0
0
212
216
32.00
32.60
33.20
33. R0
23.70
2 .30
2 .90
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16. 0
16.00
16.60
17.20
7.10
7.70
8.30
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0
n
216
220
n
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22
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228
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0
228
232
3 . 0
26.10
17.80
9. 80
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232
236
38.00
26.70
18. 0
10. 10
1.80
0
0
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0
0
236
2 0
38.60
27.30
19.00
10. 70
2. 0
0
0
0
0
0
0
2 0
2 8
36.80
37.60
38.80
28.20
29.30
19.90
21.00
22.20
11.60
12.70
13.90
3.30
. 0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2 8
2 6
0
286
26
30. 60
.60
0
26
272
0. 00
31.70
23. 0
18.10
6.80
0
0
0
0
0
0
272
280
1.20
32. 90
2 .60
16.30
8.00
0
0
0
0
0
n
280
288
2. 0
3 . 10
2 .80
17. 0
. I
.90
0
0
0
0
0
288
290
3.60
3 .30
27.00
18. 70
10, 0
2. 10
0
0
0
0
0
296
30
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6.00
36. . ,(1
28.20
29. 0
19.90
21. 10
11.60
12.80
3. 30
. 0
0
0
0
0
0
0
0
0
0
0
30
312
37. 70
312
320
7.20
38.90
30.60
22.30
1 .00
.70
0
0
0
0
0
320
328
8. 0
0. 10
31.80
23. 0
1 .20
6.90
0
0
0
0
0
328
336
9.60
80.80
2.00
1.30
33.00
3 .20
3 . 0
2 .70
2 .90
27. 10
16. 0
8. 10
9.30
10. 0
0
0
0
0
0
0
0
0
0
0
0
336
3
2.60
3.70
17.60
18.80
1.00
2. 20
(1
3 ..
3 2
0
3 2
360.. ..
63.20
.90
36.60
28.30
20.00
11.70
3. 0
0
0
0
0
360
368
. 0
6.10
37.80
29. 0
21. 20
12. CO
.60
0
0
0
0
368
376.
86.60
7.30
39.00
30. 70
22. 0
1 . 10
.80
0
0
0
0
376
38
86.80
8. 0
0. 20
31.90
23.60
1 .30
7.00
0
0
0
0
9. 70
1. 0
33. 10
2 .80
16.80
8. 20
0
0
0
0
392
00
69.20
61.30
80.90
63.00
2.60
. 70
3 .30
36. 0
26. 00
28. 10
17.70
19. 80
9. 0
11. 0
1.10
3.20
0
0
0
0
0
00 . ..
20 ...
0
20
0
6 . 20
86.90
7.60
39.30
31.00
22. 70
1 . 0
6. 10
0
0
0
0
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67.20
88.90
0 60
2. 30
3 .00
2 . 70
17. 0
9. 10
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0
60
80
70. 20
61.90
83.60
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37. (10
28. 70
20. 0
12. 10
3. 80
0
0
80
00
73.20
76. 20
79. 20
82.20
6 .90
67.90
70.90
73.90
86.60
6 . 60
8.30
1.30
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7.30
0.00
3. 00
6. 00
9.00
31.70
3 . 70
37. 70
0. 70
23. 0
26. 0
29. 0
32. (1
1 .10
18. 10
21. 10
2 . 10
6.80
9. 80
12.80
1 . 80
0
0
0
0
0
00.. ..
20
1.80
. 0
7.60
20.
0
0
60
60
80
8 .20
88. 10
92.60
76.90
79.80
8 .30
68.60
71. 0
76.00
60.30
63. 20
67.70
82.00
6 .90
69. 0
3.70
6.60
1.10
3 . 0
38.30
2.80
27. 10
30.00
3 . 0
18. 80
21.70
T6.20
10. SO
13. 0
17.90
2 2
80
600
. 10
9.60
600
6 0
6 0
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: .
90.30
96.30
102.30
108.20
11 .20
120. 20
82.00
88.00
9 .00
99.90
10 .90
111.90
73. 70
79. 7
8 .70
91.60
97.60
103.60
6 . 0
71. 0
77. 0
83.30
89. 30
9 . 30
7. 10
63. 10
69. 10
76.00
81.00
87.00
8.80
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60.80
66. 70
72. 70
78.70
0. 0
6. 0
2. 0
8. 0
6 . 0
70. 0
32.20
38.20
. 20
60. 10
6. 10
02. 10
23.90
29.90
38.90
1.60
7.80
3.80
16.60
21 to
27.60
33. SO
39. 0
. 0
680
720
10 .60
110.60
116.80
122.60
128.80
720
760
760
800
800
8 0
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880
920.
13 . SO
126. 20
117.90
109.60
101.30
93.00
8 . 70
76. 0
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1. 0
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960
1 0. 0
132. 10
123. 80
11 . 0
1117. 211
98.90
1 n. on
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7 . 00
6 . 7(1
7. 0
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1.000
1 6. 0
138. 10
120. 80
121.80
113. 20
10 .90
96.60
88. 30
so.ro
71.70
63. 0
1 percent of the e cess over 1,000 pus
f1.000 und over. .
1 9. 0
1 1. 10
132.80
12 . 0
116.20
107.90
99.60
91.30
83.00
7 .70
89. 0
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1 3
0 .201, Regs. 116.
// the pay-ro perod wth reaped to an empoyee s a day pay-ro perod or a
msceaneous pay-ro perod
nd the wages d-
vded by the num-
ber of days n such
perods are
nd the number of wthhodng e emptons camed s
ut ess 1 The amount of ta to be wthhed sha be the foowng amount mutped by
the number of days In such perod
0
2.00
k or
0
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6.7
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7.7
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1.20
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8.2
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1.2
1.00
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. 6
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0
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0
0
8. 0.
8.76
1.30
1.00
.7
.
.20
0
0
0
0
0
(1
8.7
0.00
1.3
1.06
.80
.60
.2
0
0
0
0
0
0
9.00
0.2
1.3
1.10
.80
. 6
.2
0
0
0
0
0
0
9. 0
1. 0
1.1
.86
.60
.30
.06
0
0
0
0
0
0. 0
9.7
1. 6
1.16
.90
.60
.3
.0
0
0
0
0
0
0.7
10.00
1.60
1.20
.9
.66
. 0
.10
0
0
0
0

10.00 .
10. 0
1.
1.2
L 00
.70
. 6
. 1
0
0
0
0
II
10.60
11.00
1.00
1.3
1.0
.80
. 0
.26
0
0
0
0
0
11.00
11. 0
1.70
1. 0
1.16
.8
.60
.30
.06
0
0
0
0
11. 0 ....
12.00
1.76
1. 0
1.20
.96
.6
. 0
.10
0
0
0
0
12.00 . .
12. 0
1.8
1.6
1.30
1.00
.7
. 6
.20
0
0
0
0
12. 0
13.00....
1.90
1.6
1.3
1.10
.80
.
.2
0
0
0
0
13.00
13. 0...
2.00
1.70
1.
1.1
.90
.60
.3
.0
0
0
0
13. 0
1 .00....
2.0
1.80
1. 0
1.2
.9
.70
. 0
.1
0
0
6
1 .00
1 . 0
2. 1
1.8
1.60
1.30
1.0
.76
.60
.20
0
0
0
1 . 0
1 .00. ..
2.20
1.9
1.66
1. 0
1.10
.8
. 6
.30
0
0
(1
1 .00
1 . 0
2.30
2.00
1.7
1.
1.20
.90
.6
.36
.10
0
0
1 . 0
16.00
2.3
2.10
1.80
1.
1.2
1.00
.70
. 6
.1
0
0
16.00
10. 0
2.
2.1
1.90
1.60
1.3
1.0
.80
. 0
.26
0
0
16. 0
17.00
2. 0
2.2
1.9
1.70
1. 0
1.16
.8
.60
.30
.0
0
17.00 ....
17. 0
2.60
2.30
2.0
1.7
1. 0
1.20
.96
.66
. 0
. 10
0
17. 0
18.00
2.0
2. 0
2.10
1.8
1.
1.30
I. 00
.7
.
.20
0
18.00
18. 0
2.7
2.
2.20
1.90
1.6
1.36
1.10
.80
.
.2
0
18.60
19.00
2.80
2. 6
2.2
2.00
1.70
1.
1.1
.90
.60
.36
.0
19.00
10. 0
2.90
2.00
2.3
2.0
1.80
1. 0
1.2
.9
.70
. 0
.16
19. 0
20.00
2.9
2.70
2. 0
2 1
1.8
1.60
1.30
1.0
.7
. 0
.20
20.00
21.00
3.06
2.80
2. 0
2.2
1.9
1.70
1. 6
1.16
.90
.60
.36
21.00
22.00
3.20
2.8
2. 66
2. 0
2.10
1.86
1.
1.30
1.0
.76
. 0
22.01). .
23.00
3.3
3.10
2.80
2. 6
2.2
2.00
1.70
1.
1.20
.90
.66
23.00. .
2 .00
3.60
3.2
2.9
2.70
2. 0
2.16
1.8
1.60
1. 3
1.0
.80
2 .00
2 .00
3.0
3. 0
3.10
2.8
2.
2.30
2.00
1.7
1. 0
1.20
.96
2 .00
20.00
3.80
3.
3.2
3. 00
2.70
2. 6
2. 1
1.90
1.6
1.3
L 10
26.00
27.O0
3.9
3.70
3. 0
3. 1
2.86
2. 60
2.30
2.0
1.80
1. 0
1.2
27.00 . .
28.00
. 0
3.8
3.
3. 30
3.00
2.76
2.
2.20
1.96
1.66
1. 0
28.00
29.00
.2
.00
3.70
3.
3.1
2.00
2.60
2.3
2.06
1.80
1.
29.00
30.00....
. 0
.1
3.86
3.60
3.30
3.0
2.7
2. 0
2.20
1.9
1.70
1 percent of the e cess over 30 pus
30.00 and ovor
. 0
.20
3.9
3.6
3. 0
3.10
2.8
2.
2.30
2.0
1.76
8 616 9 11
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0 .201, Regs. 116.
1
S C. 03. FF CTI D T .
The amendments made by ths tte sha be appcabe ony wth
respect to wages pad on or after May 1, 19 8.
Par. 2. Secton 0 .201, as amended by Treasury Decson 92
C. . 19 6-1, 19 , approved anuary 30, 19 6 26 CFR 0 .201 ,
s further amended as foows:
( ) y nsertng n the paragraph begnnng wth the words In
usng the percentage method wth respect to wages pad on or after
anuary 1, 19 6, mmedatey after the e presson anuary 1,19 6,
whch occurs twce n such paragraph, the e presson and before
May 1,19 8, .
( ) y nsertng mmedatey precedng the paragraph begnnng
wth the words Where the wthhodng the foowng:
In usng the percentage method wth respect to wages pad on or after May 1,
19 8, reference must be made to the percentage method wthhodng tabe n
secton 1622(b)(1) as amended by the Revenue ct of 19 8. The steps n
computng the ta under such method wt respect to wages pad on or after
May 1, 19 8, are summarzed as foows:
Step 1. Mutpy the amount of one wthhodng e empton by the number
of e emptons camed by the empoyee.
Step 2. Subtract the amount determned n step 1 from the empoyee s wages.
Step 3. Mutpy the dfference by 0.1 .
The resut s the amount of ta to be wthhed.
ampe. fter pr 30, 19 8, an empoyee has a weeky pay-ro perod,
for whch he s pad 7 , and has n effect a wthhodng certfcate camng
three e emptons. s empoyer, usng the percentage method, computes the
ta to be wthhed as foows:
Step 1:
mount of one wthhodng e empton 13. 00
Mutped by number of e emptons camed on Form W- 3
Tota wthhodng e emptons 39. 00
Step 2:
Tota wage payment 7 .00
Less amount determned n step 1 39. 00
aance sub|ect to ta 36.00
Step 3:
Ta to be wthhed (baance mutped by 0.1 ) . 0
Par. 3. Secton 0 .202. as amended bv Treasury Decson 92
26 CFR 0 .202 , s further amended as foows:
( ) y nsertng mmedatey after ampe ( ) n (a) the
foowng:
ampe ( ). fter pr 30, 19 8, empoyee s pad wages and has a
weeky pay-ro perod. The number of wthhodng e emptons camed by
s two. s wages are determned at the rate of . 1.20 per hour. Durng a
certan pay-ro perod e works 0 hours and earns 8. In computng the ta ,
the amount of two wthhodng e emptons, or 26, s aowabe, and the baance
of 22 s sub|ect to ta .
ampe (6). fter pr 30, 19 8, empoyee F s pad wages and has a
weeky pay-ro perod. The number of wthhodng e emptons camed by
F s zero. F s wages are determned at the rate of 10 per day. Durng a
certan week F worked ony 2 days and resgned. The ta s computed on
the entre amount of 20.
( ) y strkng from the ne t to the ast sentence of the e ampe
n (h) the words or a subsequent year and nsertng n eu thereof
19 7, or before May 1 n 19 8.
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1
0 .201, Regs. 116.
(C) y nsertng mmedatey after the ast sentence of such
e ampe n (h) the foowng:
If. however, the wages were pad on or after May 1, 19 8, the amount of the
wthhodng e empton aowabe for the 12-day perod n computng the ta
at the 1 percent rate s 3.20 (12 (2 1.80)).
(D) y nsertng after ampe (2) n (c) the foowng:
ampe (3). On pr 1, 19 8, C was empoyed by the Z Rea state Co.
to se rea estate on a commsson bass, commssons to be pad ony upon
consummaton of saes. The number of wthhodng e emptons s one. Or.
May 20, 19 8, C receved a commsson of 300. gan on une 1 , 19 8, C
receved a commsson of 00. The amount of the wthhodng e empton n
respect of the commsson pad on May 20 s 90 ( 1.80 0). In respect
of the commsson pad on une 1 the amount of the wthhodng e empton
s 0.80 ( 1.80 20).
( ) y nsertng mmedatey after ampe ( ) n (d) the fo-
owng:
ampe ( ). fter May 1, 19 8, an empoyee havng a day pay-ro perod
s pad wages of 12 per day. The number of wthhodng e emptons camed
by such empoyee s one. The amount of each such day wage payment sub|ect
to wthhodng s 10.20. ( 12.00 1.80).
ampe ( ). n empoyee works for a certan empoyer for days and
after pr 30, 19 8, he s pad 36. The number of wthhodng e emptons
camed by the empoyee s two. The amount of the wthhodng e empton
aowabe s 1 . 0 ( 3.60).
(F) y nsertng mmedatey after anuary 1, 19 6, n the
ne t to the ast sentence of the paragraph n (d) whch begns wth
the words To ustrate, the words and before May 1, 19 8, .
(G) y nsertng at the end of such paragraph n (d) begnnng
wth the words To ustrate the foowng:
Under the same set of facts, f the wages are pad on or after May 1, 19 8, the
amount of the wthhodng e empton s 20 (2 13).
Par. . Secton 0. .203, as amended by Treasury Decson 92
26 CFR 0 .203 , s further amended as foows:
( ) y nsertng mmedatey after anuary 1, 19 6, n the ast
sentence of (a) the words and before May 1, 19 8, .
( ) y nsertng at the end of (a) the foowng:
Wth respect to wages pad on or after May 1, 19 8, the wage bracket tabes
contaned n secton 1622(c) as amended by the Revenue ct of 19 8 are to
be used.
(C) y strkng or a subsequent year from the ast sentence of
the e ampe n (c) and nsertng n eu thereof , 19 7, or before May
1 n 19 8.
(D) y nsertng mmedatey after such ast sentence n (c) the
foowng:
If, however, the wages were pad on or after May 1, 19 8, the ta requred to
be wthhed under the tabe appcabe to a msceaneous perod woud be 0.60
mutped by the number of days n such perod or 7.20 for the 12-day perod.
( ) y nsertng mmedatey after ampe (#) n (d) the fo-
owng :
ampe (3). On pr 1, 19 8, C s hred by the Z Rea state Co. to se
rea estate on a commsson bnss, commssons to be pad ony upon consumma-
ton of saes. The number of wthhodng e emptons camed by C s one.
On May 20, 19 8, C receved a commsson of 300. gan on une 1 , 19 8, C
receved a commsson of 00. Under the wage bracket method, the amount
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0 .201, Regs. 116.
1 6
of ta to be deducted and wthhed n respect of the commsson pad on May 20
Is 32. 0, whch amount s obtaned by mutpyng 0.6 (ta under wage bracket
tabe for a day or a msceaneous pay-ro perod where wages are at east
6 but ess than 6.2 a day) by 0 (number of days eapsed) ; and the amount
of ta to be wthhed wth respect to the commsson pad on une 1 s 2.
whch amount s obtaned by mutpyng 2 (ta under wage bracket tabe for
a day or a msceaneous pay-ro perod where wages are at east 1 but ess
than 1 . 0 a day) by 26 (number of days eapsed).
(F) y nsertng mmedatey after ampe ( ) n (e) the fo-
owng :
ampe ( ). fter pr 30, 19 8, an empoyee havng a day pay-ro perod
s pad wages of 7 per day. The number of wthhodng e emptons camed by
the empoyee s one. Under the tabe appcabe to a day pay-ro perod, the
amount of ta to be deducted and wthhed from each such payment of wages
s 0.80.
ampe (6). Durng 19 8 an ndvdua s hred for days and on or after
May 1, 19 8, he Is pad wages of 36. The number of wthhodng e emptons
camed by hm s two. The amount of ta to be deducted and wthhed under
the wage bracket method s 3.20 ( 0.80).
(G) y strkng out the ast sentence of (/) and nsertng n eu
thereof the foowng:
Thus, wth respect to wages pad on or after May 1, 19 8, f the pay-ro perod
of an empoyee s weeky and the wage payment of such empoyee s 2 .2
the empoyer may compute the 1 percent of the e cess over 200 as f the
e cess were nstead of .2 .
Par. . There s nserted mmedatey precedng secton 0 .20 the
foowng:
S C. 202. T C NIC L M NDM NTS. (R NU CT OF 19 8,
TITL II.)

(b) Wthhodng emptons.
(1) In gknera. Secton 1622(h)(1) of the Interna Revenue
Code s hereby amended to read as foows:
(1) In genera. n empoyee recevng wages sha on any day
be entted to the foowng wthhodng e emptons:
( ) n e empton for hmsef.
( ) One addtona e empton for hmsef f, on the bass
of facts e stng at the begnnng of such day, there may rea-
sonaby be e pected to be aowabe an e empton under secton
2 (b) (1) ( ) (I) (reatng to od age) for the ta abe year
under Chapter 1 n respect of whch amounts deducted and
wthhed under ths subchapter n the caendar year n whch
such day fas are aowed as a credt.
(C) One addtona e empton for hmsef If, on the bass
of facts e stng at the begnnng of such day, there may rea-
sonaby be e pected to be aowabe an e empton under secton
2 (b) (1) (C) () (reatng to the bnd) for the ta abe year
under Chapter 1 n respect of whch amounts deducted and
wthhed under ths subchapter n the caendar year n whch
such day fas are aowed as a credt.
(D) If the empoyee s marred, any e empton to whch
hs spouse s entted, or woud be entted f such spouse were
an empoyee recevng wages, under subparagraph ( ), ( ),
or (C). but ony f such spouse does not have n effect a wth-
hodng e empton certfcate camng such e empton.
( ) n e empton for each ndvdua wth respect to whom,
on the bass of facts e stng at the begnnng of such day, there
may reasonaby be e pected to be aowabe an e empton under
secton 2 (b)(1)(D) for the ta abe year under Chapter 1
n respect of whch amounts deducted and wthhed under ths
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1 7
0 .201, Regs. 116.
subchapter n the caendar year n whch such day fas are
aowed as a credt.
(2) Status determnaton date. In the case of an ndvdua
entted to an addtona wthhodng e empton under secton
1622(h) (1) of the Interna Revenue Code by reason of the amend-
ment made thereto by paragraph (1) of ths subsecton, the term
status determnaton date as used n secton 1622(h)(3)( ) of
such Code ncudes aso the nneteth day after the date of the
enactment of ths ct.

S C. 201. DDITION L CR DITS G INST N T INCOM FOR
NORM L T ND SURT . (R NU CT OF 19 8,
TITL II.)
Paragraphs (1) and (2) of secton 2 (b) of the Interna Revenue Code
are hereby amended to read as foows:
(1) Credts. There sha be aowed for the purposes of both
the norma ta and the surta , the foowng credts aganst net
ncome:
( ) n e empton of 600 for the ta payer; and an add-
tona e empton of 600 for the spouse of the ta payer f a
separate return s made by the ta payer, and f the spouse, for
the caendar year n whch the ta abe year of the ta payer
begns, has no gross ncome and s not the dependent of another
ta payer;
( ) () n addtona e empton of 600 for the ta payer
f he has attaned the age of 6 before the cose of hs ta abe
year; and
() n addtona e empton of 600 for the spouse of the
ta payer f a separate return s made by the ta payer, and f the
spouse has attaned the age of 0 before the cose of such ta abe
year, and, for the caendar year n whch the ta abe year of
the ta payer begns, has no gross ncome and s not the
dependent of another ta payer;
(C) (1) n addtona e empton of 600 for the ta payer
f he s bnd at the cose of hs ta abe year; and
() n addtona e empton of 600 for the spouse of the
ta payer f a separate return s made by the ta payer, and f the
spouse s bnd and, for the caendar year n whch the ta abe
year of the ta payer begns, has no gross ncome and s not the
dependent of another ta payer. For the purposes of ths cause
the determnaton of whether the spouse s bnd sha be made
as of the cose of the ta abe year of the ta payer, uness the
spouse des durng such ta abe year, n whch ease such deter-
mnaton sha be made as of the tme of such death ;
( ) For the purposes of ths subparagraph an ndvdua s
bnd ony f ether: hs centra vsua acuty does not e ceed
20/200 n the better eye wth correctng enses, or hs vsua
acuty s greater than 20/200 but s accompaned by a mtaton
n the feds of vson such that the wdest dameter of the vsua
fed subtends an ange no greater than 20 degrees;
(D) n e empton of 000 for each dependent whose gross
ncome for the caendar year n whch the ta abe year of the
ta payer begns s ess than 00, e cept that the e empton
sha not be aowed n respect of a dependent who has made a
|ont return wth hs spouse under secton 1 for the ta abe
year begnnng n such caendar year.
(2) Determnaton of status. For the purposes of ths sub-
secton
( ) the determnaton of whether an ndvdua s marred
sha be made as of the cose of hs ta abe year, uness hs
spouse des durng hs ta abe year, n whch case such deter-
mnaton sha be made as of the tme of such death; and
( ) an ndvdua egay separated from hs spouse under a
decree of dvorce or of separate mantenance sha not be con-
sdered as marred.
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0 .201, Regs. 116.
1 8
S C. 203. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT OF 19 8, TITL II.)
The amendments made by ths tte sha be appcabe wth respect to
ta abe years begnnng after December 31, 19 7. For treatment of
ta abe years begnnng n 19 7 and endng n 19 8, see secton 601.
Par. 6. Secton 0 .20 , as amended by Treasury Decson 92 26
CFR, 0 .20 , s further amended as foows:
( ) y nsertng mmedatey after the paragraph begnnng wth
the words The number of e emptons the foowng:
Wth respect to wages pad on or after May 1, 19 8, the number of e emptons
to whch an empoyee s entted on any day depends aso on hs status as to od
age and bndness.
( ) y nsertng after the paragraph begnnng wth the words
snge person the foowng:
Wth respect to wages pad on or after May 1, 19 8, a snge person may aso be
entted to wthhodng e emptons for od age and bndness, as e paned beow.
(C) y nsertng mmedatey after the paragraph begnnng wth
the words marred person the foowng:
Wth respect to wages pad on or after May 1, 19 8, a marred person may aso
be entted to wthhodng e emptons for hmsef and for hs spouse because
of od age or bndness, as e paned beow.
(D) y strkng For from the frst sentence of the paragraph
begnnng wth the words For the purpose of determnng and n-
sertng n eu thereof Wth respect to wages pad before May 1,
19 8, for.
( ) y nsertng mmedatey precedng the paragraph begnnng
wth the words Sub|ect to the foowng paragraph:
Wth respect to wages pad on or after May 1,19 8, for the purpose of determn-
ng the number of wthhodng e emptons to whch an empoyee s entted for
hmsef and hs spouse on any day, the empoyee s status as a snge person or a
murred person and, f marred, whether a wthhodng e empton s camed by
hs spouse sha be determned as of such day, but, n the ease of a marred person,
the wthhodng e empton for hs spouse may be camed by hm for that porton
of the ta abe year whch occurs after the spouse s death. For e ampe, a marred
empoyee on a caendar year bass havng no dependents has n effect a wthhod-
ng e empton certfcate camng one e empton for hmsef and one for hs wfe.
On May 3,19 8, hs wfe des. ()n May , 19 8, the empoyee may contnue to cam
hs wfe s wthhodng e empton. ccordngy, he s not requred to fe a new
wthhodng e empton certfcate unt December 1, 19 8.
(F) y nsertng at the end thereof the foowng:
If an empoyee w have attaned 6 years before the end of the ta abe year
he may cam an addtona wthhodng e empton on account of age wth respect
to wages pad on or after May 1,19 S. If the empoyee s spouse w have attaned
6 years before the end of such empoyee s ta abe year and such spouse has no
wthhodng e empton certfcate n effect camng such e empton, the empoyee
may aso cam an addtona wthhodng e empton on account of age wth
respect to wages pad on or after May 1, 19 8. If the empoyee s bnd, he may
cam an addtona wthhodng e empton for bndness wth respect to wages
pad on or after May 1, 19 8. If the empoyee s spouse s bnd and has no wth-
hodng e empton certfcate n effect camng such e empton, the empoyee
may aso cam an addtona wthhodng e empton for bndness wth respect
to wages pad on or after May 1, 19 8. If both husband and wfe are empoyees
recevng wages sub|ect to wthhodng and the wfe s over the age of 6 and has
n effect a wthhodng e empton certfcate camng ony one e empton, then
her husband may cam one e empton for her on hs certfcate.
For the purposes of camng a wthhodng e empton for bndness, an nd-
vdua sha be consdered bnd ony f ether hs centra vsua acuty does not
e ceed 20/200 n the better eye wth correctng enses or hs vsua acuty s
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1 9 36 7.
greater than 20/200 but s accompaned by a mtaton n the feds of vson such
that the wdest dameter of the vsua fed subtends an ange no greater than 20
degrees.
Par. 7. Secton 0 .206, as amended by Treasury Decson 92 26
CF 0 .206 , s further amended by nsertng mmedatey after
des n (a) before anuary 1, 19 8.
Par. 8. Secton 0 .207 26 CF 0 .207 s amended by nsertng
mmedatey after the sentence begnnng wth the words For the
purposes the foowng:
The addtona status determnaton date provded by the Revenue ct of 19 8
for empoyees camng the e empton for age or bndness concdes wth a reguar
determnaton date, namey, .Iny 1, 19 8.
Par. 9. Secton 0 .209, as amended bv Treasury Decson 92 26
CFR 0 .209 , s further amended as foows:
( ) y nsertng n the second sentence thereof mmedatey after
pad the e presson before May 1, 19 8.
( ) y nsertng mmedatey after ampe ( ) n (a) the fo-
owng :
Wth respect to wages pad on or after May 1,19 8, the rues for suppementa
wages set forth above are aso appcabe, but f ta has been wthhed from the
empoyee s reguar wages, an aternatve method may be used. Under ths
method, the empoyer may determne the ta to be wthhed from suppementa
wages by usng a fat rate of 1 percent wthout aowance for e empton and
wthout reference to any reguar payment of wages.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C.
3791).)
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved anuary 7,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 18,19 9,8: a. m.)
C PT R 36. COLL CTION
SU C PT R . G N R L PRO ISIONS
S CTION 36 7. P YM NT Y UNIT D ST T S NOT S
ND C RTIFIC T S OF IND T DN SS
19 9- -1302
T. D. 686
TITL 2f INT RN L R NU . C PT R I, SU C PT R , P RT 71.
CC PT NC OF TR SURY NOT S IN P YM NT OF INCOM , ST T , ND
GIFT T S
Reguatons governng the acceptance of Treasury notes of Ta
Seres -19 3, -19 3, -19 , -19 , -19 , Treasury notes of
Ta Seres O, and Treasury savngs notes, Seres C and Seres D, n
payment of ncome (ncudng e cess profts), estate, and gft ta es.
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36 7.
160
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 71.1. cceptance of Treasury Notes of Ta Seres
-19 3, -19 3, -19 , -19 , -19 , Treasury Notes of Ta
Seres C, and Treasury Savngs Notes, Seres C and Seres D, n
Payment of Income (Incudng cess Profts), state, and Gft
Ta es. Notes of the Unted States desgnated as Treasury notes of
Ta Seres -19 3, -19 3, -19 , -19 , -19 , Treasury notes
of Ta Seres C, and Treasury savngs notes, Seres C and Seres D,
may be accepted n payment of ncome ta es (current and back per-
sona and corporaton ta es, and e cess profts ta es) and estate and
gft ta es (current and back), at par and nterest accrued to the month,
ncusve, n whch presented (but no accrua beyond the maturty
date). Coectors of nterna revenue are authorzed and drected to
accept such notes durng and after the second caendar month after
the month of purchase (as shown by the ssung agent s datng stamp
on each note). For e ampe, a note of Ta Seres -19 purchased
n September, 19 2, may be accepted n November, 19 2, but such a
note purchased n October, 19 2, may not be accepted unt December,
19 2.
Such notes may be accepted ony n payment of ncome (ncudng
e cess profts), estate, and gft ta es (current and back) due from the
orgna purchaser thereof or hs estate. Such notes sha be n the
name of the ta payer (ndvdua, corporaton, or other entty) and
may be presented for ta payment by ony the ta payer, hs agent, or
hs estate. There s no mt upon the amount of such notes whch may
be accepted n payment of ncome (ncudng e cess profts), estate,
or gft ta es.
Such notes, nscrbed n the name of a ta payer, may be accepted
n payment of ncome ta wthhed at the source by such ta payer, and
such notes nscrbed n the name of a ta payer ma|T be accepted n
payment of transferee abty assessed aganst such ta payer for
ncome (ncudng e cess profts), estate, or gft ta es.
Coectors of nterna revenue sha not n any case aow credt to
a ta payer on account of such notes, or accept such notes, for an
amount greater than ther prncpa amount pus accrued nterest,
nor sha such notes be accepted n an amount (ncudng accrued
nterest) greater than the unpad abty of the ta payer. Such
notes sha be forwarded to the coector of nterna revenue wth whom
the ta return s fed, at the rsk and e pense of the ta payer, and, for
the ta payer s protecton, shoud be forwarded by regstered ma,
f not presented n person.
Sec. 71.2. Procedure Wth Respect to Treasury Notes of Ta
Seres -19 3, -19 3, -19 , -19 , -19 , Treasury Notes of
Ta Seres C, and Treasury Savngs Notes, Seres C and Seres D.
Deposts of Treasury notes of Ta Seres -19 3, -19 3, -19 ,
-19 , -19 , Treasury notes of Ta Seres C, and Treasury sav-
ngs notes, Seres C and Seres D, receved n payment of ta es sha
be made by the coector of nterna revenue n a Federa Reserve bank
or a branch Federa Reserve bank. Pror to depost the coector of
nterna revenue w certfy on the reverse sde of the notes that they
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161
29.3797-2.
were receved n payment of ncome (ncudng e cess profts), estate,
or gft ta , as the case may be, and w show n the ndorsement stamp
the date of depost.
Sec. 71.3. Pror Treasury Decson Superseded. Treasury De-
cson 308 C. . 19 3, 98 , approved December 1, 19 3 26 CFR,
Part 71 , s hereby superseded.
(Ths Treasury Decson s ssued under the authorty of sectons
36 7 and 3791 of the Interna Revenue Code ( 3 Stat, 7, 67, 26
U. S. C. 36 7,3791).)
ecause ths Treasury Decson merey revses e stng reguatons
governng the acceptance of Treasury notes and Treasury savngs
notes n payment of ncome (ncudng e cess profts), estate, and gft
ta es so as to make such reguatons appcabe aso to Treasury sav-
ngs notes, Seres D, t s found that t s unnecessary to ssue ths
Treasury Decson wth notce and pubc procedure thereon under
secton (c) of the dmnstratve Procedure 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 anuary 31,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 3, 19 9, 8: 9 a. m.)
C PT R 38. MISC LL N OUS PRO ISIONS
S CTION 3797. D FINITIONS
Secton 29.3797-2: ssocaton.
( so Secton 29.3797-.)
INT RN L R NU COD
Carfcaton of I. T. 3930 (C. . 19 8-2, 12G) and I. T. 3933 (0. R
19 8-2, 130), reatve to the status for Federa Income ta purposes
of ont operatng agreements commony entered Into between
coowners of o and gas propertes.
dvce has been requested respectng the appcaton of I. T. 3930
(C. . 19 8-2, 126) n cases (1) where the operator or some other
person s, by the terms of the |ont operatng agreement or by separate
contract, gven the contractua rght or the opton to purchase some
or a of the o and gas produced from the |onty operated propertes;
(2) where there are outstandng contracts whch w dspose of o
and gas produced by the |ont operaton n ta abe perods e tendng
beyond the effectve date of I. T. 3930, as e tended by I. T. 3933
(C. . 19 8-2, 130) to the frst day of a ta abe year begnnng on or
after uy 1, 19 9; and (3) of contracts entered nto by an agent
(authorzed to act for the tme beng ony) for the sae of o or gas
for perods of tme regarded by the ndustry as mnmum commt-
ments under the crcumstances.
I. T. 3930, supra, treats |ont operatng agreements commony en-
tered nto between coowners of o and gas propertes as creatng as-
19 9-8-13069
I. T. 39 8
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29.3797-2.
162
socatons ta abe as corporatons under the Interna Revenue Code
ony f such agreements create organzatons wth a |ont proft ob|ec-
tve. That s, organzatons created by such agreements are consd-
ered corporatons f some person or persons are rrevocaby authorzed
to act n a representatve capacty for a f ed or determnabe perod
of tme to se the producton from the |ont operaton for the |ont
account of two or more of the coowners. Thus, the test of an assoca-
ton n such cases s therefore essentay organzatona, dependng
upon the e stence of coectve rrevocabe representatve capacty
whch, arsng from the rrevocabe vestng of authorty n one repre-
sentatve (ncudng cases where such representatve capacty s vested
|onty n more than one person) to market the o and gas produced
from the |onty operated propertes for two or more coowners, marks
an organzaton wth a |ont proft ob|ectve.
ssocaton status turns upon the e stence of such coectve r-
revocabe representatve capacty. Consequenty, where such capac-
ty e sts, cassfcaton as an assocaton under the Interna Revenue
Code may be avoded ony f such capacty s wthdrawn pror to the
frst day of a ta abe year begnnng on or after uy 1, 19 9, the
effectve date of I. T. 3930. Moreover, where such wthdrawa s
tmey, no modfcaton of sae or opton contracts entered nto pror
to such effectve date s necessary.
coowner who reserves the rght to take hs share of the producton
n knd, or to drect ts sae, may contract to se or grant optons to
purchase hs share as he sees ft wthout creatng an assocaton ta abe
as a corporaton for Federa ncome ta purposes. Representatve
capacty under I. T. 3930 s not nvoved n such a case. so, the
fact that some or a of the coowners e ecute dentca contracts, or the
same nstrument, wth the same purchaser or optonee, each thereby
contractng to se a or any fractona part of hs own share, or to
grant optons to buy any fractona part of such share, w not be hed
as achevng a dfferent ta consequence snce obvousy no representa-
tve capacty s nvoved. ach owner n such a case has e ercsed hs
own busness dscreton.
It seems equay cear that one coowner may authorze a person or
persons (so ong as that person or persons s not another coowner wTho
s aso seng hs share of the producton) to se hs ndvdua share
of the producton, or to grant optons as respects such share, wthout
creatng an assocaton ta abe as a corporaton. Such representatve
capacty, even though rrevocabe, (1) does not nvove an authorza-
ton to act |onty for more than the one coowner, (2) does not ndcate
a |ont proft ob|ectve, and (3) s deemed the equvaent of a persona
e ercse of hs own busness dscreton by the one coowner. owever,
under I. T. 3930, the same representatve or representatves may not
act for more than one of the coowners (ncudng hmsef) wthout
creatng an assocaton ta abe as a corporaton as respects the
coowners so represented, uness such authorzaton s for the tme beng
ony (. e., revocabe at w), because, n such a case, coectve rrev-
ocabe representatve capacty ndcatve of an organzaton wth a
|ont proft ob|ectve woud be present.
There remans for carfcaton the mtatons nherent n the ds-
tncton drawn n I. T. 3930 between revocabe representatve capacty
(authorty to act for more than one coowner for the tme beng) and
coectve rrevocabe representatve capacty (authorty to act for
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163
3806.
more that one coowner ncudng hmsef). s an assocaton, ke
a forma corporaton, may be organzed for a short as we as a ong
perod of tme, revocabe representatve capacty must be termnabe
at w to avod the formaton of an assocaton wth a |ont proft
ob|ectve. owever, an agent may fnd t desrabe or necessary to
enter nto sae or opton contracts for an e tended perod of tme
rather than to market producton on a day-to-day bass. For nstance,
to state an e treme e ampe, n cases of certan cycng operatons, t
s necessary to contract for producton for a mnmum perod of one
year. ccordngy, dscretonary authorty termnabe at w granted
to a person or persons representng two or more coowners to enter
nto contracts commttng the prncpas for such reasonabe perods
of tme as are consstent wth the mnmum needs of the ndus-
try under the crcumstances, but not to e ceed one year, w not be
regarded as nconsstent wth revocabe representatve capacty n the
sense that term s used heren and n I. T. 3930. Of course, as ponted
out above, the coowners actng for themseves as prncpas may enter
nto such contracts for ndefnte perods, as such acton does not
nvove coectve rrevocabe representatve capacty.
Secton 29.3797- : Partnershps.
INT RN L R NU COD
ont operatng agreements wth respect to o and gas propertes.
I. T. 3930 (C. . 19 8-2,126) and I. T. 3933 (C. . 19 8-2,130) car-
fed. (See. T. 39 8, page 161.)
S CTION 3806. MITIG TION OF FF CT OF R N GO-
TI TION OF W R CONTR CTS OR DIS LLOW NC OF
R IM URS M NT
19 9-11-13098
I. T. 39
INT RN L R NU COD
The prncpes stated n I. T. 3 77 (( . . 19 2-2, 163), I. T. 3611
(C. . 19 3, 978), and I. T. 3671 (C. . 19 , 6 ), reatng to the
effect, for Federa ncome and e cess profts ta purposes, of rene-
gotaton of Government contracts or subcontracts, are appcabe
to renegotaton under the Renegotaton ct of 19 8 (62 Stat. 2 9;
C. . 19 8-1, 238).
dvce s requested whether the prncpes set forth n I. T. 3 77
(C. . 19 2-2, 163), I. T. 3611 (C. . 19 3, 978), and I. T. 3671 (C. .
19 . 6 ) are appcabe to renegotaton pursuant to the Renegota-
ton ct of 19 8 (62 Stat. 2 9; C, . 19 8-1, 238).
The Renegotaton ct of 19 8 provdes n part : In emnatng
e cessve profts the Secretary sha aow the contractor or subcontrac-
tor credt for Federa ncome and e cess profts ta es as provded n
secton 3806 of the Interna Revenue Code. Secton 3806(a) (1) ( )
of the Interna Revenue Code provdes as foows:
( ) The term renegotaton ncudes any transacton whch Is a renegota-
ton wthn the meanng of secton 03 of the S th Suppementa Natona De-
fense ppropraton ct (Pubc 28, Seventy-seventh Congress, second sesson)
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3806.
16
or such secton, as amended, any modfcaton of one or more contracts wth the
Unted States or any agency thereof, and any agreement wth the Unted States
or any agency thereof n respect of one or more such contracts or subcontracts
thereunder.
It s hed that the prncpes stated n I. T. 3 77, supra, I. T. 3611,
mpra, and I. T. 3671, supra, are appcabe to renegotaton under the
Renegotaton ct of 19 8.
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16 22(a), rt. 22(a)-, Regs. 101.
INCOM T RULINGS. P RT II
R NU CT OF 1938 ND PRIOR R NU CTS
SU TITL G N R L PRO ISIONS
P RT II COMPUT TION OF N T INCOM
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
rtce 22(a)-, Reguatons 101:Whatn- 19 9-9-1307
euded n gross ncome. Ct. D. 1718
INCOM ND D CL R D LU C SS-PROFITS T S R NU CT OF
1938 decson of supreme court
1. Gboss Income Parent and Subsdary Corporatons Ta -
abty of Income to Subsdares.
Ta payer corporatons were subsdares utzed by the parent
corporaton as operatng companes n the ma|or feds of operaton
In whch t was engaged. The contracts under whch they operated
provded, n substance, that the subsdares were empoyed as
agents to manage and operate producton pants and to se the
products of such pants. The parent furnshed workng capta,
e ecutve management, and offce factes for ts subsdares,
whch, n turn, agreed to pay to the parent a profts n e cess of
6 percent on ther outstandng capta stock, whch n each case was
nomna n amount. Tte to the assets utzed by the subsdares
was hed by them, and amounts advanced by the parent for the pur-
chase of assets and workng capta were shown ou ther books as ac-
counts payabe to the parent. ed: The reatonshp between
parent and subsdares was not that of prncpa and agent, and a
profts of the subsdares were ta abe aganst them rather than
merey the 6 percent tey retaned. When a corporaton carres on
a busness actvty the fact that the owner retans drecton of ts
affars, provdes a of ts assets, and takes a of ts profts can make
no dfference ta -wse.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas, Second Crcut
(167 Fed. (2d) 30 ), reversng decson of The Ta Court of the
Unted States (8 T. C. 9 ), affrmed.
3. Decson Dstngushabe.
Decson n the case of Southern Pacfc Co. v. Lowe, 2 7 U. S. 330
(1918), ceary dstngushabe.
Supreme Court of the T nted States
1 1. Natona Carbde Corp., pettoner, v. Commssoner of Interna Revenue
1 2. r Reducton Saes Co., pettoner, v. Commssoner of Interna Revenue
1 3. Pure Carbonc, Inc., pettoner, v. Commssoner of Interna Revenue
On wrt of certorar to the Unted States Court of ppeas for the Second Crcut
March 28, 19 9
opnon
Mr. Chef ustce nson devered the opnon of the Court.
Pettoners are three whoy owned subsdares of r Reducton Corp. ( rco).
They seek a determnaton of the queston whether defcences n ncome and
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22(a), rt. 22(a)-, Regs. 101. 166
decared vaue e cess-profts ta es for the year 1938 found by the Commssoner
of Interna Revenue are propery chargeabe to them. Ther contenton s that
they are corporate agents of rco, that the ncome from ther operatons s
ncome of rco, and that ncome and e cess profts ta es must be determned
on that bass.
y a seres of combnatons and dssoutons of prevousy acqured subsdary
companes, rco had, pror to 1938, reduced the number of ts subsdares to
four. operated strcty n accordance wth contracts wth rco.1 The sub-
sdares were utzed by rco as operatng companes n the four ma|or feds
of operaton n whch t was engaged. r Reducton Saes Co. carred on the
manufacture and sae of the gaseous consttuents of ar; Natona Carbde Corp.,
the manufacture and sae of cacum carbde: Pure Carbonc, Inc., the manu-
facture and sae of carbon do de; and Wson Weder Metas Co., the manu-
facture and sae of wedng machnes, equpment and suppes.
The contracts between rco and ts subsdares provded, n substance, that
the atter were empoyed as agents to manage and operate pants desgned for the
producton of the products assgned to each, and as agents to se the output of
the pants. rco was to furnsh workng capta, e ecutve management and
offce factes for Its subsdares. They n turn agreed to pay rco a profts
n e cess of 6 percent on ther outstandng capta stock, whch n each case was
nomna n amount.3 Tte to the assets utzed by the subsdares was hed by
them, and amounts advanced by rco for the purchase of assets and workng
capta were shown on the books of the subsdares as accounts payabe to
rco. The vaue of the assets of each company thus appro mated the amount
owed to rco. No nterest ran on these accounts.
rco and ts subsdares were organzed horzontay nto s overrdng
dvsons: corporate, operatons, saes, fnanca, dstrbuton, and research.
Offcers headng each dvson were, n turn, offcers of the subsdares. Top
offcas of rco hed smar postons n the subsdary companes. Drectors
of the subsdares met ony to ratfy the actons of the drectors and offcers of
rco.
rco consdered the profts turned over to t by the subsdares pursuant to
the contracts as ts own ncome and reported t as such. Pettoners reported as
ncome ony the 6 percent return on capta that each was entted to retan.
Smary, n decarng the vaue of ther capta stock for decared vaue e cess-
profts ta purposes, the subsdares reported ony the nomna amounts at whch
the stock was carred on the books of each. The Commssoner notfed pet-
toners of substanta ncome and e cess profts ta defcences n ther 1938
returns, havng taken the poston that they are ta abe on the ncome turned
over to rco as we as the nomna amounts retaned. The Ta Court hed,
however, that the ncome from pettoners operatons n e cess of 6 percent of
ther capta stock was ncome and property of rco. Three |udges dssented.
The Court of ppeas for the Second Crcut reversed. 167 Fed. (2d) 30 . We
granted the petton for a wrt of certorar, 33 U. S. 810, because of ths confct
1 The substance of a typca subsdary-parent contract Is as foows: rco hereby em-
Foys Saes as Its agent to manage and operate, durng the term of ths contract, a pants
or the producton of o ygen, acetyene and other gases and for the manufacture of appa-
ratus and contaners for the utzaton and transportaton of such gases ; and
kewse empoys Saes as ts agent to market and se, durng the term of ths contract, the
output of a sch pants rco agrees (1) to gve Saes the use of a cynders,
contaners, motortrucks, equpment, and shppng factes, whch t now owns or may
hereafter acqure; (2) to suppy such workng capta as Saes may need; (3) to provde
such e ecutve management (but not accountng, bookkeepng, and cerca servce), and
offce accommodaton and factes as may be necessary for the proper conduct of Saes
busness Saes agrees (1) to manage and operate a of sad pants;
(2) to mantan the same n frst-cass condton, chargng necessary repars and repace-
ments to operatng e pense and settng asde and chargng to operatng e pense pro| er
reserves for deprecaton (8) to dstrbute, market and se, the product manu-
factured n sad pants as effcenty as possbe ( ) to pay a e penses of such
operaton, mantenance and seng, and to dscharge a e penses and abtes Incurred
theren or thereby and to coect a accounts recevabe or other proceeds resutng there-
from ; ( ) to credt monthy on ts hooks to rco a profts accrung to t from the opera-
ton of ts entre busness over and above an amount equa to 6 percent (6 ) per annum
on ts outstandng capta stock, whch sad amount t s hereby authorzed to deduct and
retan, and t hereby agrees to accept as fu compensaton for ts servces hereunder;
and (6) to pay over to rco upon demand any profts becomng due and credted to rco
as aforesad.
2 Wson Weder had a net defct durng the year here Invoved and s not a pettoner
In ths acton.
Saes had outstandng 12 shares of stock of 100 par vaue : Cnrbde s outstandng
capta stock was 0 shares of 100 par vaue; Carbonc aso had 0 shares of 100 par
vaue.
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167 22(a), rt. 22(a)-, Regs. 101
of opnon and the dsagreement between courts as to the contnung vtaty of
Southern Pacfc Co. v. Lowe, 2 7 U. S. 330 (1918).
Pettoners contenton s, n substance, that our decson n Mone Propertes,
Inc., v. Commssoner. 319 U. S. 36 (19 3) Ct. D. 1 8 , C. . 19 3, 1011 , whch
hed that the ta aws requre ta aton of the corporate entty f t engages In
busness actvty, e pressy e cepted the stuaton n whch the corporaton s
the agent of ts owner; that Southern Pacfc Co. v. Lowe, supra, defnes the con-
tent of agency for ta purposes; and that, as the Ta Court found, ths Court s
characterzaton of the reatonshp between the corporatons n the Southern
Pacfc case s apty descrptve of the reatonshp between rco and pet-
toners. It must foow, accordng to pettoners, that ncome receved by them
and transmtted to rco s ta abe ony to rco.
Respondent does not quarre wth the frst and thrd propostons. The co-
son occurs at the second. The ssue as presented by pettoners s, therefore,
whether the prncpa-agent reatonshp descrbed In the Southern Pacfc case
and the smar arrangement between rco and pettoners contans the usua
ncdents of an agency reatonshp, as that phrase was used n Mone Propertes,
Inc., v. Commssoner, supra.
Pettoners contenton that the Southern Pacfc case estabshed a concept of
agency that has survved our ater decsons may be deat wth rather sum-
mary. That case treated ncome earned by a whoy owned subsdary before
March 1,1913, the effectve date of the Income Ta ct of 1913, as havng accrued
to ts parent pror to that date despte the fact that the actua transfer of funds
by decaraton of dvdends occurred subsequent thereto. The theory of the case
was that the two corporatons coud be treated as dentca, for the purposes of
the 1913 ct, because of the compete domnaton and contro e ercsed by the
parent over ts subsdary.
y ths decson, ths Court s sad to have ooked beyond the corporate
form, and gnored the separate entty of a corporaton. Whatever the
daectcs empoyed, courts and commentators have agreed that parent and sub-
sdary were treated as one corporaton for the purposes of the ta es there n
queston; transfer of earnngs to the parent was merey a paper transacton.
The Southern Pacfc case dd not, and dd not purport to rest on any prncpe
of agency. The ony reference to the subsdary (Centra Pacfc) as an agent
s made n ths conte t:
the Centra Pacfc and the Southern Pacfc were n substance
dentca because of the compete ownershp and contro whch the atter
possessed over the former, as stockhoder and n other capactes. Whe
the two companes were separate ega enttes, yet n fact, and for a prac-
tca purposes they were merged, the former beng but a part of the atter,
actng merey as ts agent and sub|ect n a thngs to ts proper drecton
and contro. 2 7 U. S. at 337.
It s thus cear beyond doubt that the subsdary was not referred to as an agent
of the parent n the usua or technca sense. gency and practca dentty,
as those words are used n the Southern Pacfc case, are unquestonaby opposte
sdes of the same con. The cose reatonshp between corporatons because of
compete ownershp and contro of one by the other was the bass for the resut
reached, whatever ts artcuaton.
That bass has been repudated by subsequent decsons of ths Court. What-
ever the vtaty of Southern Pacfc Co. v. Lowe on ts speca facts, we have hed
that a corporaton formed or operated for busness purposes must share the ta
burden despte substanta dentty, n practca operaton, wth ts owner. Com-
pete ownershp of the corporaton, and the contro prmary dependent upon
such ownershp the mportant ngredents of the Southern Pacfc case are
no onger of sgnfcance n determnng ta abty. fonc Propertes, Inc., v.
Mertens. Law of Federa Income Ta aton (19 8 ed.), vo. 10 . p. 237.
Fnkesten, The Corporate ntty and the Income Ta , Yae L. . 36. 8.
In aantne, Separate ntty of Parent and Subsdary Corporatons, 1 Ca. L. Rev.
12, 18, the wrter dscusses ths use of the agency concept as foows : What s meant by
such terms as ad|unct, agency. nstrumentaty. creature or mouthpece What con-
dtons must e st to warrant a court n treatng the corporaton as the mere ad|unct of
the corporaton The word agency s often used as a synonym of ad|unct, whatever
that may mean, and as descrptve of a reaton vnrousy defned n the cases as ater ego,
aas. devce. dummy, branch, too, corporate doube, busness condut. nstru-
mentaty, etc., hut a n the aense of means through whch a corporaton s own busness
s actvey prosecuted.
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22(a), rt. 22(a)-, Regs. 101. 168
Commssoner, supra; urnet v. Commonweath Improvement Co., 287 U. S. 1
(1932) Ct. D. 622, C. . II-1, 277 (1933) .
In both of the eases ast cted, the agency argument now urged upon us was
made and re|ected. In both cases, Southern Pacfc Co. v. Lowe, supra, was
reed upon by the ta payers. In both, we found that the contenton that the
corporaton was the agent of ts owner was smpy the argument that the sub-
sdary had no corporate dentty dstnct from ts stockhoders n a dfferent
form. It s true that pettoners here do not ask that they be gnored com-
petey for ta purposes. They are wng to pay ta es on the nomna amounts
they retan as rco s agents. ut ths fact serves to emphasze the nappca-
bty of the Southern Pacfc case, upon whch they rey. There, as n Common-
weath Improvement Co. and Mone Propertes cases, the decson turned upon
the queston whether the corporate entty was or was not to be competey
gnored for ta purposes. If the Centra Pacfc had been accorded any ta
status n the Southern Pacfc case, It unquestonaby woud have been ta ed on
the entre Income It receved. In fact, It was so ta ed upon a ncome receved
after March 1, 1913; ony Income receved pror thereto was consdered Income
of the parent drecty.
We thnk, therefore, that pettoners argument s wthout mert because based
on an erroneous nterpretaton of Southern Pacfc Co. v. Lowe, supra. The
agency argument, to quote the opnon n Mone Propertes, s bascay the
same argument of dentty n a dfferent form the queston of agency
or not depends upon the same ega ssues as does the queston of Identty pre-
vousy dscussed. Ownershp of a corporaton and the contro ncdent thereto
can have no dfferent ta consequences when cothed n the garb of agency than
when worn as a removabe corporate ve.
ut t s necessary to go farther. The Ta Court dd not, as pettoners seem
to thnk, consder the argument that they were agents of rco as dfferent from
or havng any greater vadty than the argument of dentty of rco and ts
subsdares. The court, n characterzng pettoners as rco s asents, used
that term e acty as t had been used n the Southern Pacfc, Commonweath
Improvement Co., and Mone Propertes cases. ccordng to the Ta Court s
opnon:
The ssue whch was decded n ths proceedng s: Whether, as the
respondent has determned, the ncome from the operatons of the three pet-
toners beonged not to rco, the parent but to the pettoners and was ta abe
to them; or whether, as the three pettoners contend, the ncome from the
operatons of the pettoners n 1938, e cusve of the sma amounts pad to
pettoners under the contracts, beonged and was ta abe to rco, the parent
company, both because the pettoners were n fact ncorporated departments,
dvsons or branches of rco s busness and because the pettoners operated
pursuant to e press contract wth rco. 10
The theory upon whch the Ta Court e punged the defcences apparenty
was that snce the Southern Pacfc Co. case was not e pressy overrued by
Mone Propertes, the busness purpose rue ad down n the atter s not
absoute, but that the corporate entty may be dsregarded (or the corporaton
treated as an agent of ts owner) for ta purposes when the facts of ownershp
and contro of the corporaton appro mate those presented by the Southern
The case other than Southern Pacfc reed upon by the Ta Court was Munson Steam-
shp Co. v. Commssoner, 77 Fed. (2d) 8 9. That case was e paned n Mone Propertes,
Inc., v. Commssoner, supra, as dependng upon a partcuar egsatve purpose whch
|ustfed dsregardng the separate entty.
Pantff s hbt I . No. 2, October Term 1917, Is an ncome ta statement of the
subsdary, Centra Pacfc Co., showng payment of ncome ta es on 8,333,8 6.18, ts
tota net ncome for 1913 ess one-s th (I. e., makng an aowance for the 2 months before
the Income ta aw went Into effect March 1).
319 U. S. at 0- 1.
10 8 T. C. 9 , 611. fter enumeratng the facts consdered pertnent, the court con-
cuded : It s true, of course, that taken separatey some of the foregong facts woud not
be suffcent In themseves to make noperatve the genera rue that corporatons are sepa-
rate |urstc persons and are to be so treated for ta purposes. We thnk, however, that
when a these facts are vewed together they brng pettoners wthn the rue announced
by the Supreme Court n Southern Pacfc Oo. v. Lotee, supra. Id. at 61 .
It shoud be added that the court of appeas, whose opnon was wrtten by ts chef |udge,
dd not so much as menton the agency argument now made by pettoners. Its ony
references to agency were soated quotatons from the Ta Court s opnon and the con-
tracts quoted n footnote 1. The court s opnon phrases the queston as when a whoy
owned subsdary of a parent corporaton sha be treated for purposes of ncome ta aton
as a separate ta abe person, and when aa merey a part of the corporate actvtes of the
parent. 167 Fed. (2d) 30 , 30 .
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169 22(a), rt. 22(a)-, Regs. 101.
Pacfc case. The court of appeas dsagreed. It hed that under our decsons,
when a corporaton carres on busness actvty the fact that the owner retans
drecton of ts affars down to the mnutest deta, provdes a of ts assets and
takes a of ts profts can make no dfference ta -wse. The court concuded
that ven though Southern Pacfc Co. v. Lowe, supra, set up a dfferent test,
we regard t as pro tanto no onger controng. 11
The resut reached by the court of appeas s ceary requred by our ater
decsons. Our reuctance to erase Southern Pacfc from the books has been due
not to any beef that t ays down a correct rue for ta purposes generay, but
to the fact that t concerns very pecuar facts whch make t ceary ds-
tngushabe from ater cases nvovng the ta status of a subsdary or other
whoy owned corporaton. For that reason, we have, nstead, hed that t ays
down no rue for ta purposes. urnet v. Commonweath mprovement Co.,
supra, at page 19; Mone Propertes, Inc., v. Commssoner, supra, at page 39.
That the concept of dentty of the corporaton wth ts owner set out n the
Southern Pacfc case s ncompatbe wth ater decsons of ths Court may be
demonstrated by a consderaton of the facts enumerated and reed upon by the
Ta Court, whch based such reance on the emphass paced upon smar facts
n the Southern Pacfc case. These facts reate to the ownershp, contro, and
rght to ncome reserved by the parent.
So far as contro s concerned, we can see no dfference n prncpe between
rco s contro of pettoners and that e ercsed over Mone Propertes, Inc.,
by ts soe stockhoder. Undoubtedy the great ma|orty of corporatons owned
by soe stockhoders are dummes n the sense that ther poces and day-to-day
actvtes are determned not as decsons of the corporaton but by ther owners
actng ndvduay. We can see no sgnfcance, therefore, n fndngs of fact
such as, The rco oard hed reguar meetngs and e ercsed compete contro
over rco and each of the pettoners, and The charman, vce charman and
presdent of rco were n charge of the admnstraton and management of the
actvtes of each pettoner and carred out the poces and drectves wth
respect to each pettoner as promugated by the rco board. 13 We reversed
the oard of Ta ppeas n Mone Propertes n the face of ts fndng that
Fu benefca ownershp was n Thompson the soe stockhoder , who con-
tnued to manage and regard the property as hs own ndvduay. 1
Some stress was paced by the Ta Court, and by pettoners n argument
here, upon the form of ownershp of assets adopted by rco and ts subsdares.
Pettoners capta stock was, as has been stated, nomna n amount. ssets
of consderabe vaue, to whch tte was hed by the subsdares, were baanced
by accounts payabe to rco on the books of each. The Ta Court thought t
matera that assets hed by pettoner were furnshed to t by rco, whch
pad for them wth ts own cash or stock. rco sued a the workng capta
of each pettoner.
Id. at 307.
Two basc dstnctons between the Southern Pacfc case and subsequent cases (e cept
Guf O Co. v. LeweUyn, 2 8 U. S. 71 (1918). whch foowed Southern Pacfc) are m-
medatey apparent. Frst, the Southern Pacfc case nvoved ta aton of the parent-owner
rather than the subsdary corporaton ; second, the queston was tr/rn the ncome had been
earned, rather than who had earned t. The mportance of these dstnctons s Indcated by
the fact that the subsdary pad ncome ta es upon ncome receved subsequent to March 1,
1913 (see footnote 8, pro), and that the parent dd not dspute ts ta abty for dv-
dends from post-1913 earnngs of the subsdary. The decson bused on an Interpreta-
ton of the Income Ta ct of 1913. The court fet that t was not the ntent of the ct
to ta earnngs pror to the effectve date of the ct, and that the Centra Pacfc s pre-1913
ncome had actuay accrued to the parent before the effetve date of the ct. The opnon
States that The case turns upon ts very pecuar facts, and s dstngushabe from others
In whch the queston of the dentty of a controng stockhoder wth hs corporaton has
been rased. 2 7 U. S. at 338-339. y ts very terms, the decson Is mted to ts
precse facts.
13 Much of the testmony Introduced by pettoners had to do wth the ntercorporate rea-
tonshp between rco and ts subsdares, the use of certan factes by two or more of
the subsdares, the dutes of varous offcers who hed postons wth rco and ts sub-
sdares, and the servces performed for a of the subsdares by certan departments of
rco. So far as ths testmony shows the ntegraton of the corporate system and ts
drecton by rco, t s, a we have ndcated, mmatera. So far as t ndcates that the
subsdares receved the use of equpment and servces for whch they were not charged, t
s reevant as showng that ther ncome was dstorted to that e tent, but It does not nd-
cate that the ncome receved beonged to rco at the tme of ts recept. The Comms-
soner made aowance for ths dstorton by aocatng over 00,000 of the e penses
reported by rco to pettoners under the authorty gven hm by secton of the Revenue
ct of 1938. 26 U. S. C. secton .
. T. . 6 7, 6 0.
8 16 19 12
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22(a), rt. 22(a)-, Regs. 101. 170
If reo had supped assets to ts subsdares n return for stock vaued at
amounts equa to the vaue of the assets, no queston coud be rased as to tre
reaty of ownershp of the assets by the subsdares. rco woud then have
been n a poston comparabe, so far as ownershp of the assets of pettoners
s concerned, to that of the soe stockhoder n Mone Propertes. We thnk
that t can make no dfference that fnancng of the subsdares was carred
out by means of book ndebtednesses n eu of ncreased book vaue of the
subsdares stock. corporaton must derve ts funds from three sources :
capta contrbutons, oans, and profts from operatons. The fact that rco,
the soe stockhoder, preferred to suppy funds to ts subsdares prmary by
the second method, rather than ether of the other two,1 does not make the
ncome earned by ther utzaton ncome to rco. We need not decde whether
the funds supped to pettoners by rco were capta contrbutons rather than
oans. It s suffcent to say that the very factors whch, as pettoners contend,
show that rco supped and furnshed ther assets aso ndcate that
pettoners were the recpents of capta contrbutons rather than oans.1
Nor do the contracts between rco and pettoners by whch the atter agreed
to pay a profts above a nomna return to the former, on that account, become
agency contracts wthn the meanng of our decsons. The Ta Court fet
that the fact that rco was entted to the profts by contract shows that the
ncome beonged to rco and shoud not, for that reason, be ta ed to pettoners.
Our decsons requrng that ncome be ta ed to those who earn t, despte an-
tcpatory agreements desgned to prevent vestng of the ncome n the earners,
forecose ths resut. Lucas v. ar, 281 U. S. I (1930) ; everng v. Cfford.
309 U. S. 331 (19 0) Ct D. 1 , C. . 19 0-1, 10 ; Unted State v. oet
Chcago R. Co., 31 U. S. (19 2) Ct. D. 1 0, C. . 19 2-1, 196 ; Comms-
soner v. Sunnen, 333 U. S. 91 (19 8) Ct. D. 1698, C. . 19 8-1, 7 . Of course one
of the dutes of a coecton agent s to transmt the money he receves to hs
prncpa accordng to ther agreement. ut the fact that pettoners were re-
qured by contract to turn over the money receved by them to rco, after de-
ductng e penses and nomna profts, s no sure ndcaton that they were mere
coecton agents. Such an agreement s entrey consstent wth the corporaton-
soe stockhoder reatonshp whether or not any agency e sts, and wth other
reatonshps as we.18
What we have sad does not forecose a true corporate agent or trustee from
handng the property and ncome of ts owner-prncpa wthout beng ta abe
therefor. Whether the corporaton operates n the name and for the account
of the prncpa, bnds the prncpa by ts actons, transmts money receved
to the prncpa, and whether recept of ncome s attrbutabe to the servces
s a practca matter, n consderabe par t of the assets of pettoners was supped out
of profts from ther operatons. ven though assets were purchased drecty out of the
earnngs of a subsdary, however, the amount wthdrnwn was entered n the accounts pay-
abe hy the subsdary and n the accounts recevabe of rco, snce substantay a profts
of the subsdnres were, by contract, payabe ony to the parent.
16 Snce pettoners were requred to pay a profts e cept very sma amounts to rco
eac year, t was obvousy mpossbe for them to pay the accounts payabe to rco. See
note . Mr. C. . dams, charman of r Reducton Corp., testfed that the assets of the
subsdares represented by the accounts payabe coud be reazed by rco ony upon ds-
souton of the subsdares. In other words, there was never any e pectaton that the
accounts woud be pad pror to dssouton. Snce no nterest ran on these accounts, the
oans were dentca, e cept n name, wth contrbutons of capta. See mercan Cgar
Co. v. Commssoner. (10 Fed. (2d) 2 Ct. D. 82 . C. . II1-1, 260 (1933) : Ifoyt v.
Commssoner, 1 Fed. (2) (13 : an Cef v. everng, 13 Fed. (2d) 2 ; Readng Co. v.
Commssoner. 132 Fed. (2r 306. I evy and Smonds. Stockhoder dvances to Corpora-
tons re They Loans or Capta Contrbutons 2 Ta es 127. 128, state that
ntenton to end and e pectaton of repayment are necessary to the e stence of a vad
debt. The fact that no nterest ran on these oans s. of course, further ndcaton fnt
they are capta contrbutons. arry Motor Car Co., . T. . Memo. Op. Dkt. 90963,
anuary 2 . 19 1.
Tte to gas cynders used by pettoners, amountng n vaue to about 13,000,000, was
retaned by rco, but the cynders were used by the subsdares wthout charge. Whether
these, too, were capta contrbutons we fnd t unnecessary to decde In ths case. Free
use of the cynders by pettoners, f they were merey on oan, may have dstorted
the subsdares ncome beyond the aocatons made hy the Commssoner, but that probem
Is not before us.
11 Restatement of gency, secton 27.
s In Unted States v. oet d Chcago R. Co.. 31 D. S. (19 2), a essee raroad agreed
to pay renta payments to the essor s stockhoders drecty. The essor thereafter carred
on no actve busness. It was nevertheess hed ta abe on the ncome receved by Its
stockhoders, snce they receved the payments ony because they hed Its stock.
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171 22(a), rt. 22(a)-, Regs. 101.
of empoyees of the prncpa and to assets beongng to the prncpa18 are
some of the reevant consderatons n determnng whether a true agency e sts.
If the corporaton s a true agent, ts reatons wth ts prncpa must not be
dependent upon the fact that t s owned by the prncpa, f such s the case. Its
busness purpose must be the carryng on of the norma dutes of an agent. 1
bsence of the factors mentoned above, and the essentaty of ownershp of the
corporaton to the e stence of any agency reatonshp n the Mone Propertes,
Commonweath Improvement Co., and Southern Pacfc cases ndcates the faacy
of the agency argument made In those cases.
The same faacy s apparent n the contenton that pettoners are agents
of rco. They cam that they shoud be ta abe on net ncome aggregatng
ony 1,3 0, despte the fact that durng the ta year (1038) they owned assets
worth neary 20 mon doars, had net saes of appro matey 22 mon do-
ars, and earned neary mon doars net. Ther empoyees number n the
thousands. We have passed the queston whether rco s nterest n these assets
s that of owner of the subsdares or ender, but whatever the answer, they do
not beong to rco as prncpa. The entre earnngs of pettoners, e cept for
trfng amounts, are turned over to rco not because the atter coud command
ths ncome f pettoners were owned by thrd persons, but because t owns, and
thus competey domnates the subsdares. rco, for suffcent reasons of ts
own, wshed to avod the burdens of prncpashp. See Mone Propertes,
Inc., v. Commssoner, supra; Shedon udng Corp. v. Commssoner, 118 Fed.
(2d) 83 (19 1). Compare Forshay v. Commssoner, 20 . T. . 37 (1930).
It cannot now escape the ta consequences of that choce, no matter how bona
tde ts motves or ong standng ts arrangements. When we referred to the
usua ncdents of the agency reaton n the Mone Propertes case, we meant
|ust that not the dentty of ownershp and contro dscosed by the facts of
ths case.
We have consdered the other arguments made by pettoners and fnd them to
be wthout mert. The udgment of the court of appeas s
ffrmed.
rt. 22(a)- of Treasury Reguatons 101, promugated under the Revenue ct of
1938, provdes:
rt. 22(a)-. What Nrr.nnun n Gross Income. Gross ncome Incudes In genera
compensaton for persona and professona servces, busness Income, profts from saes of
and deangs n property, Interest, rent, dvdends, and gans, profts, and ncome derved
from any source whatever, uness e empt from ta by aw. (See sectons 22(b) and 116.)
In genera, ncome Is the gan derved from capta, from abor, or from both combned, pro-
vded t be understood to Incude proft ganed through a sae or converson of capta
assets See nner v. Uacomber, 2 2 D. S. 189. 207 (1920) T. D. 3010, C. . 3,
2 (1920)1 ; Merchants Loan Tru t Co. v. Smetanka, 2 U. S. 09, 19 (1921) T. D.
3173 (Ct. D. 6), C. . , 3 (1921 ) .
In the case of a subsdary who suppes the abor and the capta wth whch the Income
Is earned, as s true of pettoners here, t can hardy be contended that t dd not earn the
ncome.
20 Of course even a corporaton whch satsfes the usua tests of agency may be dsregarded
by the Commssoner If t Is a sham or unrea. Iagn v. tntth, 308 . S. 73 (19 0) Ct.
D. 1 3 , C. . 19 0-1, 127 : (reanryt v. everng, 293 U. S. 6 (193 ) Ct. D. 911, C. .
I -1, 193 (193 ) . scapng ta aton s not a busness actvty. See Natona
Investors Corp. v. oey, 1 Fed. (2d) 66.
21 The two man purposes for the adopton by rco of the corporate subsdary method
of operaton, as reated by Mr. C. . dams, charman of r Reducton Corp., were these:
Franky, n 1918 and st, r Reducton. Inc., was and Is a New York corporaton. ven
at that eary date t became evdent, as I aready sad, we were gong to have dants scattered
a over the Unted States. We ddn t want to domce the parent company n 8 States of
the Unon and have us sub|ect to servce n a those States, that Is, have the parent com-
pany sub|ect to servce n a those States, and that was dstncty a reason for usng ths
eorp orate setup n connecton wth operatons to be run as dvsons, ust as the contract
sets forth.
Now, n addton to that, as a practca matter, out n the fed and on the frng ne,
to have a representatve, an offcer, we w say, of Pure Carbonc, when troube arses wth
a customer, a vce presdent of Pure Cnrbonc, who s not an offcer of r Reducton, Inc.,
at a, who goes n and straghtens that out wth that customer, ncreases hs cudos, heps
hm wth a hs negotatng efforts, wth ther compettors on the outsde.
It s thus apparent that rco was attemptng to avod the status of prncpa v -a-vs
ts subsdares. s prncpa t woud have been sub|ect to servce of process through
ts agents; as owner of the subsdarv t was not. See Peterson v. Chcago, R. I.
P. R. Co., 20 U. S. 36 , 391 (1907) ; Cannon fff. Co. v. Cudahu Co.. 267 U. S. 333 (192 ).
The purpose of havng offcers of subsdares who coud dea drecty wth customers does
not ndcate an agency reatonshp. On the contrary, the very purpose of the organzaton
adopted was to ead customers to beeve that they were deang wth top men n the
company actuay manufacturng and seng the products they purchased.
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11 , rt. 11 -11, Regs. 9 . 172
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
rtce 22(a)-1 , Reguatons 101: Canceaton
of ndebtedness.
R NU CT O 1938
Purchase by an ndvdua of hs own obgatons at a dscount.
(SeeCt. D. 1712, page 0.)
S CTION 23(m). D DUCTIONS FROM GROSS
INCOM : D PL TION
rtce 23(m)-, Reguatons 101: Depeton of
mnes, o and gas wes, other natura deposts,
and tmber; deprecaton of mprovements.
R NU CTS OF 1936 ND 1938
ssgnor s depeton aowance based on net profts from o and
gas property. (See Ct, D. 1720, page 67.)
SU TITL C SUPPL M NT L PRO ISIONS
SUPPL M NT b. computaton of net ncome
S CTION 11 . DISTRI UTIONS Y CORPOR TIONS
rtce 11 -11, Reguatons 9 : ffect on 19 9-9-1307
earnngs or profts of certan ta -free e - Ct. D. 1717
changes and ta -free dstrbutons.
INCOM T R NU CT OP 1936 D CISION OF SUPR M COURT
1. Ta -Free Reorganzaton Lqudaton of Subsdares by Par-
ent Corporaton Dstrbuton of arnngs and Profts
arnngs and Profts of Parent Not Reduced by Net Defct
of Subsdares San some Rue.
t the tme of a ta -free qudaton by a parent corporaton of
some of ts subsdares n 1036, the parent had accumuated earnngs
and profts avaabe for dstrbuton as dvdends, and the subsd-
ares had an aggregate net defct. Durng 1937 respondent receved
from the parent her share of a pro rata cash dstrbuton to preferred
stockhoders. ed: The dstrbuton was ta abe as a dvdend
under secton 11 of the Revenue ct of 193( , and consttuted ord-
nary ncome. The defct of a subsdary does not reduce earnngs of
the parent for dvdend purposes after a ta -free qudaton. The
Sansome rue (60 Fed. (2d) 931 Ct. D. 607, C. R I-2. 17 (1932) )
s grounded not on a theory of contnuty of the corporate enterprse
but on the necessty to prevent escape of earnngs and profts from
ta aton.
2. Decson Reversed.
Decson of the Unted States Court of ppeas, Tenth Crcut
(167 Fed. (2d) 117), reversed.
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173
11 , rt. 11 -11, Regs. 9 .
Supreme Court of the Unted States
Commssoner of Interna Revenue, pettoner, v. Margaret R. Phpps
On wrt of certorar to the Unted States Court of ppeas for the Tenth Crcut
March 1 , 19 )
OPINION
Mr. ustce Murphy devered the opnon of the Court.
Ths case nvoves a ta -free qudaton by a parent corporaton of some of ts
subsdares. t the tme of the qudaton the parent had earnngs and profts
avaabe for dstrbuton, and the subsdares had an aggregate net defct.
The ssue now before us s whether the rue of Commssoner v. Sansome, 60 Fed.
(2d) 931 Ct. D. 607. C. . I-2, 17 (1932) , requres the subtracton of the
subsdares defct from the parent s earnngs and profts, n determnng
whether a subsequent dstrbuton by the parent consttuted dvdends or a
return of capta to Its stockhoders.
The Sansome ease, supra, arose from a ta -free reorganzaton n whch the
transferor corporaton had a surpus n earnngs and profts avaabe for ds-
trbuton. It was there hed that those earnngs and profts, for purposes of a
subsequent dstrbuton by the transferee corporaton to ts stockhoders, retan
ther status as earnngs or profts and are ta abe to the recpents as dvdends.
The rue has been hed to Incude qudatons of a subsdary by ts parent.
Robnette v. Commssoner. 1 8 Fed. (2d) 13; U. S. Treas. og. 101, art. 11 -11,
promugated under the Revenue ct of 1938 and made retroactve.
The facts were stpuated, and so found by the Ta Court. So far as reevant,
they are as foows: In December, 1936, Nevada-Caforna ectrc Corp. qu-
dated fve of ts whoy owned subsdares by dstrbutng to tsef a of ther
assets, sub|ect to ther abtes, and by redeemng and canceng a of ther
outstandng stock. No gan or oss on the qudaton was recognzed for ncome
ta purposes under secton 112(b) (6) of the Revenue ct of 1936.1 On the date
of qudaton, one of the subsdares had earnngs and profts accumuated after
February 28, 1913. n the amount of 90,362.77. The four others had defcts
whch aggregated 3,1 7,803.62. On December 31, 1936, the parent had earnngs
and profts accumuated after February 28, 1913, n the amount of 2,129,9 7.81,
whch amount does not refect the earnngs or defcts of the subsdares. In
1937, Nevada-Caforna had earnngs of 390,387.02. In the years 1918 to 1933
Incusve the parent and ts subsdares fed consodated ncome ta returns.1
Respondent was the owner of 2,6 0 shares of the preferred stock of Nevada-
Caforna. Durng 1937 that corporaton made a pro rata cash dstrbuton to
ts preferred stockhoders n the amount of 802,28 , of whch respondent re-
ceved 18, 80. The Commssoner determned that the dstrbuton was a dv-
dend under secton 11 of the Revenue ct of 1936 and consttuted ordnary
ncome n ts entrety.
1 S C. 112. R COGNITION OP G IN OR LOSS.
(a) Genera Rue. Upon the sae or e ehanee of property the entre amount of the
(tan or oss, determned under secton 111, sha be recognzed, e cept as herenafter
provded n ths secton.
(b) changes Soey n nd.
(6) Property rf.ceved by corporaton on compete qudaton of another.
No Ran or oss sha be recognzed upon the recept by a corporaton of property
dstrbuted n compete qudaton of another corporaton
1 It does not appear In what years occurred the subsdares osses whch resuted n ther
defcts, or to what e tent they were set off aganst the net ncome of the parent In con-
sodated return years. To the e tent that such set-offs dd e st, the bass of the sub-
sdares stock to Nevada-Caforna had been reduced and the osses reazed by the parent
and avaed of for ta purposes pror to the qudaton. U. S. Treas. Reg. 9 , art 113(b)-,
promugated under the Revenue ct of 1936.
S C. 11 . DISTRI UTIONS Y CORPOR TIONS.
(a) Defnton of Dvdend. The term dvdend when used n ths tte (e cept In
secton 203(a)(3) and secton 207(c)(1), reatng to nsurance companes) means any ds-
trbuton made by a corporaton to ts sharehoders, whether In money or n other property,
(1) out of ts earnngs or profts accumuated after February 28. 1913, or (2) out of the
earnngs or profts of the ta abe year (computed as of the cose of-the ta abe year wthout
dmnuton by reason of any dstrbutons made durng the ta abe year), wthout regard
to the amount of the earnngs and profts at the tme the dstrbuton was made.
(b) Source of Dstrbutons. For the purposes of ths ct every dstrbuton s made
out of earnngs or profts to the e tent thereof, and from the most recenty accumuated
earnngs or profts. ny earnngs or profts accumuated, or ncrease n vaue of property
accrued, before March 1, 1913, may be dstrbuted e empt from ta . after the earnngs and
rofts accumuated after February 28, 1913, have been dstrbuted, but any such ta -free
strbuton sha be apped aganst and reduce the ad|usted bass of the stock provded In
ecton 113.
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11 , rt. 11 -11, Regs. 9 . 17
Of the 1937 dstrbuton, appro matey 9 percent was chargeabe to earnngs
and profts of the ta abe year. Consequenty, respondent conceded n the Ta
Court that that percentage of her share, or about nne thousand doars, was
ta abe as a dvdend under secton 11 (a) (2). The Ta Court hed n her favor
that the baance was not a ta abe dvdend out of earnngs and profts, on the
theory that a of Nevada-Caforna s accumuated earnngs and profts, pus the
accumuated earnngs and profts of the subsdary that had a surpus, were erased
by the aggregate defcts of the other four subsdares. 8 T. C. 190. The court
of appeas affrmed by a dvded court, 167 Fed. (2d) 117. We brought the case
here on a wrt of certorar, 33 U. S. 807, because of ts mportance n the ad-
mnstraton of the revenue aws, and because of an aeged confct of the decson
beow wth that of the Court of ppeas for the Nnth Crcut n Cranson v.
Unted States, 1 6 Fed. (2d) 871.
Commssoner v. Sansome, 60 Fed. (2d) 931, arose thus: Corporaton sod
out a ts assets to Corporaton, both organzed under the aws of New ersey.
Corporaton assumed a abtes and ssued ts stock to the stockhoders
of Corporaton, wthout change n the proportons of ther hodngs. The
ony change was that the charter of Corporaton gave t sghty broader
powers. t the tme of the reorganzaton, Corporaton had on ts books
a arge surpus and undvded profts. The new corporaton made no proft
and the company soon dssoved. The qudatng dstrbutons n 1923, the
year when the dssouton was begun, dd not e haust the amount of accumuated
profts of the predecessor corporaton, and the Commssoner contended that
those dstrbutons were ta abe to the stockhoders as dvdends and not, as
camed by them, as a return of capta. The Court of ppeas for the Second
Crcut agreed wth the Commssoner, and hed that snce the reorganzaton
was nonta abe under secton 202(c) (2) of the Revenue ct of 1921, the accumu-
ated earnngs and profts of the transferor retaned ther character as such
for ta purposes n the hands of the transferee and were consequenty ta abe
on dstrbuton as ordnary ncome under secton 201 of the same ct. The
vew of the court was thus e pressed by udge Learned and : ence we hod
that a corporate reorganzaton whch resuts n no gan or oss under secton
202(c) (2) ( 2 Stat. 230) does not to the company s fe as contnued venture
under secton 201, and that what were earnngs or profts of the orgna,
or subsdary, company reman, for purposes of dstrbuton, earnngs or profts
of the successor, or parent, n qudaton. 60 Fed. (2d) 931, 933. The rue
has been consstenty foowed |udcay and has receved e pct congressona
approva.
The ratonae of the Sansome decson as a contnued venture doctrne has
been often repeated n the cases, and n some of them the fact that the successor
corporaton has dffered from the predecessor merey n dentty or form has
ent t pausbty. Other cases, however, demonstrate that the contnued ven-
ture anayss does not accuratey ndcate the bass of the decsons. The
Respondent agrees that the earnngs nnd profts of the subsdary wth a surpus become,
by vrtue of the Sansome rue, earnngs and profts of the parent, whatever the utmate
treatment of the defcts of the other subsdares.
3 Secton 201 of the 1921 ct specfes what corporate dstrbutons are ta abe as dv-
dends ; secton 202(c)(2) provdes for the nonrecognton of gan or oss from certan
corporate reorganzatons.
Commssoner v. Muntrr, 331 U. S. 210 Ct. D. 108 . C. . 19 7-1. 8 : Unted States
v. aufmann. 62 Fed. (2d) 10 : Murchson s state v. Commssoner, 70 Fed. (2d) 6 1 :
/Tarter v. everno. 79 Fed. (2d) 12: eordau nterprses. Ltd., v. Commssoner. 126
Fed. (2d) 38 ; Reed Dray Co. v. Commssoner, 130 Fed. (2d) 2S8 : Robnette v. Comms-
soner. 1 8 Fed. (2d) 3 : Putnam v. Commssoner, 1 9 Fed. (2d) 721. See aso Condon
. Tat, 61 Fed. (2d) 90 , whch was decded a few months after Sansome and reached the
same resut ndependenty.
7 The Senate Fnance Commttee Report on secton 11 (h) of the Revenue ct of 1936.
S. Rept. No. 21 6. 7 th Cong.. 2d sess.. p. 19 (C. . 1939-1 (Part 2). 678. 690), recognzed
the rue of the Sansome case, and sad that the amendment made by that ct ntended no
change n e stng aw, but was added ony n the nterest of carty. U. S. Treas. Reg.
9 . art. 11 -11. promugated under the 1936 ct. ncorporates the substance of the report.
The Revenue ct of 1938 amended secton 11 (h) ony by e tendng ts appcaton to
dstrbutons of property or money as we as of stock or securtes : the effect was to
make secton 11 (h) harmonze wth secton 112(b) (6) and (7): and Reguatons 101,
promugated under the 1938 ct, was amended to conform. The Interna Revenue Code
contans the secton substantay unchanged.
Secton 01 of the Second Revenue ct of 19 0 added secton 11 (1) to the Interna
Revenue Code, to eaborate the aw wth regard to the effect of ta -free dstrbutons on
earnngs and profts. The reports accompanyng the h n Congress. . R. Rept. No. 289 .
76th Cong.. 3d sess.. p. 1 (C. . 19 0-2. 96. 26). and S. Rept. No. 211 . 76th Cong.,
3d sess., p. 2 (C. . 19 0-2, 28, 6- 7). both recognze the appcaton of the prncpe
under whch the earnngs and profts of the transferor become the earnngs and profts of
the transferee. Ibd., p. 2 . The reports do not menton defcts.
f See. e. g.. Murehson s state v. Commssoner, Reed Drug Co. v. Commssoner, Unted
States v. aufmann, a supra, n. 6.
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17 11 , rt. 11 -11, Regs. 9 .
rue that earnngs and profts of a corporaton do not osp ther character as
suc by vrtue of a ta -free reorganzaton or qudaton has been apped where
more than one corporaton has been absorbed or qudated, where there has
been a spt-off reorganzaton,10 and where the reorganzaton has resuted n
substanta changes In the propretary nterests.
In Commssoner v. Munter, 331 U. S. 210, ths Court reversed a decson of
the Court of ppeas for the Thrd Crcut whch had hed n favor of the
ta payer on the ground that the ownershp of the successor corporaton was so
dfferent from that of the two predecessors that there was not suffcent contnuty
of the corporate entty to appy the Sansome doctrne. The opnon of the Court
stated our unanmous vew of the bass of the rue: basc prncpe of the
ncome ta aws has ong been that corporate earnngs and profts shoud be
ta ed when they are dstrbuted to the stockhoders who own the dstrbutng
corporaton. Thus uness those earnngs and profts accumuated by
the predecessor corporatons and undstrbuted n ths reorganzaton are deemed
to have been acqured by the successor corporaton and ta abe upon dstrbuton
by t, they woud escape the ta aton whch Congress ntended. The
congressona purpose to ta a stockhoders who receve dstrbutons of cor-
porate earnngs and profts cannot be frustrated by any reorganzaton whch
eaves earnngs and profts undstrbuted n whoe or n part. 331 U. S. at
21 , 21 . See Murcfson s state v. Commssoner, 76 Fed. (2d) 6 1, 6 2;
Putnam v. Unted Mates, 1 9 Fed. (2d) 721, 726; Samue L. Sover, 6 T. C. 88 ,
886. We concude from the cases that the Sansome rue s grounded not on a
theory of contnuty of the corporate enterprse but on the necessty to prevent
escape of earnngs and profts from ta aton.
The decson of the Court of ppeas for the Second Crcut n arter v. ever-
ng, 79 Fed. (2d) 12, s not nconsstent wth ths vew. In that case the stuaton
was as foows: Corporaton and Corporaton, each of whch had accumu-
ated earnngs and profts merged to form C Corporaton. y the operaton of
the Sansome rue, the earnngs and profts retaned ther character as such n
the hands of C. Sometme ater, D Corporaton acqured a the stock of C,
and thereafter qudated t In a transacton n whch no gan or oss was recog-
nzed. t the tme of the qudaton of C Corporaton, D Corporaton, the
parent, had a defct n earnngs and profts. The court hed, n determnng
the amount of earnngs and profts avaabe to D Corporaton after the qu-
daton for dstrbuton as dvdends, that Its defct shoud he deducted from
the accumuated earnngs and profts acqured from ts subsdary. It s vgor-
ousy contended that the ogc of the arter case compes the aowance of a
deducton of the defcts of the subsdares from the accumuated earnngs and
profts of the parent. We beeve ths vew to be the product of nadequate
anayss. The dfference between the arter stuaton and the probem before
us may perhaps be carfed by comparng them ta wse f nether qudaton had
occurred. refy stated, In the case of a dstrbuton to a corporaton wth a
defct-from ether current or pror osses, the corporaton recevng the dstr-
buton has no ta abe ncome or earnngs or profts avaabe for current ds-
trbuton unt current ncome e ceeds current osses, and no accumuated
earnngs or profts unt ts actua defct from pror osses s erased. See 1
Mertens, Law of Federa Income Ta aton, secton 9.30, and cases cted theren
n. et seq. In the nstant stuaton, however, the parent dd have accumuated
earnngs and profts avaabe for dstrbuton as dvdends, absent the qu-
daton. Congressona ntent to ta such earnngs and profts on ther dstr-
buton cannot be prevented by the fact of an ntervenng reorganzaton or
qudaton.
arter v. evertng, aker v. Commssoner, supra, n. 6.
arnes v. Unted States, 22 Fed. Supn. 282 Ct. D. 1332, C. . 1938-1, 2 0 ; state of
MeCUntc, 7 . T. . 188 ; Stea . Mande, T. C. 68 .
u Commssoner v. funter, supra, n. 6.
12 See note. The ffect of Tn -Free Reorganzatons on Subsequent Corporate Dstrbu-
tons, 8 Co. L. Rev. 281 ; tas. The Case ot the Dsappearng arnngs and Profts, In
Seventh nnua Insttute of Federa Ta aton. 11 ; cf. 1 Mertens, Law of Federa Income
Ta aton, secton 9. 8 (19 2) : 1 Montgomery. Federa Ta es Corporatons and Partner-
shps 19 8- 9. 1 (19 8) ; Green, Recent Trends Under the Sansome Rue, n S th
nnua Insttute on Federa Ta aton. 338; cf. Rudck, Dvdends and arnngs or
Profts Under the Income Ta Law: Corporate Non-Lqudatng Dstrbutons, 89 U. Pa.
L. Rev. 86 . 896.
Senor Investment Co., 2 T. C. 12 , dd not nvove the queston before us. but was
concerned wth the appcabty, for purposes of computng surta on undstrbuted profts,
f sectons 26(c)(1) and 26(c)(3) of the Revenue ct of 19. 6. the atter as amended by
secton 01(a)(2) of the Revenue ct of 19 2, to the transferor corporaton n a ta -free
reorganzaton. The queston of nhertance of a defct was not n ssue. See Green,
upra, note 12, at 3 1.
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11 , rt. 11 -11, Regs. 9 . 176
The operaton of the Sansome rue on the ta aton of corporate dstrbutons
s brought nto hgh reef by consderaton of the economc reaton between
a parent corporaton and ts subsdary. Congress requres that earnngs and
profts, current or accumuated, be ta ed to the recpents thereof as dvdends
on ther dstrbuton. If a subsdary has a surpus n earnngs and profts,
the parent has a choce of two methods by whch t may reaze ths surpus.
It may cause the subsdary to decare a dvdend, or t may qudate ts nterest
or part of ts nterest n the subsdary. In the former case, the dstrbuton
woud of course be ta abe as ordnary ncome to the parent nsofar as that
dstrbuton, pus the parent s other ncome, represented net ncome to t. If
the parent uses the second method, two aternatves agan are avaabe: the
qudaton may take the form of a sae outrght, or may be performed wthn
the framework of the reorganzaton sectons of the Interna Revenue Code or
ts predecessor acts. If the former, gan s of course reazed, and s aso
recognzed for ta purposes. We note n passng, n ths connecton, that such
gan w correspond, f at a, ony by concdence wth the amount of earnngs
and profts of the subsdary. If the atter, Congress has determned that the
gan sha not be recognzed at that tme, but that such recognton sha be de-
ferred. If the subsdary has a defct n earnngs and profts, the defct may be
reazed by the parent ony by qudaton, and the same two aternatves are
present as when the subsdary has a surpus: sae, and reorganzaton wthn
secton 112. gan, n the former case, oss s reazed and aso recognzed.
nd n the case of a reorganzaton or qudaton n the framework of the Code,
the recognton of oss s deferred by congressona mandate to a ater tme.
If the assets of the parent and subsdary are combned va a ta -free reor-
ganzaton or qudaton, the effect of the Sansome rue s smpy ths: a ds-
trbuton of assets that woud have been ta abe as dvdends absent the reor-
ganzaton or qudaton does not ose that character by vrtue of the ta -free
transacton. Respondent s contenton that the ogc of the Sansome rue requres
subtractng the defct of the subsdary from the earnngs and profts of the
parent as a coroary of carryng over the earnngs and profts of the subsdary
has a superfca pausbty; but the pausbty dsappears when t s noted
that the ta payer thus attempts to obtan an advantage ta wse that woud not
be avaabe absent the qudaton, snce there s no way to decare a defct,
and thus no method of oss reazaton open to the parent parae to a decara-
ton of dvdends as a mode of reazng the profts of a subsdary.
It s urged upon us that the defcts of the subsdares shoud be subtracted
from the earnngs and profts of the parent n order to make the ta consequences
of the qudaton correspond wth corporate accountng practce. The answer
s bref. The Sansome rue tsef, as apped to earnngs and profts, has never
been thought to be controed by ordnary corporate accountng concepts; ts
unform effect s to treat for ta purposes as earnngs or profts assets whch
are propery consdered capta for many f not most corporate purposes, and
t has ong been a commonpace of ta aw that smar dvergences often occur.
See Commssoner v. Wheeer, 32 U. S. 2, 6 Ct D. 1637, C. . 19 , 3 9 ;
Putnam v. Unted Sates, 1 9 Fed. (2d) 721, 726; 1 Mertens, op. ct. secton 9.33;
Rudck, op. ct. 87S-906.
Congress has e pressed ts purpose to ta a stockhoders who receve dstr-
butons of earnngs and profts. In order to factate smpfcaton of corporate
fnanca structures, t has further provded that certan ntercorporate transac-
tons sha be free of mmedate ta consequences to the corporatons. There
has been |udcay supermposed by the Sansome rue, wth the subsequent
e pct ratfcaton of Congress, the doctrne that ta -free reorganzatons sha
not dsturb the status of earnngs and profts otherwse avaabe for dstrbuton.
M The operaton of the Sansome rue s restrcted, of course, to earnngs and profts whch
are not consdered to be dstrbuted to Its own stockhoders by the transferor corporaton
n a ta -free reorganzaton. Commssoner v. Munter, 331 . S. 210, 21 16; Samue L.
Sover, 6 T. C. 88 . Cf. U. S. Treas. eg. I, art. 29.112(b) (6)- as to the effect of a
ta -free reorganzaton on mnorty stockhoders of the transferor corporaton.
Respondent s bref sets out severa hypothetca e ampes of reorganzatons to demon-
strate the vadty of her contenton. er argument fas to take nto account the dfference
between the concept of surpus or defct, whch s a summary of the operatons of the cor-
poraton reportng t. and the concept of gan or oss, whch reports the effect of the ta -
free transacton tsef. So varous arc the possbe permutatons and combnatons of the
economc factors that equvaence of surpus or defct n the accounts of the subsdary
wth the gan or oss to the parent woud be mere concdence. Consder for e ampe the
case where a corporaton acqures a the stock of another whch at the tme has a arge
defct. If the subsdary s soon qudated, the defct w st he arge, aud the parent
may reaze tte or no oss on the qudaton. See the frst two te ts cted note 12, supra.
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177 21 (a)(7), rt. 1 , Regs. 69.
Nevada-Caforna nt the tme of the 1937 dstrbuton to respondent had such
earnngs and profts. Snce we beeve that to aow deducton from these earn-
ngs of the defcts of ts subsdares woud be n effect to recognze osses the
ta effects of whch Congress has e pcty provded shoud be deferred, the
|udgment of the court of appeas s reversed.
Reversed.
Mr. ustce Dougas concurs n the resut.
SUPPL M NT . NONR SID NT LI N INDI IDU LS
S CTION 21 (a) (7). D DUCTIONS LLOW D
INDI IDU LS: D D TS
rtce 1 , Reguatons 69: Reserve
for bad debts.
R NU CT OF 1926
Use of bad debt reserves by deaers n persona property who report
saes ncome on the nstament bass; I. T. 236 (C. . I-1,69 (1927))
modfed. (See I. T. 39 7, page 6 .)
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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 26: Defntons. 19 9-9-13076
Reguatons 106, Secton 02.20 : Who are Mm. 6381
empoyees.
( so Subchapter C (Federa Unempoyment
Ta ct), Secton 1607; Reguatons 107,
Secton 03.20 ; and Soca Securty ct,
Sectons 811 and 907; Reguatons 91 and
90, rtces 3 and 20 .)
Status for Federa empoyment ta purposes of drectors and other
ndvduas performng servces on commttees of banks.
Mmeograph r 217 (C. . 19 1-2, 220) modfed, and S. S. T. 82 (C. .
1037-1, 372) revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, March 28,19 9.
Coectors of Interna Revenue and Others Concerned:
1. The ureau of Interna Revenue has gven further consderaton
to the status under Ttes III and I of the Soca Securty ct, the
Federa Insurance Contrbutons ct, and the Federa Unempoy-
ment Ta ct of drectors of banks who are apponted to and serve on
varous commttees of banks. The provsons of ths mmeograph
reatng to the status of drectors have appcaton ony wth respect
to drectors servng on those commttees whch are created pursuant to
a Federa or State statute or corporate byaws, or pursuant to authorty
vested n the board of drectors.
2. Secton 02.20 of Reguatons 106 and secton 03.20 of Regu-
atons 107, ssued pursuant to the Federa Insurance Contrbutons
ct and the Federa Unempoyment Ta ct, respectvey, provde
that a drector of a corporaton, .v such, s not an empoyee of the cor-
poraton. These sectons further provde that a drector who per-
forms servces for the corporaton other than those requred by attend-
ance at and partcpaton n meetngs of the board of drectors may be
an empoyee of the corporaton. Reguatons 91 and 90, ssued pur-
suant to Ttes III and I . respectvey, of the Soca Securty ct,
contan smar provsons. The reguatons, however, do not provde
that a drector s under a crcumstances an empoyee wth respect to
servces performed other than by attendance at and partcpaton n
meetngs of the fu board of drectors, but rather eave open for con-
sderaton n each case the queston of whether such other servces are
performed under an empoyer-empoyee reatonshp.
3. Where a commttee of the type to whch ths mmeograph reates
s comprsed entrey of drectors, t s presumed that each member of
the commttee s actng n hs capacty as a drector, as such, wthn
(179)
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Regs. 90, rt. 20 .
180
the meanng of Reguatons 106 and 107, supra, and therefore s not an
empoyee for Federa empoyment ta purposes. Where the mem-
bershp of a commttee of the type here nvoved conssts prmary of
drectors but ncudes one or more ndvduas who are not drectors
and the manner of operaton of such commttee does not dffer ma-
teray from that usuay present n cases nvovng commttees com-
posed soey of drectors, each drector apponted to and servng on
such commttee s deemed to be actng n hs capacty as a drector,
as such, and accordngy shoud not be treated as an empoyee. Wth
respect to those commttee members who are not drectors there s a
presumpton that the reatonshp of empoyer and empoyee e sts
between the bank and such ndvduas and n accordance wth the pre-
sumpton they must be treated as empoyees uness and unt the em-
poyer s advsed n wrtng by the coector of nterna revenue or the
Commssoner that on the bass of evdence submtted t has been
determned that the presumpton has been rebutted.
. The poston of the ureau as set forth n Mmeograph 217
(C. . 19 1-2, 220), dated uy 1 , 19 1, hodng that drectors of
banks performng servces on varous commttees of the banks are
empoyees thereof for soca securty and empoyment ta purposes,
s modfed to the e tent of ts nconsstency wth the foregong. In
vew of the promugaton of ths mmeograph the rung pubshed as
S. S. T. 82 (C. . 1937-1, 372) s revoked.
. Ths mmeograph s to be apped wth retroactve effect, sub|ect
to the appcabe statute of mtatons.
6. Correspondence n regard to the contents of ths mmeograph
6houd refer to ts number and to the symbos mT: RR.
Geo. . Schoeneman,
C onvmssoner.
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Drectors and other ndvduas performng servces on commttees
of banks. (See Mm. 6381, page 179.)
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.
Drectors and other ndvduas performng servces on commttees
of banks. (See Mm. 6381, page 179.)
TITL I . T ON MPLOY RS OF IG T OR MOR
Secton 907: Defntons.
Reguatons 90, rtce 20 : mpoyed ndvduas.
Drectors and other ndvduas performng servces on commt-
tees of banks. (See Mm. 6381, page 179.)
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MISC LL N OUS T RULINGS
ST T T
INT RN L R NU COD
Reguatons 10 , Sectons 81.2, tc. 19 9-12-13103
T. D. 699
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 81.
ST T T UND R C PT R 3 OF T INT RN L R NU COD , S
M ND D
Reguatons 10 amended to conform to the Revenue ft of 19 8
C. . 19 8-1, 211 , and to Pubc Law 809, ghteth Congress
C. . 19 8-2, 323 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton ,D.C.
To Coectors of Interna Revenue and Others Concerned:
On November 6,19 8, notce of proposed rue makng, regardng the
estate ta provsons of the Revenue ct of 19 8 C. . 19 8-1, 211 ,
enacted pr 2, 19 8, and Pubc Law 869, ghteth Congress C. .
19 8-2, 323 , approved uy 1, 19 8, was pubshed n the Federa
Regster (13 F. R. 6 6 ). fter consderaton of a such reevant
matter as was presented by nterested persons regardng the rues
proposed, the amendments to Reguatons 10 26 CFR, Part 81 set
forth beow are hereby adopted. Such amendments are necessary n
order to conform such reguatons to the Revenue ct of 19 8 and
Pubc aw 869, ghteth Congress.
Paragraph 1. Secton 81.2, as amended by Treasury Decson 239
C. . 19 3, 1081 , approved March 10,19 3 26 CFR 81.2 , s further
amended by strkng out the ne t to the ast sentence.
Par. 2. There s nserted mmedatey precedng secton 81.8 26
CFR 81.8 the foowng:
S C. 363. CR DIT FOR GIFT T . (R NU CT OF 19 8;
N CT D RIL 2, 19 8.)
(a) Secton 813(a) (2) ( ) of the Interna Revenue Code (reatng to
credt for gft ta ) s hereby amended by nsertng before the perod at
the end thereof the foowng: reduced by the aggregate amount of the
deductons aowed under subsectons (d) and (e) of secton 812.
(b) Subparagraph ( ) of secton 813(a) (2) of the Interna Revenue
Code (reatng to credt for gft ta ) s hereby amended to read as
foows:
( ) In appyng, wth respect to any gft, the rato stated n
subparagraph ( ), the vaue at the tme of the gft or at the
tme of the death, referred to n such rato, sha be reduced
(1) by such amount as w propery refect the amount
of such gft whch was e cuded n determnng (for the
purposes of secton 1003(a), or of secton 0 (a) of the
(181)
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Regs. 10 , 81.2, etc.
182
Revenue ct of 1932) the tota amount of gfts made durng
the year n whch the gft was made;
() f a deducton wth respect to such gft s aowed
under secton 812(e) (the so-caed marta deducton )
then by an amount whch bears the same rato to such vaue
(reduced as provded n cause () of ths subparagraph) as
the aggregate amount of the marta deductons aowed
under secton 812(e) bears to the aggregate amount of such
marta deductons computed wthout regard to subpara-
graph ( ) of secton 812(e) (1) ; and
() f a deducton wth respect to such gft s aowed
under secton 812(d) (the so-caed chartabe deduc-
ton ) then by the amount of such vaue, reduced as
provded n cause () of ths subparagraph.
(C) Where the decedent was the donor of the gft but, under
the provsons of secton 1000(f), the gft was consdered as
made one-haf by hs spouse
() the term the amount of the ta pad under chapter
, as used n subparagraph ( ) of ths paragraph, ncudes
the amounts pad wth respect to each haf of such gft,
the amount pad wth respect to each beng computed n the
manner provded n subparagraph (D) ; and
() n appyng, wth respect to such gft, the rato
stated n subparagraph ( ) of ths paragraph, the vaue
at the tme of the gft or at the tme of the death, referred
to n such rato, ncudes such vaue wth respect to each
haf of such gft, each such vaue beng reduced as provded
n cause () of subparagraph ( ) of ths paragraph.
(D) () For the purposes of subparagraph ( ), the amount
of ta pad under chapter , or under Tte III of the Revenue
ct of 1932, wth respect to any gft sha be an amount whch
bears the same rato to the tota ta pad for the year n whch
the gft was made as the amount of such gft bears to the tota
amount of net gfts (computed wthout deducton of the spe-
cfc e empton) for such year.
() For the purposes of cause (1) the amount of such gft
sha be the amount ncuded wth respect to such gft n de-
termnng (for the purpose of secton 1003(a), or of secton
0 (a) of the Revenue ct of 1932) the tota amount of gfts
made durng such year, reduced by the amount of any deducton
aowed wth respect to such gft under secton 100 (a)(2),
or under secton 0 (a) (2) of the Revenue ct of 1932 (the
so-caed chartabe deducton ), or under secton 100 (a)(3)
(the so-caed marta deducton ).
(c) Secton 936(b)(1) of the Interna Revenue Code (reatng to
credt for gft ta ) s hereby amended by nsertng after the words
entre gross estate n cause ( ) thereof the foowng: reduced by
the aggregate amount of the deductons aowed under subsectons (d)
and (e) of secton 812 .
(d) Paragraph (2) of secton 936(b) of the Interna Revenue Code
(reatng to credt for gft ta ) s hereby amended to read as foows:
(2) In appyng, wth respect to any gft, the rato stated n
cause ( ) of paragraph (1). the vaue at the tme of the gft or at
the tme of the death, referred to n such rato, sha be reduced
( ) by such amount as w propery refect the amount of
such gft whch was e cuded n determnng (for the purposes
of secton 1003(a), or of secton 0 (a) of the Revenue ct of
1932) the tota amount of gfts made durng the year n whch
the gft was made;
( ) f a deducton wth respect to such gft s aowed under
secton 812(e) (the so-caed marta deducton ) then by an
amount whch bears the same rato to such vaue (reduced as
provded n subparagraph ( ) of ths paragraph) as the aggre-
gate amount of the marta deductons aowed under secton
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183
Regs. 10 , 81.2, etc.
812(e) bears to the aggregate amount of such marta deduc-
tons computed wthout regard to subparagraph ( ) of secton
812(e)(1) ; and
(C) f a deducton wth respect to such gft s aowed under
secton 812(d) (the so-caed chartabe deducton ) then by
the amount of such vaue, reduced as provded n subparagraph
( ) of ths paragraph.
(3) Where the decedent was the donor of the gft but, under the
provsons of secton 1000(f), the gft was consdered as made one-
haf by hs spouse
( ) the term the amount of the ta pad under chapter ,
as used In paragraph (1) of ths subsecton, ncudes the
amounts pad wth respect to each haf of such gft, the amount
pad wth respect to each beng computed n the manner pro-
vded n paragraph ( ) ; and
( ) n appyng, wth respect to such gft, the rato stated n
cause ( ) of paragraph (1). the vaue at the tme of the
gft or at the tme of the death, referred to n such rato, n-
cudes such vaue wth respect to each haf of such gft, each
such vaue beng reduced as provded n subparagraph ( ) of
paragraph (2).
( ) ( ) For the purposes of paragraph (1), the amount of ta
pad under chapter , or under Tte III of the Revenue ct of 1932,
wth respect to any gft sha be an amount whch bears the same
rato to the tota ta pad for the year n whch the gft was made
as the amount of such gft bears to the tota amount of net gfts
(computed wthout deducton of the specfc e empton) for such
year.
( ) For the purposes of subparagraph ( ) the amount of such
gft sha be the amount ncuded wth respect to such gft n
determnng (for the purposes of secton 1003(a), or of secton
0 (a) of the Revenue ct of 1932) the tota amount of gfts
made durng such year, reduced by the amount of any deducton
aowed wth respect to such gft under secton 100 (a)(2), or
under secton 0 (a) (2) of the Revenue ct of 1932 (the so-caed
chartabe deducton ), or under secton 100 (a) (3) (the so-caed
marta deducton ).
(e) The amendments made by ths secton sha be appcabe ony wth
respect to the estates of decedents dyng after December 31, 19 7.
Par. 3. Secton 81.8, as amended by Treasury Decson 239 26
CFR 81.8 , s further amended to read as foows:
Sec. 81.8. Credt fob Gft Ta . (a) Prorty of credts. If the decedent ded
after October 21, 19 2, the credts authorzed aganst the basc estate ta mposed
by secton 810 or secton 860 are to be deducted n the foowng order: Frst,
the credt for estate, nhertance, egacy, or successon ta es under secton
81.9, second, the credt for gft ta under paragraph (6) of ths secton, and,
thrd, the credt for gft ta under paragraph (c) of ths secton. If the
decedent ded on or before October 21, 19 2, such credts are to be deducted
n the foowng order: Frst, the credt for gft ta under paragraph (6) of
ths secton, second, the credt for gft ta under paragraph (c) of ths secton,
and, thrd, the credt for estate, nhertance, egacy, or successon ta es under
secton 81.9.
(6) Credt for gft ta pad under Revenue ct of 192 h Credt aganst the
basc estate ta mposed by secton 810 or secton 800 s authorzed by secton
813(a)(1) for gft ta pad under the Revenue ct of 192 n respect of
property ncuded n the gross estate. If the decedent ded on or before
October 21, 19 2, snch credt may not e ceed the tota amount of the basc
estate ta ; f the decedent ded after such date, such credt may not e ceed
the amount of such estate ta after deducton of the credt aowed, f any,
for estate, nhertance, egacy, or successon ta es pad to any State or Terr-
tory, possesson of the Unted States, or the Dstrct of Coumba. (See secton
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Regs. 10 , 81.2, etc.
18
81.9.) No credt for gft ta pad under the Revenue ct of 192 s aowabe
aganst the addtona estate ta Imposed by secton 93 .
If ony a part of the property ncuded for the purpose of the gft ta
mposed for a certan caendar year under the Revenue ct of 192 Is aso
ncuded n the decedent s gross estate for the purpose of the estate ta , te
gft ta pad In respect of such part of the property s an amount whch bears
the same rato to the tota gft ta pad for such caendar year as the vaue
of such part of the property bears to the tota amount of gfts ncuded for
the purpose of the gft ta Imposed for such year. For the purpose of computng
ths proporton, the vaues fnay determned for the purpose of the gft ta w
contro.
(c) Credt for gft ta pad under chapter of the Interna Revenue Code
or under the Revenue ct of 1932. (1) In genera. Credt aganst both the
basc estate ta mposed by secton 810 or secton 860 and the addtona estate
ta mposed by secton 93 s authorzed by sectons 813(a) (2) and 936(b) for
gft ta pad under chapter of the Code or under the Revenue ct of 1932
n respect of property ncuded n the gross estate.
The credt s aowabe even though the gft ta s pad by the e ecutor after
the decedent s death and the amount of the gft ta s deductbe from the gross
estate as a debt of the decedent.
The credt under ths paragraph n respect of any gft ncuded n the gross
estate s mted to the smaer of the foowng amounts
() the amount of gft ta pad n respect of such gft, computed as set
forth under subparagraph (2) of ths paragraph.
() the amount of the basc and addtona estate ta es attrbutabe to
such gft, computed as set forth under subparagraph (3) of ths paragraph.
Where more than one gft s ncuded n the gross estate of a decedent dyng
after December 31, 19 7, a separate computaton of the two mtatons on the
credt s to be made wth respect to each gft.
(2) Frst mtaton. If ony one gft was made durng a certan caendar year,
ard such gft s whoy ncuded n the decedent s gross estate for the purpose
of the estate ta , the credt wth respect to such gft s mted to the amount of
the gft ta pad for such caendar year. If more than one gft was made durng
a certan caendar year, the credt wth respect to any such gft whch s n-
cuded n the decedent s gross estate for the purpose of the estate ta s mted
to an amount. , whch bears the same rato to (the tota gft ta pad for
such caendar year) as C (the amount of such gft, reduced by any porton of such
amount e cuded under secton 1003(b) of the Code or secton 0 (b) of tb
Revenue ct of 1932 or deducted under secton 100 (a) (2) or (3) of the Code or
secton 0 (a) (2) of the Revenue ct of 1932) bears to D (the tota amount of
net gfts for such year, computed wthout deducton of the specfc e empton).
The vaues fnay determned for the purpose of the gft ta are to be used
n computng ths rato, rrespectve of the vaues determned for the purpose of
the estate ta . ke computaton s to be made n case ony a porton of any
gft s ncuded n the decedent s gross estate for the purpose of the estate ta .
ampe. donor, who had used 20,000 specfc e empton n pror years,
made gfts durng the caendar year 19 8 on whch gft ta was determned as
shown beow:
Gft of property to son on February 1 13, 000
Gft of property to wfe on May 1 86, 000
Gft to chartabe organzaton on May 1 10,000
Tota gfts 109,000
Less e cusons ( 3,000 for each gft) 9, 000
Tota Incuded amount of gfts 100, 000
Marta deducton (for gft to wfe) 3,000
Chartabe deducton 7. 000
Specfc e empton 10, 000
Tota deductons 60,000
Net gfts 0,000
Tota gft ta pad for caendar year 19 8 3, 600
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18
Regs. 10 , 81.2, etc.
90,000)
The donor s gft to hs wfe was made In contempaton of death and Is there-
after ncuded In hs gross estate for the purpose of the estate ta . Under the
frst mtaton, the credt wth respect to such gft cannot e ceed
0,000 (gft to wfe, ess 3,000 e cuson and
3,000 marta deducton) v nn f t o|v-tooon
. , 1 ; 1 ... : , , 3,600 (gft ta pad) 2,SvS0
O.OOO (tota amount of net gfts ncreased by
specfc e empton aowed)
(3) Second mtaton. The credt wth respect to any gft of property In-
cuded n the gross estate for the purpose of the estate ta s aso mted to an
amount, , whch bears the same rato to F ( the tota gross basc and addtona
estate ta es, reduced by any credt under paragraph (6) of ths secton, and, In
case the decedent ded after October 21, 19 2, by any credt under secton 81.9)
as G (the vaue, ad|usted as herenafter ndcated, of such property transferred
by gft and ncuded n the gross estate) bears to (the vaue of the entre
gross estate, reduced. In case the decedent (ed after December 31, 19 7, by the
tota deductons aowed under secton 812 (d) and (e)). In computng ths
r:to, the vaue of the property transferred by gft and ncuded n the gross
estate (amount G of the rato) s the vaue determned for the purpose of the
gft ta or the vaue determned for the purpose of the estate ta , whchever
s ower. Such vaue (amount G of the rato) does not ncude the porton,
f any, of the gft e cuded, under secton 1003(b) of the Code or secton 0 (b)
of the Revenue ct of 1932, n determnng the gft ta . For e ampe: donor,
n contempaton of death, transferred property vaued at 100,000 to hs fve
chdren n 19 1 and pad the resutng gft ta . The amount of 20,000 was
e cuded under the provsons of secton 1003(b) (2), and the amount of 80,000
was ncuded for the purpose of the gft ta . The property s thereafter ncuded
n hs gross estate for the purpose of the estate ta at a vaue of 90,000. The
ower of the two vaues ( 90,000) s to be used n computng the second mta-
ton. mount G of the rato s 72,000, the vaue
/ 80,000
100,000
of the porton of the gft ncuded for the purpose of the gft ta .
If n determnng the estate ta n the case of a decedent who ded after
December 31, 19 7, a marta deducton under secton 812(e) or a chartabe
deducton under secton 812(d) s aowabe for a porton of a partcuar gft,
then n computng the second mtaton such porton of the gft s not to be
ncuded n amount G of the rato. (See sectons 81. 7a to 81. 7e, ncusve,
reatng to the marta deducton, and sectons 81. to 81. 7, ncusve, reatng
to the chartabe deducton.) Therefore, f a partcuar gft s made soey
to the decedent s survvng spouse or soey to a chartabe, etc., organzaton,
and a deducton under secton 812 (d) or (e) s aowed for the fu vaue of
the gft, no credt wth respect to such gft may be taken. If the gft was
(n whoe or n part) to the decedent s survvng spouse, and f the aggregate
marta deducton aowed s ess than the amount of such deducton computed
wthout regard to the mtaton stated n secton 81. 7d, then the porton of
the gft whch s not to be ncuded In computng the second mtaton s
an amount, I, whch bears the same rato to (the amount of such gft not
e cuded n determnng the gft ta , and for whch a marta deducton woud
be aowed e cept for the mtaton stated n secton 81. 7(1) as (the aggregate
marta deducton aowed) bears to L (the aggregate marta deducton com-
puted wthout regard to the mtaton stated n secton 81. 7d).
ampe. The facts are the same as n the e nmpe n subparagraph (2)
of the computaton of the frst mtaton wth the foowng addtons. The
donor was survved by hs wfe. The vaue of the donor s gross estate s
3 0,000. ssume that a marta deducton of 1 0,000 s actuay aowed n
determnng the net estate, and that the amount of such deducton computed
wthout regard to the mtaton under secton 81. 7d s 2 0,000. There s
no chartabe deducton aowed n ths e ampe for the purpose of the estate
ta . The tota basc and addtona estate ta es ess the credt aowed under
secton 81.9 amount to 17, 00. No credt under paragraph (6) of ths secton
s aowed n ths e ampe. The property gven by the donor to hs wfe s
ncuded n the gross estate at a vaue of 90,000, and s property for whch
a marta deducton may be taken. The vaue of 86,000 determned for the
8 16 9 13
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Regs. 10 , 81.2, etc.
186
purpose of the gft ta ts ower than such vaue determned for the purpose
of the estate ta and s, therefore, to be used n computng the second mta-
ton, as shown beow:
Porton of gft ncuded for the purpose of the gft ta ( 86,000 ess
3,000 e cuson) 83, OOO
Porton of gft so ncuded and for whch a marta deducton s aowed
n determnng the estate ta
1 0 000 (marta deducton . (
aowed for purpose of fm wh h a marta,
estate ta ) 83,000 ucton woud be aowed n 9,800
2 0,000 (marta deducton fu e cept for mtaton under
computed wthout regard (secton 81. 7d
to mtaton under secton
81. 7d)
Porton of gft to be used n computng the second mtaton ( 83,000
ess 9,800) 33, 200
Second mtaton upon the credt wth respect to such gft
(tota basc and addtona
33,200
17, 00-| ta es ess credt under secton 2, 90
200,000 (gross estate ess 81.9
marta and chartabe de-
ductons)
Snce the amount of the frst mtaton upon the credt ( 2,8S0) s ower,
such amount s the aowabe credt.
( ) Credt for spt pfts. Where the decedent made a gft of property
whch s thereafter ncuded n hs gross estate, and, under the provsons of
secton 1000(f), such gft was consdered for the purpose of the gft ta as made
one-haf by the decedent and one-haf by hs spouse, credt aganst the estate ta
s authorzed for the gft ta pad wth respect to both haves of the gft. The
frst mtaton s to be separatey computed wth respect to each haf of the
gft. For e ampe: donor, n contempaton of death, transferred property-
vaued at 106,000 to hs son on une 1, 19 8, and he and hs wfe consented that
the gft shoud be consdered as made one-haf by hm and one-haf by hs wfe.
ssume that the property s thereafter ncuded n the donor s gross estate for
the purpose of the estate ta . Under the frst mtaton the amount of the gft
ta of the donor pad wth respect to the haf of the gft consdered as made by hm
s determned to be 11,2 0, and the amount of the gft ta of hs wfe pad wth
respect to the haf of the gft consdered as made by her s determned to be
1,200. Under the second mtaton the amount of estate ta attrbutabe to
the property s determned to be 28,91 . The credt aowed ( 11,2 0 pus 1,200)
s 12, 0.
( ) ocaton of credt. The amount computed under the ower of the two
mtatons s the tota credt authorzed wth respect to the gft aganst both
the basc and addtona estate ta es. The amount of such credt authorzed
aganst the basc estate ta s the ower of () the amount computed under the
frst mtaton and () the amount of the basc estate ta attrbutabe to the
gft, computed n the manner descrbed under the second mtaton. The
amount of such credt authorzed aganst the addtona estate ta s the ower of
(a) the amount computed under the frst mtaton ess the credt aowed
aganst the basc estate ta and (6) the amount of the addtona estate ta
attrbutabe to the gft, computed n the manner descrbed under the second
mtaton.
Par. . There s nserted mmedatey precedng secton 81.10 26
CFR 81.10 the foowng:
S C. 36 . OPTION L LU TION. (R NU CT OF 19 8;
N CT D PRIL 2, 19 8.)
(a) The ast sentence of secton 811 (|) of the Interna Revenue Code
(reatng to optona vauaton) s hereby amended to read as foows:
In case of an eecton made by the e ecutor under ths subsecton,
then
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187
Regs. 10 , 81.2, etc.
( ) for the purposes of the deducton under secton 812(d)
or secton 801(a)(3), any bequest, egacy, devse, or transfer
enumerated theren, and
( ) for the purposes of the deducton under secton 812(e),
any Interest n property passng to the survvng spouse,
sha be vaued as of the date of the decedent s death wth ad|ust-
ment for any dfference n vaue (not due to mere apse of tme or the
occurrence or nonoccurrence of a contngency) of the property as of
the date one year after the decedent s death (substtutng, n the case
of property dstrbuted by the e ecutor or trustee, or sod, e changed,
or otherwse dsposed of, durng such one-year perod, the date thereof).
(b) The amendment made by ths secton sha be appcabe ony
wth respect to estates of decedents dyng after December 31, 19 7.
Par. . Secton 81.11 26 CF 81.11 s amended by changng the
second sentence of the thrd paragraph from the end to read as foows:
The amount of any deducton under secton 812(d) or secton 861(a)(3) wth
respect to property passng to or for pubc, chartabe, regous, etc., uses, or
any deducton under secton 812(e) wth respect to property passng to the
decedent s survvng spouse, sha be determned by the vaue of such property
as of the date of the decedent s death, sub|ect, however, to ad|ustment for any
dfference n ts vaue as of the date one year after such death, or as of the
date of ts dstrbuton, sae, e change, or other dsposton, whchever date
frst occurs.
Par. 6. There s nserted mmedatey after secton 01 of the Rev-
enue ct of 19 2 (nserted by Treasury Decson 239), and precedng
secton 302(c) of the Revenue ct of 1920 (as orgnay enacted),
whch precedes secton 81.1 26 CFR 81.1 , the foowng:
S C. 3 1. R P L OF COMMUNITY PROP RTY ST T T
M NDM NTS. (R NU CT OF 10 8; N CT D PRIL
2, 10 8.)
(a) ffectve wth respect to estates of decedents dyng after Decem-
ber 31, 10 7, sectons 811(d)( ), 811(e)(2) and 811(g)( ) of the In-
terna Revenue Code (reatng to communty property) are hereby re-
peaed.

(c) Notwthstandng the repea of sectons 811(d)( ), 811(e)(2),
and 811(g)( ) provded n subsecton (a), the ta es mposed under
chapter 3 of the Interna Revenue Code upon the transfer of the net
estate of any decedent dyng after December 31, 10 7, and on or before
the date of the enactment of ths ct sha not e ceed the ta es whch
woud have been mposed under such chapter 3 upon such transfer f
ths secton had not been enacted.
Par. 7. Secton 81.1 , as amended by Treasury Decson 239 26
CFR 81.1 , s further amended as foows:
( ) y nsertng mmedatey after October 21, 19 2, each tme
t appears n the second paragraph thereof the foowng: and on
or before December 31, 19 7, .
( ) y nsertng at the end of such second paragraph the foowng
sentence:
(Wth respect to estates of decedents dyng after December 31, 19 7, and on
or before pr 2, 19 8, nvovng transfers of communty property, see secton
81.23.)
Par. 8. There s nserted mmedatey precedng secton 81.22 26
CFR 81.22 the foowng:
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Regs. 10 , 81.2, etc.
188
S C. 3 1. R P L OF COMMUNITY PROP RTY ST T T
M NDM NTS. (R NU CT OF 19 8; N CT D PRIL.
2, 19 8.)
(a) ffectve wth respect to estates of decedents dyng after December
31, 19 7, sectons 811(d) ( ), 811(e) (2) and 811(g) ( ) of the Interna
Revenue Code (reatng to communty property) are hereby repeaed.
(b) Such secton 811(e) s further amended
(1) by strkng out of the headng of such subsecton the words
and Communty ; and
(2) by strkng out of paragraph (1) the foowng: ont
INT R STS. .
(c) Notwthstandng the repea of sectons 811(d)( ), 811(e)(2),
and 811(g)( ) provded n subsecton (a), the ta es mposed under
chapter 3 of the Interna Revenue Code upon the transfer of the net
estate of any decedent dyng after December 31, 19 7, and on or before
the date of the enactment of ths ct sha not e ceed the ta es whch
woud have been mposed under such chapter 3 upon such transfer f
ths secton had not been enacted.
Par. 9. Secton 81.22, as amended by Treasury Decson 239 26
CF 81.22 , s further amended as foows:
( ) y nsertng mmedatey after October 21, 19 2, each tme
t appears n the ast paragraph thereof the foowng: and on or
before December 31, 19 7, .
( ) y nsertng at the end of such ast paragraph the foowng
sentence:
(Wth respect to estates of decedents dyng after December 31, 19 7, and on
or before pr 2, 19 8, nvovng |ont tenances or tenances by the entrety
created by the transfer of communty property, see secton 81.23.)
Par. 10. Secton 81.23, as amended by Treasury Decson 239 26
CFR 81.23 , s further amended as foows:
( ) y nsertng mmedatey after October 21, 19 2, n the frst
sentence thereof the foowng: and on or before December 31, 19 7. .
( ) y strkng out the ast paragraph and by nsertng n eu
thereof the foowng paragraphs:
Wth respect to estates of decedents dyng after October 21, 19 2, and on or
before December 31, 19 7, see the provsons of secton 81.1 , secton 81.22, and
secton 81.27(6), reatng, respectvey, to the ncuson of transfers of communty
property durng fe, the treatment of |ont tenances and tenances by the en-
trety created by the transfer of communty property, and the treatment of
nsurance upon the decedent s fe hed as, or acqured wth, communty property.
In the case of a decedent who ded after December 31, 19 7, and on or before
pr 2, 19 8, the provsons contaned n the frst two paragraphs of ths sec-
ton and those provsons of sectons 81.1 , 81.22, and 81.27(b) referred to n
the precedng paragraph may have a mted effect. though such provsons
are not appcabe for the purpose of determnng the vaue of the decedent s
gross estate, the estate ta payabe s, nevertheess, not to e ceed the estate ta
whch woud be mposed f such provsons were appcabe.
Par. 11. Secton 81.2 (6) (1), as amended by Treasury Decson
6 8 C. . 19 8-2, 1 3 , approved October 1, 19 8 26 CFR 81.2
(b) (1) , s further amended by nsertng mmedatey after the second
undesgnated paragraph thereof the foowng new paragraph:
To take another e ampe of the scope of the term power of appontment,
assume that the communty property aws of a State confer upon the wfe a
power of testamentary dsposton over property n whch she does not have
a vested nterest. Sub|ect to the e ceptons stated n (2) and (3) hereunder,
such a power s a power of appontment and the property sub|ect thereto s
ncudbe n the wfe s gross estate.
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189
Regs. 10 , 81.2, etc.
Par. 12. There s nserted mmedatey precedng secton 81.2 26
CFR 81.2 the foowng:
S C. 3 1. R P L OF COMMUNITY PROP RTY ST T T
M NDM NTS. (R NU CT OP 19 8; N CT D PRIL
2, 19 )
(a) ffectve wth respect to estates of decedents dyng after December
31, 19 7, sectons 811(d) ( ), 811(e) (2) and 811(g) ( ) of the Interna
Revenue Code (reatng to communty property) are hereby repeaed.

(c) Notwthstandng the repea of sectons 811(d)( ), 811(e)(2),
and 811(g)( ) provded n subsecton (a), the ta es mposed under
chapter 3 of the Interna Revenue Code upon the transfer of the net
estate of any decedent dyng after December 31, 19 7, and on or before
the date of the enactment of ths ct stu not e ceed the ta es whch
woud have been mposed under such chapter 3 upon such transfer f
ths secton had not been enacted.
Par. 13. Secton 81.26 26 CFR 81.26 s amended by nsertng at the
end thereof the foowng:
Where the proceeds of nsurance made payabe to the decedent s estate are
communty assets under the oca communty property aw, as a resut of whch
one-haf of such proceeds beongs to the decedent s spouse, then ony one-haf of
such nsurance s consdered to be recevabe by the e ecutor wthn the meanng
of secton 811 (g) (1).
Par. 1 . Secton 81.27, as amended by Treasury Decson 239 26
CFR 81.27 , s further amended as foows:
( ) y strkng out ths subsecton and subsecton (a) wher-
ever they appear n such secton and by nsertng n eu thereof ths
paragraph and paragraph (a) .
( ) y changng the headng and frst sentence of paragraph (a)
to read as foows:
(a) In case of decedent dyng after December 31, 19 7. The reguatons
prescrbed under ths paragraph (e cept as otherwse Indcated n ths secton)
are appcabe ony n the case of decedents who ded after December 31, 19 7.
(C) y changng the thrd undesgnated paragraph of paragraph
(a) (whch undesgnated paragraph, pror to the amendment made by
( .), began wth the words For the purposes of ths subsecton ) to
read as foows:
For the purposes of ths paragraph, where premums or other consderaton
are pad wth property hed as communty property by the decedent and hs
spouse, the decedent sha (n the absence of addtona crcumstances showng
payment ndrecty by the decedent) be deemed to have pad ony one-haf of such
premums or other consderaton. The genera rue stated n the precedng
sentence s not appcabe uness the decedent and hs spouse had equa and
e stng nterests n the communty property used n the payment of the premums
or other consderaton. n e ampe of addtona crcumstances showng pay-
ment ndrecty by the decedent whch w render nappcabe the genera rue
s a transfer of property by the decedent to the communty for the purpose of
purchasng the nsurance.
(D) y strkng from paragraph (a) the ast sentence of the s th
undesgnated paragraph (whch paragraph begns wth the words
For the purposes of (1) ).
( ) y changng the thrd sentence of the ast undesgnated para-
graph of paragraph (a) to read as foows:
For e ampes of ncdents of ownershp see paragraph (c) of ths secton.
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Regs. 10 , 81.2, etc.
190
(F) y nsertng at the end of paragraph (a) the foowng:
In determnng whether the decedent possessed an ncdent of ownershp n a
pocy or n any part of a pocy, regard must be gven to the effect of the State
or other appcabe aw upon the terms of the pocy. s an e ampe, assume
that the decedent purchased n pocy of nsurance on hs fe wth funds hed
by hm and hs survvng wfe as communty property, desgnatng ther son
as benefcary but retanng the rght to surrender the pocy. Under the oca
aw, the proceeds upon surrender woud have nured to the marta communty,
and the wfe s transfer of her one-haf nterest n the pocy was not consdered
absoute pror to the decedent s death. Upon the wfe s pror death, one-haf
of the vaue of the pocy woud have been ncuded n her gross estate. Under
these crcumstances, the power of surrender possessed by the decedent as agent
for hs wfe wth respect to one-haf of the pocy s not, for the purposes of ths
paragraph, consdered an ncdent of ownershp , and the decedent s, therefore,
deemed to possess an ncdent of ownershp n ony one-haf of the pocy.
Wth respect to estates of decedents dyng after December 31, 19 7, and on
or before pr 2, 19 8, nvovng nsurance hed as communty property by the
decedent and spouse, or acqured wth property so hed, see secton 81.23.
(6) In case of decedent dyng after October 21, 19 ,2, and on or before Decem-
ber SI, 19 7. The reguatons prescrbed under ths paragraph (e cept as other-
wse ndcated n ths secton) are appcabe ony n the case of decedents who
ded after October 21, 19 2, and on or before December 31, 19 7. In such cases,
the reguatons prescrbed under paragraph (a) wth respect to estates of
decedents dyng after December 31, 19 7, are aso appcabe (e cept to the
e tent nconsstent wth ths paragraph). For the purposes of ths paragraph,
premums or other consderaton pad wth property hed .s communty property
by the nsured and spouse under the aw of any State, Terrtory, or possesson
of the Unted States, or any foregn country, sha be consdered to have been pad
by the nsured, e cept such part thereof as may be shown to have been receved
as compensaton for persona servces actuay rendered by the decedent s spouse
or derved orgnay from such compensaton or from separate property of such
spouse. Wth respect to the meanng of property derved orgnay from such
compensaton or from separate property of the decedent s spouse, see secton
81.23. Secton 811(g)( ) provdes that the term ncdents of ownershp
ncudes ncdents of ownershp possessed by the decedent as manager of the
communty where the nsurance pocy s property hed as communty property
by the decedent and spouse.
(G) y strkng out the headng and frst sentence of the orgna
paragraph (b) and by nsertng n eu thereof the foowng:
(e) In case of decedent d|ng on or before October 21, 19 2. The reguatons
prescrbed under ths paragraph (e cept as otherwse ndcated n ths secton)
are appcabe onv n the case of decedents who ded on or before October 21,
19 2.
Par. 1 . There s nserted mmedatey precedng secton 81. 1 26
CFR 81. 1 the foowng:
S C. 362. PROP RTY PR IOUSLY T D. (R NU CT OP
19 8; N CT D PRIL 2, 19 8.)
(a) Secton 812(c) of the Interna Revenue Code (reatng to the
deducton for property prevousy ta ed) s hereby amended by addng
after the frst paragraph two new paragraphs to read as foows:
The foowng property sha not, for the purposes of ths subsecton,
be consdered as property wth respect to whch a deducton may be
aowed: ( ) property receved from a pror decedent who ded after
December 31, 19 7, and was at the tme of such death the decedent s
spouse, ( ) property receved by gft after the date of the enactment of
the Revenue ct of 19 8 from a donor who at the tme of the gft was the
decedent s spouse, and (C) property acqured n e change for property
descrbed n cause ( ) or ( ).
Where, under the provsons of secton 1000(f), a gft receved by the
decedent was consdered as made one-haf by the donor and one-haf by
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191
Regs. 10 , 81.2, etc.
the donor s spouse, one-haf of the gft sha be consdered as receved
by the decedent from each such spouse.
(b) Secton 812(c) s further amended by strkng out subsectons
(a) and (d) and nsertng n eu thereof subsectons (a), (d),and (e) .
Pab. 16. Secton 81. 1, as amended by Treasury Decson 239, and
by Treasury Decson 08 C. . 19 , 78 , approved October 1 ,19
26 CF 81. 1 , s further amended as foows:
( ) y nsertng at the end of (a) ( ) of the frst paragraph the
foowng sentence:
Where, under the provsons of secton 1000(f), a gft receved by the decedent
was consdered as made one-haf by the donor and one-haf by the donor s spouse,
the deducton may not be taken n respect of the haf of the gft consdered as
made by the donor uness a gft ta was pad by or on behaf of the donor, nor
n respect of the haf of the gft consdered us made by the donor s spouse uness
a gft ta was pad by or on behaf of such spouse.
( ) y nsertng mmedatey after (a) ( ) of the frst paragraph
the foowng:
(6) The property (or property gven n e change therefor) must not have been
receved (by gft or otherwse) from a pror decedent who ded after December
31, 19 7, and was at the tme of such death the decedent s spouse, and must not
have been receved by gft after pr 2, 10 8, from a donor who at the tme of
the gft was the decedent s spouse. Ths rue, added by secton 362 of the Rev-
enue ct of 19 8, s effectve even though the decedent (survvng spouse) ded
after December 31,19 7, and on or before pr 2.19 8 ; but the estate ta payabe
by the estate of such spouse s, nevertheess, not to e ceed the estate ta whch
woud have been mposed f the Revenue ct of 19 8 had not been enacted.
(C) y strkng from the second sentence of (b) (3) subsectons (a)
and ( /) and by nsertng n eu thereof the foowng: subsectons
(a), (rf),and ( ) .
(D) y nsertng n the ne t to the ast paragraph, mmedatey after
that sentence thereof whch reads n part Second: The baance of
12,800 , the foowng sentence:
(The deducton under secton 812(e) s not nvoved n ths e ampe.)
Par. 17. There s nserted mmedatey after secton 81. 7 26 CFR
81. 7 the foowng:
D DUCTIONS U STS, TC, TO SUR I ING SPOUS
S C. 812. P RT II, SU C PT R . N T ST T .
For the purpose of the ta the vaue of the net estate sha be deter-
mned, n the case of a ctzen or resdent of the Unted States by de-
ductng from the vaue of the gross estate

(e) equests, tc., to Survvng Spouse. ( s added by secton
361 (a) of the Revenue ct of 19 S, enacted pr 2, 19 , and amended
by Pubc Law 869, ghteth Congress, approved uy 1, 19 8.)
(1) owance of marta deducton.
( ) In Genera. n amount equa to the vaue of any In-
terest n property whch passes or has passed from the decedent
to hs survvng spouse, but ony to the e tent that such nterest
s ncuded n determnng the vaue of the gross estate.
( ) Lfe state or Other Termnabe Interest. Where, upon
the apse of tme, upon the occurrence of an event or contn-
gency, or upon the faure of an event or contngency to occur,
such nterest passng to the survvng spouse w termnate or
fa, no deducton sha be aowed wth respect to such nterest
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Regs. 10 , 81.2, etc.
192
() f an nterest n such property passes or has passe
(for ess than an adequate and fu consderaton n money
or money s worth) from the decedent to any person other
than such survvng spouse (or the estate of such spouse) ;
and
() f by reason of such passng such person (or hs
hers or assgns) may possess or en|oy any part of such
property after such termnaton or faure of the nterest
so passng to the survvng spouse;
and no deducton sha be aowed wth respect to such nterest
(even f such deducton s not dsaowed under causes () and
(11))
() If such Interest s to be acqured for the survvng
spouse, pursuant to drectons of the decedent, by hs e -
ecutor or by the trustee of a trust.
For the purposes of ths subparagraph, an nterest sha not be
consdered as an nterest whch w termnate or fa merey
because t Is the ownershp of a bond, note, or smar con-
tractura obgaton, the dscharge of whch woud not have the
effect of an annuty for fe or for a term.
(C) Interest n Undentfed ssets. Where the assets (n-
cuded n the decedent s gross estate) out of whch, or the pro-
ceeds of whch, an nterest passng to the survvng spouse
may be satsfed ncude a partcuar asset or assets wth re-
spect to whch no deducton woud be aowed f such asset or
assets passed from the decedent to such spouse, then the vaue
of such nterest passng to such spouse sha, for the purposes
of subparagraph ( ), be reduced by the aggregate vaue of such
partcuar assets.
(D) Interest of Spouse Condtona on Survva for Lmted
Perod. For the purposes of subparagraph ( ) an nterest
passng to the survvng spouse sha not be consdered as an
nterest whch w termnate or fa upon the death of such
spouse f
() such death w cause a termnaton or faure of
such nterest ony f t occurs wthn a perod not e ceedng
s months after the decedent s death, or ony f t occurs
as a resut of a common dsaster resutng n the death of
the decedent and the survvng spouse, or ony f t occurs
n the case of ether such event; and
() such termnaton or faure does not n fact occur.
( ) auaton of Interest Passng to Survvng Spouse.
In determnng for the purposes of subparagraph ( ) the vaue
of any nterest n property passng to the survvng spouse for
whch a deducton s aowed by ts subsecton
() there sha be taken nto account the effect whch a
ta mposed by ths chapter, or any estate, successon,
egacy, or nhertance ta , has upon the net vaue to the
survvng spouse of such nterest; and
() where such nterest or property s ncumbered n
any manner, or where the survvng spouse ncurs any ob-
gaton mposed by the decedent wth respect to the passng
of such nterest, such ncumbrance or obgaton sha be
taken nto account n the same manner as f the amount
of a gft to such spouse of such Interest were beng deter-
mned.
(F) Trust Wth Power of ppontment n Survvng
Spouse. In the case of an nterest n property passng from the
decedent n trust, f under the terms of the trust hs survvng
spouse s entted for fe to a the ncome from the corpus of the
trust, payabe annuay or at more frequent ntervas, wth
power n the survvng spouse to appont the entre corpus free
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193
Regs. 10 , 81.2, etc.
of the trust (e ercsabe n favor of such survvng spouse, or of
the estate of such survvng spouse, or n favor of ether, whether
or not n each case the power s e ercsabe n favor of others),
and wth no power n any other person to appont any part of
the corpus to any person other than the survvng spouse
() the nterest so passng sha, for the purposes of sub-
paragraph ( ), be consdered as passng to the survvng
spouse, and
(11) no part of the Interest so passng sha, for the
purposes of subparagraph ( ) (), be consdered as passng
to any person other than the survvng spouse.
Ths subparagraph sha be appcabe ony f, under the terms
of the trust, such power n the survvng spouse to appont the
corpus, whether e ercsabe by w or durng fe, s e ercsabe
by such spouse aone and n a events.
(G) Lfe Insurance or nnuty Payments Wth Power of
ppontment n Survvng Spouse. In the case of an Interest n
property passng from the decedent consstng of proceeds under
a fe nsurance, endowment, or annuty contract, f under the
terms of the contract such proceeds are payabe n nsta-
ments or are hed by the nsurer sub|ect to an agreement to
pay nterest thereon (whether the proceeds, upon the termna-
ton of any Interest payments, are payabe n a ump sum or
n annua or more frequent Instaments), and such nstament
or nterest payments are payabe annuay or at more frequent
ntervas, commencng not ater than thrteen months after
the decedent s death, and a amounts payabe durng the 111
of the survvng spouse are payabe ony to such spouse, an
such spouse has the power to appont a amounts payabe
under such contract (e ercsabe n favor of such survvng
spouse, or of the estate of such survvng spouse, or n favor
of ether, whether or not In each case the power s e ercsabe n
favor of others), wth no power n any other person to appont
to any person other than the survvng spouse any part of the
amounts payabe under such contract
() such proceeds sha, for the purposes of subparagraph
( ), be consdered as passng to the survvng spouse, and
(II) no part of such proceeds sha, for the purposes of
subparagraph (P )(), be consdered as passng to any
person other than the survvng spouse.
Ths subparagraph sha be appcabe ony If. under the terms
of the contract, such power n the survvng spouse to app nt,
whether e ercsabe by w or durng fe, Is e ercsabt by
such spouse aone and In a events.
( ) Lmtaton on ggregate of Deductons. The aggregate
amount of the deductons aowed under ths paragraph (com-
puted wthout regard to ths subparagraph) sha not e ceed 0
per centum of the vaue of the ad|usted gross estate, as defned n
paragraph (2).
(2) Computaton of ad|usted gross estate.
( ) Genera Rue. cept as provded n subparagraph ( )
of ths paragraph the ad|usted gross estate sha, for the purposes
of paragraph (1) ( ), be computed by subtractng from the en-
tre vaue of the gross estate the aggregate amount of the deduc-
tons aowed by subsecton (b) of ths secton.
( ) Speca Rue n Cases Invovng Communty Property.
If the decedent and hs survvng spouse at any tme hed prop-
erty as communty property under the aw of any State, Terr-
tory, or possesson of the Unted States, or of any foregn coun-
try, then the ad|usted gross estate sha, for the purposes of para-
graph (1)( ), be determned by subtractng from the entre
vaue of the gross estate the sum of:
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Regs. 10 , 81.2, etc. 19
() the vaue of property whch Is at the tme of the death
of the decedent hed as such communty property; and
(11) the vaue of property transferred by the decedent
durng hs fe, f at the tme of such transfer the property
was hed as suc communty property; and
() the amount recevabe as nsurance under poces
upon the fe of the decedent to the e tent purchased wth
premums or other consderaton pad out of property hed
as such communty property; and
(v) an amount whch bears the same rato to the aggre-
gate of the deductons aowed under subsecton (b) of ths
secton whch the vaue of the property ncuded n the gross
estate, dmnshed by the amount subtracted under causes
() , (), and () of ths subparagraph, bears to the entre
vaue of the gross estate.
For the purposes of causes (), (), and () communty prop-
erty (e cept property whch s consdered as communty prop-
erty soey by reason of the provsons of subparagraph (C) of
ths paragraph) sha be consdered as not hed as such com-
munty property as of any moment of tme, f, n the case of the
death of the decedent at such moment, such property (and not
merey one-haf thereof) woud be or woud have been ncudbe
n determnng the vaue of hs gross estate wthout regard
to the provsons of secton 811(e) (2). The amount to be sub-
tracted under cause (), (),or () sha not e ceed the vaue
of the nterest n the property descrbed theren whch s In-
cuded n determnng the vaue of the gross estate.
(C) Same Converson Into Separate Property.
(1) If durng the caendar year 19 2 or after the date of
the enactment of the Revenue ct of 19 8, property hed
as such communty property (uness consdered by reason
of subparagraph ( ) of ths paragraph as not so hed) was
by the decedent and the survvng spouse converted, by one
transacton or a seres of transactons, nto separate prop-
erty of the decedent and hs spouse (ncudng any form of
coownershp by them), the separate property so acqured
by the decedent and any property acqured at any tme by
the decedent n e change therefor (by one e change or a
seres of e changes sha, for the purposes of causes (),
() , and () of subparagraph ( ), be consdered as hed
as such communty property.
() Where the vaue (at the tme of such converson) of
the separate property so acqured by the decedent e ceeded
the vaue (at such tme) of the separate property so ac-
qured by the decedent s spouse, the rue n cause () sha
be apped ony wth respect to the same porton of such
separate property of the decedent as the porton whch the
vaue (as of such tme) of such separate property so
acqured by the decedent s spouse s of the vaue (as of such
tme) of the separate property so acqured by the decedent.
(3) Defnton. For the purposes of ths subsecton an nter-
est n property sha be consdered as passng from the decedent
to any person f and ony f
( ) such nterest s bequeathed or devsed to such person
by the decedent; or
( ) such nterest s nherted by such person from the
decedent; or
(C) such nterest s the dower or curtesy nterest (or statu-
tory nterest n eu thereof) of such person as survvng spouse
of the decedent; or
(D) such nterest has been transferred to such person by
the decedent at any tme; or
( ) such nterest was, at the tme of the decedent s death,
hed by such person and the decedent (or by them and any
other person) n |ont ownershp wth rght of survvorshp; or
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19
Regs. 10 , 81.2, etc.
(F) the decedent had a power (ether aone or n con|uncton
wth any person) to appont such nterest and f he apponts
or has apponted such nterest to such person, or f such per-
son takes such nterest n defaut upon the reease or non-
e ercse of such power; or
(G) such nterest conssts of proceeds of nsurance upon the
the fe of the decedent recevabe by such person.
cept as provded n subparagraph (F) or (G) of paragraph (1),
where at the tme of the decedent s death t s not possbe to ascer-
tan the partcuar person or persons to whom an nterest n
property may pass from the decedent, such nterest sha, for the
purposes of causes () and () of subparagraph ( ) of paragraph
(1), be consdered as passng from the decedent to a person other
than the survvng spouse.
( ) Dscamebs.
( ) y Survvng Spouse. If under ths subsecton an n-
terest woud, n the absence of a dscamer by the survvng
spouse, be consdered as passng from the decedent to such
spouse, and f a dscamer of such Interest s made by such
spouse, then such nterest sha, for the purposes of ths sub-
secton, be consdered as passng to the person or persons
entted to receve such nterest as a resut of the dscamer.
( ) Dscamer by ny Other Person. If under ths sub-
secton an nterest woud, n the absence of a dscamer by any
person other than the survvng spouse, be consdered as pass-
ng from the decedent to such person, and f a dscamer of
such nterest s made by such person and as a resut of such
dscamer the survvng spouse entted to receve such n-
terest, then such nterest sha, for the purposes of ths subsec-
ton, be consdered as passng, not to the survvng spouse,
but to the person who made the dscamer, n the same manner
as f the dscamer had not been made.
S C. 361. M RIT L D DUCTION. (R NU CT OF 19 8;
N CT D PRIL 2, 19 8.)

(b) The amendment made by subsecton (a) of ths secton sha be
appcabe ony wth respect to estates of decedents dyng after December
31, 19 7.
OINT R SOLUTION. (PU LIC L W 869, IG TI T CONGR SS,
S COND S SSION, PPRO D ULY 1, 19 8.)

Sec. 2. The amendment made by ths |ont resouton sha be app-
cabe wth respect to estates of decedents dyng after December 31, 19 7.
Sec. 81. 7a. equests, tc., to Subvvng Spouse. (a) owance of marta
deducton. In the case of the estate of a ctzen or resdent of the Unted States
dyng after December 31, 19 7, there may be deducted the vaue of any property
nterest (e cept as otherwse provded n secton 81. 7b and 81. 7d) whch passed
from the decedent to hs survvng spouse. Such deducton s herenafter re-
ferred to as the marta deducton. The marta deducton s generay not
avaabe n case the decedent s gross estate conssts e cusvey of property hed
by hm and hs survvng spouse as communty property under the aw of any
State, Terrtory, or possesson of the Unted States, or any foregn country.
(See secton 81. 7d.) The Interna Revenue Code does not authorze a marta
deducton In the case of the estate of a nonresdent not a ctzen of the Unted
States. owever, f the decedent was a ctzen or resdent, hs estate s not
deprved of the rght to the marta deducton by reason of the fact that hs
survvng spouse was a nonresdent not a ctzen.
In order to obtan the marta deducton wth respect to any property nterest
the e ecutor must estabsh the foowng facts:
(1) That the decedent was survved by hs spouse;
(2) That such property nterest passed from the decedent to such spouse
(see paragraphs (6) to (17), ncusve, of ths secton) ;
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Regs. 10 , 81.2, etc.
196
(3) That such property nterest s a deductbe nterest (see secton
81. 7b) ;
( ) The vaue of such property nterest (see secton 81. 7c) ; and
( ) The vaue of the ad|usted gross estate (see secton 81. 7d).
Where the order of deaths of the decedent and hs spouse cannot be estabshed
by proof, a presumpton (whether supped by oca aw, the decedent s w,
or otherwse) that the decedent was survved by hs spouse w be recognzed
as satsfyng requrement (1) ony to the e tent that t has the effect of gvng
to such spouse an nterest n property ncudbe n her gross estate under secton
811. Under such crcumstances, f an estate ta return s requred to be fed
for the estate of the decedent s spouse, the marta deducton w not be aowed
n the fna audt of the estate ta return of the decedent s estate wth respect to
any property nterest whch has not been fnay determned to be ncudbe n
the gross estate of hs spouse.
For convenence the survvng spouse s generay referred to n the femnne
gender, but f the decedent s a woman the reference s to her survvng husband.
(6) Defntons. (1) Passed from the decedent. s used n ths and the
three succeedng sectons, the e pressons passed from the decedent, passed
from the decedent to hs survvng spouse, and passed from the decedent to a
person other than hs survvng spouse, have the meanngs stated n ths para-
graph. cept as otherwse ndcated n subparagraphs (2) and (3) of ths
paragraph, the foowng rues are appcabe n determnng the person to whom
any property nterest passed from the decedent :
() Property nterests devovng upon any person (or persons) as sur-
vvng coowner wth the decedent under any |ont ownershp wheren the
rght of survvorshp e sted are consdered as havng passed from the
decedent to such person (or persons).
() Property nterests at any tme sub|ect to decedent s power to appont
(whether aone or n con|uncton wth any person) are consdered as
havng passed from the decedent to the appontee under hs e ercse of the
power, or, n case of reease or none ercse, as havng passed from the
decedent to the taker n defaut of e ercse.
() The dower or curtesy nterest (or statutory Interest n eu thereof)
of the decedent s survvng spouse s consdered as havng passed from the
decedent to such spouse.
(v) In the case of nsurance upon the fe of the decedent, the proceeds
are consdered as havng passed from the decedent to the person who, at the
tme of the decedent s death, was entted to receve such proceeds.
(v) Sub|ect to the rues stated n subdvsons () to (v), ncusve, of
ths subparagraph, any property nterest transferred durng fe, bequeathed
or devsed by the decedent, or nherted from the decedent, s consdered as
havng passed to the person to whom he transferred, bequeathed, or devsed
such nterest, or to the person who nherted such nterest from hm.
It s comprehended by the foregong defnton that where the survvng spouse
had, mmedatey pror to the decedent s death, merey an e pectant nterest n
property hed by her and the decedent under communty property aws, such
nterest s consdered as havng passed from the decedent to such spouse. s
to the crcumstances under whch the nterest of the survvng spouse under
communty property aws s regarded as merey e pectant, see paragraph
(6) of secton 81. 7d.
(2) Passed from the decedent to hs surmvng spouse. In genera, the
defnton stated n subparagraph (1) of ths paragraph s appcabe n deter-
mnng the property nterest whch passed from the decedent to hs survvng
spouse. Speca rues are provded, however, n the case of certan trusts
wth power of appontment n the survvng spouse and n the case of proceeds
hed by the nsurer under a fe nsurance, endowment, or annuty contract,
wth power of appontment n the survvng spouse. ( s to such rues, see
paragraphs (c) and (d) of ths secton.) s to the rues appcabe In case
of dscamer by the survvng spouse or by any other person, n case of eecton
by the survvng spouse, and n case of a controversy nvovng the decedent s
w, see paragraphs (e) to (ff), ncusve, of ths secton.
cept to the e tent otherwse provded n paragraphs (c) and (d) of ths
secton, the marta deducton may be taken wth respect to a property nterest
ony f t passed to the survvng spouse as benefca owner. For ths purpose,
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Regs. 10 , 81.2, etc.
where a property Interest passed from the decedent In trust, such nterest s
consdered to have passed from hm to hs survvng spouse to the e tent of her
benefca nterest theren. The deducton may not be taken wth respect to a
property nterest whch passed to such spouse merey as trustee, or sub|ect to a
bndng agreement by such spouse to dspose of guch nterest n favor of a thrd
person.
The foowng are gven as Iustratve: () property Interest bequeathed
In trust by (the decedent) s consdered as havng passed from hm to W (hs
survvng spouse) If the trust ncome s payabe to W for fe and upon her
death the corpus s dstrbutabe to her e ecutors or admnstrators, or f W
s entted to the trust ncome for a term of years foowng whch the corpus s
to be pad to W or her estate, or f the trust Income Is to be accumuated for a
term of years or for W s fe and the augmented fund pad to W or her estate,
or f the terms of the trust meet the requrements of paragraph (c) of ths
secton; () where devsed property to for fe wth remander absoutey
to W or her estate, the remander nterest s consdered to have passed from
to W; () proceeds of nsurance upon the fe of are consdered as havng
passed from to W f the terms of the contract meet the requrements of para-
graph (d) of ths secton, or f under the terms of the contract the proceeds are
payabe to W n a ump sum, or are payabe n nstaments to W for fe and
after her death any remanng nstaments are payabe to her estate, or f
nterest on the proceeds s payabe to W for fe and upon her death the prncpa
amount s payabe to her estate. owever, wth respect to the foregong us-
tratons whch nvove nterests whch are dstrbutabe to W s estate (or to
her e ecutors or admnstrators) n the event of the termnaton of a trust or of
a precedent Interest at or after her death, t shoud be noted that the nterest
so dstrbutabe s to be consdered as havng passed from to W ony If such
nterest woud be ncudbe n her gross estate under secton 811(a).
(3) Passed from the decedent to a person other than hs survvng spouse.
The e presson passed from the decedent to a person other than hs survvng
spouse refers to any property nterest whch, under the defnton stated n sub-
paragraph (1) of ths paragraph, s consdered as havng passed from the de-
cedent and whch, under the rues referred to n subparagraph (2) of ths para-
graph, Is not consdered as havng passed from the decedent to hs survvng
spouse.
(c) Trust wth power of appontment n survvng spouse. In the case of
property nterests whch passed from the decedent to a trust, the terms of whch
satsfy the fve condtons stated n ths paragraph, the e presson passed from
the decedent to hs survvng spouse embraces not ony the benefca nterest
theren of such spouse but aso the nterest theren sub|ect to her power to ap-
pont. ( s to the treatment of trusts not meetng such condtons, see paragraph
(6) (2) of ths secton.) The fve condtons whch must be satsfed by the
terms of the trust are as foows:
(1) The survvng spouse must be entted for fe to a the ncome from
the corpus of the trust.
(2) Such ncome must be payabe annuay or at more frequent ntervas.
(3) The survvng spouse must have the power, e ercsabe n favor of
hersef or of her estate, to appont the entre corpus free of the trust.
( ) Such power n the survvng spouse must be e ercsabe by such
spouse aone and (whether e ercsabe by w or durng fe) must be e er-
csabe n a events.
( ) The corpus of the trust must not be sub|ect to a power n any other
person to appont any part thereof to any person other than the survvng
spouse.
In determnng whether the above-stated condtons (1) to ( ), ncusve, are
satsfed by the terms of the trust, regard s to be had to the appcabe provsons
of the aw of the ursdcton governng the admnstraton of the trust. For
e ampe, sence of the trust as to the frequency of payment w not be regarded
as a faure to satsfy condton (2) In case the appcabe aw requres payment
to be made annuay or more frequenty.
The survvng spouse s entted for fe to a the ncome from the corpus of
the trust, wthn the meanng of secton 812(e) (1) (F), f the effect of the trust
s to gve her substantay that degree of benefca en|oyment of the trust prop-
erty durng her fe whch the prncpes of the aw of trusts accord to a person
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Regs. 10 , 81.2, etc.
198
who s unquafedy desgnated as the fe benefcary of a trust. Such degree
of en|oyment s gven ony f t was the decedent s ntenton, as manfested by
the terms of the trust nstrument and the surroundng crcumstances, that the
trust shoud produce for the survvng spouse durng her fe such an ncome, or
that the spouse shoud have such use of the trust property, as s consstent wth
the vaue of the trust corpus and wth ts preservaton. The desgnaton of the
spouse as soe ncome benefcary for fe w be suffcent to quafy the trust
uness the terms of the trust consdered as a whoe evdence an ntenton to de-
prve the spouse of the requste degree of en|oyment. In determnng whether
a trust evdences such ntenton the treatment requred or permtted wth re-
spect to ndvdua tems must be consdered n reaton to the entre system
provded for the admnstraton of the trust.
If the over-a effect of the trust s to gve to the survvng spouse such en-
forceabe rghts as w preserve to her the requste degree of en|oyment, t
s mmatera whether such resut s effected by rues specfcay stated n the
trust nstrument, or, n ther absence, by the rues for the management of the
trust property and the aocaton of recepts and e pendtures supped by the
State aw. For e ampe, where the State aw does not provde for amortzaton
of bond premum, a provson n the trust nstrument for such amortzaton by
approprate perodc charges to nterest w not dsquafy the trust.
The rues to be apped by the trustee n aocaton of recepts and e penses
between ncome and corpus must be consdered n reaton to the nature anr
e pected productvty of the assets passng n trust, the nature and frequency
of occurrence of the e pected recepts, and any provsons as to change n the
form of nvestments. Where t s evdent from the nature of the trust assets
and the rues provded for management of the trust that the aocaton to ncome
of such recepts as rents, ordnary cash dvdends and nterest w gve to the
spouse the substanta en|oyment durng fe requred by the statute, provsons
that such recepts as stock dvdends and proceeds from the converson of trust
assets sha be treated as corpus w not dsquafy the trust. Smary, pro-
vson for a depeton charge aganst Income n the case of trust assets whch
are sub|ect to depeton w not dsquafy the trust, uness the effect s to
deprve the spouse of the requste benefca en|oyment. The same prncpe
s appcabe n the case of deprecaton, trustees commssons, and other charges.
Provsons grantng admnstratve powers to the trustee w not have the
effect of dsquafyng the trust uness the grant of such powers evdences the
ntenton to deprve the survvng spouse of the benefca en|oyment requred
by the statute. Such ntenton w not be consdered to e st f the entre terms
of the nstrument are such that the oca courts w mpose reasonabe mta-
tons upon the e ercse of such powers. mong the powers whch f sub|ect to
such mtatons w not dsquafy the trust are the power to aocate recepts
between ncome and corpus, the power to determne the charges whch sha be
made aganst ncome and corpus, the power to appy the ncome for the beneft
of the spouse, and the power to retan the assets passng to the trust. For
e ampe, a power to retan trust assets whch consst substantay of unpro-
ductve property w not dsquafy f the appcabe rues for the admnstraton
of the trust requre the trustee to ether make the property productve or convert
t wthn a reasonabe tme. Nor w such a power dsquafy f such appcabe
rues requre the trustee to use the degree of udgment and care n the e ercse
of the power whch a prudent man woud use f he were owner of the trust
assets. power to retan a resdence for the spouse or other property for her
persona use w not dsquafy the trust.
trust w not quafy f ts prmary purpose s to safeguard property wthout
provdng the spouse wth the requred benefca en|oyment. Such trusts ncude
not ony trusts whch e pressy provde for the accumuaton of the ncome but
aso trusts whch ndrecty accompsh a smar purpose. For e ampe, assume
that the corpus of a trust conssts substantay of property whch s not key
to be ncome producng durng the fe of the survvng spouse and that such
spouse cannot compe the trustee to convert or otherwse dea wth the property
as descrbed above. Such a trust w not quafy uness the trustee s drected
to provde the requred benefca en|oyment, such as by payments to the spouse
out of other assets of the trust.
If the survvng spouse s entted to ony a porton of the trust ncome, or
has power to appont ony a porton of the corpus, the trust fas to satsfy
condtons (1) and (3), respectvey. owever, such condtons may be satsfed
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Regs. 10 , 81.2, etc.
by one or more of severa separate trusts created by the decedent. n undvded
nterest n property may consttute the corpus of a trust, and the w or a snge
trust nstrument may create more than one trust.
In the case of a trust created durng the decedent s fe, t s mmatera
whether the trust satsfed condtons (1) to ( ) pror to the decedent s death.
In the case of a trust whch may be termnated durng the fe of the survvng
spouse, under her e ercse of a power of appontment or by dstrbuton of the
corpus to her, the trust satsfes condton (1) f such spouse s entted to the
ncome unt the trust termnates.
trust fas to satsfy condton (1) f the ncome s requred to be accumuated
n whoe or n part or may be accumuated n the dscreton of any person other
than the survvng spouse, f the consent of any person other than the survvng
spouse s requred as a condton precedent to dstrbuton of the ncome, f any
person other than the survvng spouse has the power to ater the terms of the
trust so as to deprve such spouse of her rght to the ncome, or f any person
other than the survvng spouse s entted to any part of the ncome durng the
fe of such spouse. trust w not fa to satsfy condton (1) merey because
ts terms provde that the rght of the survvng spouse to the ncome sha not
be sub|ect to assgnment, aenaton, pedge, attachment or cams of credtors.
The terms entted for fe and payabe annuay or more frequenty, as
used n condtons (1) and (2), requre that under the terms of the trust the
ncome referred to must be currenty (at east annuay) dstrbutabe to the
spouse or that she must have such command over the ncome that t Is vrtuay
hers. Thus, condtons (1) and (2) are satsfed n ths respect f, under the
terms of the trust nstrument, the spouse has the rght e ercsabe annuay (or
more frequenty) to requre dstrbuton to hersef of the trust ncome, and other-
wse the trust ncome s to be accumuated and added to corpus. Smary, as
respects the ncome for the perod between the ast dstrbuton date and the
date of the spouse s death, t s suffcent f such ncome s sub|ect to the spouse s
power to appont.
trust s not to be regarded as fang to satsfy condtons (1) and (2)
merey because the spouse s not entted to the ncome from estate assets for
the perod pror to dstrbuton of such assets to the trustee, uness the e ecutor
s, by the decedent s w, authorzed or drected to deay such dstrbuton beyond
the perod reasonaby requred therefor. s to the vauaton of the property
nterest passng to the spouse n trust where the rght to ncome s postponed,
see secton 81. 7c(o).
In order to satsfy condtons (3) and ( ), the power of the survvng spouse
to appont the entre corpus free of the trust must fa wthn one of the foowng
categores:
() power so to appont fuy e ercsabe n her own favor at any tme
foowng the decedent s death (as, for e ampe, an unmted power to
nvade).
() power so to appont e ercsabe n favor of her estate. Such power,
f e ercsabe durng fe, must be fuy e ercsabe at any tme durng fe, or,
f e ercsabe by w, must be fuy e ercsabe rrespectve of the tme of her
death.
() combnaton of the powers descrbed under () and (). For
e ampe, the survvng spouse may unt she attans the age of 0 years have
a power to appont to hersef and thereafter have a power to appont to her
estate. owever, condton ( ) s not satsfed uness rrespectve of when
the survvng spouse may de the trust corpus w at the tme of her death be
sub|ect to one or the other such power.
The power n the survvng spouse must be a power to appont the corpus to
hersef as unquafed owner or to appont the corpus as a part of her estate, that
s, n effect, to dspose of t to whomsoever she peases. Thus, f the survvng
spouse entered nto a bndng agreement wth the decedent to e ercse the power
ony n favor of ther ssue, condton (3) s not met. The trust w not be
regarded as fang to satsfy condton (3) merey because takers n defaut
of the survvng spouse s e ercse of the power are desgnated by the decedent.
The decedent may provde that, n defaut of e ercse of the power, the trust sha
contnue for an addtona perod.
In order for condton ( ) to be satsfed, the power n the survvng spouse
to appont the corpus to hersef or to her estate must be e ercsabe wthout the
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Regs. 10 , 81.2, etc.
200
|onder or consent of any other person. The power Is not e ercsabe In a
events, as requred by secton 812(e) (1) (F), f t can be termnated durng the
fe of the survvng spouse by any event other than her compete e ercse or
reease thereof. For e ampe, a power whch s not e ercsabe n the event
of the spouse s remarrage s not e ercsabe n a events.
The power n the survvng spouse s e ercsabe n a events ony f t e sts
mmedatey foowng the decedent s death. For e ampe, If the power gven
to the survvng spouse s e ercsabe durng fe, but cannot be effectvey
e ercsed pror to dstrbuton of the trust assets by the e ecutor to the trustee,
such power s not e ercsabe n a events. Smary, f the power s e ercsabe
by w, but cannot be effectvey e ercsed n the event the survvng spouse des
before recept of the trust assets by the trustee, such power s not e ercsabe
n a events. owever, the trust w not be dsquafed by the mere fact that,
n the event the power s e ercsed durng admnstraton of the estate, payment
of the assets to the appontee w be deayed for the perod of admnstraton.
If the power s n e stence at a tmes foowng the decedent s death, mta-
tons of a forma nature w not dsquafy. ampes of forma mtatons on
a power e ercsabe durng fe are requrements that e ercse must be n a
partcuar form, that t must be fed wth the trustee, that reasonabe notce
must be gven, or that reasonabe ntervas must eapse between successve parta
e ercses. ampes of forma mtatons on a power e ercsabe by w are that
t must be e ercsed by a w e ecuted by the survvng spouse after the decedent s
death or that e ercse must he by specfc reference to the power.
The trust w fa to satsfy condton ( ) f the decedent created a power n
the trustee, or n another person, to nvade the corpus of the trust for the beneft
of any person other than the survvng spouse. owever, ony powers n other
persons whch are n opposton to that of the survvng spouse w cause the
trust to fa to satsfy condton ( ). For e ampe, assume that a decedent
created a trust, desgnatng hs survvng spouse as ncome benefcary for fe
and as donee of a power to appont the corpus. The decedent further provded
that n the event the survvng spouse shoud de wthout havng e ercsed the
power, the trust shoud contnue for the fe of hs son wth power n such son
to appont the corpus. Snce the power n the son coud become e ercsabe ony
after the death of the survvng spouse, the trust s not regarded as fang to
satsfy condton ( ).
(d) Proceeds hed by the nsurer under a fe nsurance, endowment, or annuty
contract, wth power of appontment n survvng spouse. Secton 812(e) (1) (G)
provdes a speca rue n the case of a property nterest whch passed from the
decedent n the form of proceeds hed by the nsurer under the terms of a fe
nsurance, endowment, or annuty contract whch satsfy the fve condtons
herenafter stated. Wth respect to such proceeds, the e presson paused from
the decedent to hs survvng spouse embraces not ony the nterest of such
spouse under the contract but aso the nterest thereunder sub|ect to her power
to appont. The fve condtons whch must be satsfed by the terms of the
contract are as foows:
(1) The proceeds must be hed by the nsurer sub|ect to an agreement
ether to pay the proceeds n nstaments, or to pay nterest thereon, wth
a such amounts payabe durng the fe of the survvng spouse payabe
ony to her.
(2) Such nstaments or nterest must be payabe annuay, or more
frequenty, commencng not ater than 13 months after the decedent s death.
(3) The survvng spouse must have the power, e ercsabe n favor of
hersef or of her estate, to appont a amounts so hed by the nsurer.
( ) Such power n the survvng spouse must be e ercsabe by such spouse
aone and (whether e ercsabe by w or durng fe) must be e ercsabe
In a events.
( ) The amounts payabe under such contract must not be sub|ect to a
power n any other person to appont any part thereof to any person other
than the survvng spouse.
If the nterest of the survvng spouse under a fe nsurance, endowment, or
annuty contract s n proceeds hed by the nsurer whch do not, however,
represent the entre amount payabe under such contract, the provsons of
secton 812(e) (1) (G) nevertheess appy to such proceeds so hed to whch a
fve of the above condtons appy. For e ampe, an nsurance contract on the
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Regs. 10 , 81.2, etc.
decedent s fe may provde for payment of the proceeds Into two funds to be
hed by the nsurer. In such case, f a fve of the above condtons are satsfed
wth respect to a amounts payabe nto one such fund, then the speca rue of
secton 812(e) (1) (G) s appcabe to the proceeds hed n such fund.
The provsons of secton 812(e) (1) (G) are appcabe wth respect to a prop-
erty nterest whch passed from the decedent n the form of proceeds of a pocy
of nsurance upon the decedent s fe, a pocy of nsurance upon the fe of a
person who predeceased the decedent, a matured endowment pocy, or an an-
nuty contract, but ony n case such proceeds are to be hed by the nsurer. Wth
respect to proceeds under any such contract whch are to be hed by a trustee, wth
power of appontment n the survvng spouse, see paragraph (c) of ths secton.
s to the treatment of proceeds not meetng the requrements of such paragraph
(c) or of ths paragraph, see paragraph (6) of ths secton.
In the case of a contract under whch payments by the nsurer commenced dur-
ng the decedent s fe, t s mmatera whether condtons (1) to ( ) were sats-
fed pror to the decedent s death.
Condtons (1) and (2) are satsfed f, under the terms of the contract, the
spouse as the rght e ercsabe annuay (or more frequenty) to requre dstr-
buton to hersef of nstaments of the proceeds, or nterest on the proceeds, as
the case may be, and otherwse such nstaments or nterest s to be accumuated
and hed by the nsurer pursuant to the terms of the contract. contract whch
otherwse requres the nsurer to mnke annua or more frequent payments to the
survvng spouse foowng the decedent s death, w not be dsquafed merey
because the survvng spouse must compy wth certan formates n order to
obtan the frst payment. For e ampe, the contract may satsfy condtons (1)
and (2) even though t requres the survvng spouse to furnsh proof of death
before the frst payment s made. Condton (1) s satsfed where nterest on
the proceeds s payabe, annuay or more frequenty, for a term, or unt the
occurrence of a specfed event, foowng whch the proceeds are to be pad n
annua or more frequent nstaments.
In determnng whether the terms of the contract satsfy condtons (3), ( ),
and ( ), the prncpes stated n paragraph (c) of ths secton are appcabe.
s stated n such paragraph (c), the survvng spouse s power to appont s
e ercsabe n a events ony f t s n e stence mmedatey foowng the de-
cedent s death. For e ampes of forma mtatons on the power whch w not
dsquafy the contract, see such paragraph (c). Where the power s e ercsabe
from the moment of the decedent s death, the contract s not dsquafed merey
because the nsurer may requre proof of the decedent s death as a condton to
makng payment to the appontee. Where the submsson of proof of the decedent s
death s a condton to the e ercse of the power, the power w not be consdered
e ercsabe n a events uness, n the event the survvng spouse had ded m-
medatey foowng the decedent, her power to appont woud have been consdered
to e st at the tme of her death, wthn the meanng of secton 811(f) (3). (See
secton 81.2 (b) (1).)
It s suffcent for the purposes of condton (3) f the survvng spouse has the
unquafed power, e ercsabe n favor of hersef or her estate, to appont a
amounts hed by the nsurer whch are payabe after her death. Such power to
appont need not e tend to nstaments or nterest whch w be pad to such
spouse durng her fe.
It s not necessary that the phrase power to appont be used n the contract.
For e ampe, condton (3) s sntsfed by terms of a contract whch gve the
survvng spouse a rght whch s n substance and effect a power to appont to
hersef or her estate, such as a rght to wthdraw the amount remanng n the
fund hed by the nsurer, or a rght to drect that any amount hed by the nsurer
under the contract at her death sha be pad to her estate.
(e) ffect of dscamer. Secton 812(e)( )( ) provdes that where the
survvng spouse makes a dscamer of any property nterest whch woud
otherwse be consdered as havng passed from the decedent to such spouse,
such dscamed nterest s to be consdered as havng passed from the decedent
to the person or persons entted to receve such nterest as a resut of the
dscamer. dscamer s a compete and unquafed refusa to accept the
rghts to whch one s entted. It s, therefore, necessary, for the purpose
of secton 812(e) ( ) ( ), to dstngush between the survvng spouse s dscamer
of a property nterest and her acceptance and subsequent dsposa of a property
nterest For e ampe, f proceeds of nsurance are payabe to the survvng
8 16 19 1
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Regs. 10 , 81.2, etc.
202
spouse and she refuses such proceeds whch consequenty pass to an aternatve
benefcary desgnated by the decedent, the provsons of secton 812(e) ( ) ( .)
are appcabe and the proceeds are consdered as havng passed from the decedent
to the aternatve benefcary. On the other hand, f the survvng spouse
drects the nsurance company to hod the proceeds at nterest durng her fe
and, upon her death, to pay the prncpa sum to another person desgnated by
her, thus effectng a transfer of a remander nterest theren, such proceeds are
consdered as havng passed from the decedent to such spouse.
owever, under the provsons of secton 812(e) ( )( ), t s unnecessary to
dstngush, for the purposes of the marta deducton, between a dscamer
by a person other than the survvng spouse and a transfer by such person. Such
secton provdes that where the survvng spouse becomes entted to receve an
nterest n property from the decedent as a resut of a dscamer made by
some other person, such nterest s, nevertheess, consdered as havng passed
from the decedent, not to the survvng spouse, but to the person who made tbe
dscamer, as though the dscamer had not been made. Where, as a resut
of a dscamer made by a person other than the survvng spouse, a property
nterest passes to a trust whch meets the condtons set forth n paragraph (c)
of ths secton, the rue stated n the precedng sentence appes, not ony wth
respect to the porton of such nterest whch benefcay vests n the survvng
spouse, but aso wth respect to the porton over whch such spouse acqures
a power to appont. Such rue appes aso n the case of proceeds under a fe
nsurance, endowment, or annuty contract, whch, as a resut of a dscamer
made by a person other than the survvng spouse, are hed by the nsurer
sub|ect to the condtons set forth n paragraph (d) of ths secton.
(f) ffect of eecton by survvng spouse. The foowng rues are appcabe
where the survvng spouse may eect between a property nterest offered to
her under the decedent s w or other nstrument and a property nterest to
whch she s otherwse entted (such as dower, a rght n the decedent s estate,
or her nterest under communty property aws) of whch adverse dsposton
was attempted under such w or other nstrument. If the survvng spouse
eects to take aganst the w or other nstrument, then (1) the property nterest
offered thereunder s not consdered as havng passed from the decedent to hs
survvng spouse and (2) the dower or other property nterest retaned by her
s consdered as havng so passed ony f t otherwse so quafes under ths
secton. If the survvng spouse eects to take under the w or other nstru-
ment, then () the dower or other property nterest renqushed by her s
not consdered as havng passed from the decedent to hs survvng spouse
(rrespectve of whether t otherwse comes wthn the defnton stated n
paragraph (6) of ths secton) and () the nterest taken under the w or
other nstrument s consdered as havng so passed ony f t otherwse so quafes
under ths secton. s to the vauaton of the property nterest taken under
the w or other nstrument, see paragraph (6) of secton 81. 7c.
(g) W contests. If as a resut of a controversy nvovng the decedent s
w, or nvovng any bequest or devse thereunder, hs survvng spouse assgns
or surrenders a property nterest n settement of such controversy, the nterest
so assgned or surrendered s not consdered as havng passed from the
decedent to hs survvng spouse.
If as a resut of a controversy nvovng the w, or nvovng any bequest
or devse thereunder, a property nterest s assgned or surrendered to the
survvng spouse, the nterest so acqured w be regarded as havng passed
from the decedent to hs survvng spouse ony f such assgnment or surrender
was a bona fde recognton of enforceabe rghts of the survvng spouse In
the decedent s estate. Such a bona fde recognton w be presumed where such
assgnment or surrender was pursuant to a decson of a oca court upon the
merts n an adversary proceedng foowng a genune and actve contest. ow-
ever, such a decree w be accepted ony to the e tent that the court passed upon
the facts upon whch deductbty of the property nterest depends. If such
assgnment or surrender was pursuant to a decree rendered by consent, or pur-
suant to an agreement not to contest the w or not to probate the w, t w not
necessary be accepted as a bona fde evauaton of the rghts of the spouse.
Sec. 81. 7b. Nondeductbe Interests. (a) Genera. The property nterests
whch passed from the decedent to hs survvng spouse (as set forth n secton
81. 7a) fa wthn two genera categores: (1) those wth respect to whch the
marta deducton s authorzed, and (2) those wth respect to whch the marta
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203 egs. 10 , 81.2, etc.
deducton Is not authorzed. Such categores are herenafter referred to as
deductbe nterests and nondeductbe nterests, respectvey. s to the
severa casses of nondeductbe nterests, see paragraphs (6) to f), ncusve,
of ths secton. Sub|ect to the mtaton set forth n secton 81. 7d, the mar-
ta deducton s equa n amount to the aggregate vaue of the deductbe
nterests, that s, the property nterests whch passed from the decedent to
hs survvng spouse and do not fa wthn any of the casses descrbed In such
paragraphs (6) to (/).
(b) Interests not ncuded n gross estate. ny property Interest whch passed
from the decedent to hs survvng spouse s a nondeductbe nterest to the
e tent t s not ncuded n the decedent s gross estate.
(c) Interests wth respect to whch a deducton s taken under secton 812(b).
Where a deducton taken under secton 812(b) specfcay pertans to a property
nterest whch passed from the decedent to hs survvng spouse, such nterest s,
to the e tent of such deducton under secton 812(b), a nondeductbe nterest.
Thus, a property nterest whch passed from the decedent to hs survvng spouse
n satsfacton of a deductbe cam of such spouse aganst the estate s, to the
e tent of the cam, a nondeductbe nterest. (See paragraph (6) of secton
81. 7c.) If durng settement of the estate a oss deductbe under secton 812(b)
occurs wth respect to a property nterest, then such nterest s, to the e tent of
the deductbe oss, a nondeductbe nterest for the purposes of the marta
deducton. mounts deducted under secton 812(b)( ) for any aowance for
the support of the survvng spouse durng the settement of the estate, or under
secton 812(b) (2) for commssons aowed to the survvng spouse as e ecutor
do not come wthn the defnton of nterests whch passed from the decedent
to hs survvng spouse. s to the vauaton, for the purpose of the marta
deducton, of any property nterest whch passed from the decedent to hs sur-
vvng spouse sub|ect to a mortgage or other ncumbrance, see paragraph (6)
of secton 81. 7c.
(d) Interest n property whch another person may possess or en|oy. Secton
812(e) (1) ( ) provdes that no marta deducton sha be aowed wth respect
to certan property nterests (referred to generay as termnabe nterests )
whch passed from the decedent to hs survvng spouse, n case
(1) n nterest n the same property passed at any tme (for ess than an
adequate and fu consderaton n money or money s worth) from the
decedent to any person other than such spouse (or the estate of such spouse),
and
(2) y reason thereof, such person (or hs hers or assgns) may possess
or en|oy any part of such property after the termnaton or faure of the
nterest theren whch passed from the decedent to hs survvng spouse.
The foregong provson s appcabe ony where nterests n the same property
passed from the decedent both to hs survvng spouse, and to some other person
(for ess than an adequate and fu consderaton n money or money s worth),
and s appcabe rrespectve of whether both such nterests passed from the
decedent at the same tme or under the same Instrument. Under such crcum-
stances, f the other person to whom an nterest passed may, by reason thereof,
possess or en|oy any part of the property after the termnaton or faure of the
nterest theren whch passed from the decedent to hs survvng spouse, the
atter Interest s a nondeductbe nterest. s to the meanng of the term
passed from the decedent to a person other than hs survvng spouse, see
paragraph (b) of secton 81. 7a.
In determnng whether an nterest n the same property passed from the
decedent both to hs survvng spouse and to some other person, a dstncton s
to be drawn between property, as such term s used n secton 812(e), and an
nterest n property. The term property refers to the underyng property
n whch varous nterests e st; each such nterest s not for ts purpose to be
consdered as property.
Interests whch passed to a person other than the survvng spouse Incude
nterests so passng under the decedent s e ercse, reease, or noue ercse of a
nonta abe power to appont. It Is mmatera whether the property nterest
whch passed from the decedent to a person other than hs survvng spouse s
ncuded n the decedent s gross estate.
The term person other than hs survvng spouse ncudes the possbe un-
ascertaned takers of a property nterest, as, for e ampe, the members of a cass
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Regs. 10 , 81.2, etc.
20
to be ascertaned In the future. s another e ampe, assume that the decedent
created a power of appontment over a property nterest, whch does not come
wthn the purvew of paragraph (c) or (d) of secton 81. 7a. In such a case,
the term person other than hs survvng spouse refers to the possbe ap-
pontees and possbe takers n defaut (other than the spouse) of such property
nterest. Whether there s a possbty that the person other than hs sur-
vvng spouse (or the hers or assgns of such person) may possess or en|oy the
property foowng termnaton or faure of the nterest theren whch passed
from the decedent to hs survvng spouse s to be determned as of the tme of
the decedent s death.
In the foowng e ampes t s assumed that the property nterest whch
passed from the decedent to a person other than hs survvng spouse was not
for an adequate and fu consderaton n money or money s worth:
() (the decedent) devsed rea property to W (hs survvng wfe) for
fe, wth remander to and hs hers. The nterest whch passed from
to W s a nondeductbe nterest snce t w termnate upon her death
and (or hs hers or assgns) w thereafter possess or en|oy the property.
() devsed rea property to W for fe, and created n W a power, .
e ercsabe by w, to appont the remander nterest to any person. In
defaut of appontment by W, the remander nterest was to go to and
hs hers. ssumng that under the oca aw W dd not take the rea
property as absoute owner, nor as trustee of a trust meetng the requre-
ments of secton 81. 7a(c), the nterest whch passed from to W s a
nondeductbe nterest snce such nterest w termnate upon her death
and (or hs hers or assgns) may thereafter possess or en|oy the prop-
erty. ( s to cases n whch a deductbe nterest may e st where a fe
nterest s couped wth a power to appont under a trust or nsurance con-
tract, see paragraphs (c) and (d) of secton 81. 7a.)
() bequeathed the resdue of hs estate n trust for the beneft of W
and . The trust ncome s to be pad to W for fe, and upon her death the
corpus s to be dstrbuted to or hs ssue. owever, f shoud de
wthout ssue, eavng W survvng, the corpus s then to be dstrbuted to
W. The nterest whch passed from to W s a nondeductbe nterest
snce t w termnate n the event of her death f or hs ssue survve, and
or hs ssue w thereafter possess or en|oy the property.
(v) durng hs fetme purchased an annuty contract provdng for
payments to hmsef for fe and then to W for fe f she shoud survve hm.
Upon the death of the survvor of and W, the e cess, f any, of the cost of
the contract over the annuty payments theretofore made was to be refunded
to . The nterest whch passed from to W s a nondeductbe nterest
snce may possess or en|oy a part of the property foowng the termna-
ton of the nterest of W. If, however, the contract provded for no refund
upon the death of the survvor of and W. or provded that any refund was
to go to the estate of the survvor, then the nterest whch passed from
to W s (to the e tent t s ncuded n s gross estate) a deductbe
nterest.
(v) devsed property to W and as |ont tenants wth rght of survvor-
shp. The nterest whch passed from to W s a nondeductbe nterest
snce, If the tenancy s not severed and survves W, the nterest of W w
termnate and w contnue to possess or en|oy the property.
(v) , n contempaton of death, transferred a resdence to for fe wth
remander to W provded W survves , but f W predeceases , the property
s to pass to and hs hers. If t s assumed that ded durng s fe-
tme, and the vaue of the resdence was ncuded n determnng the vaue
of hs gross estate, the nterest whch passed from to W s a nondeduct-
be nterest snce such nterest w termnate f W predeceases and the
property w thereafter be possessed or en|oyed by (or hs hers or as-
sgns). Ths resut s not affected by s assgnment of hs nterest durng
s fetme, whether made n favor of W or another person, snce the term
assgns (as used n secton 812(e) (1) ( )) ncudes such assgnee. ow-
ever, f It s assumed that predeceased , the nterest of n the property
was e tngushed, and, vewed as of the tme of the subsequent death of ,
the nterest whch passed from hm to W s the entre Interest n the prop-
erty and, therefore, a deductbe nterest.
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Regs. 10 , 81.2, etc.
(v) transferred rea property to , reservng the rght to the rentas
of the property for a term of 20 years. ded wthn such 20-year term,
bequeathng the rght to the remanng rentas to a trust. The terms of the
trust satsfy the fve condtons stated n paragraph (c) of secton 81. 7a,
so that the property nterest whch passed n trust s consdered to have
passed from to W. Such nterest s a nondeductbe nterest snce t
w termnate upon the e praton of the term and w thereafter possess
or en|oy the property.
(v) bequeathed a patent to W and as tenants In common. In ths
case, the nterest of W w termnate upon the e praton of the term of the
patent, but possesson or en|oyment of the property by must necessary
cease at the same tme. Therefore, snce s possesson or en|oyment cannot
outast the termnaton of W s nterest, the atter s a deductbe nterest.
The above-stated provson s to be apped wth respect to the property
nterests whch actuay passed from the decedent. Subsequent conversons
of the property are mmatera for ths purpose. Thus, where a decedent
bequeathed hs estate to hs wfe for fe wth remander to hs chdren, the
nterest whch passed to hs wfe s a nondeductbe nterest, even though the
wfe agrees wth the chdren to take a fractona share of the estate n eu
thereof, or ses the fe estate for cash, or acqures the remander Interest of
the chdren ether by purchase or gft.
Secton 812(e) (1) (D) provdes an e cepton to the genera rue stated n ths
paragraph. In genera, the ob|ect of secton 812(e)(1)(D) s to prevent a
property nterest from beng cassfed as nondeductbe where (a) the ony
condton under whch t w termnate s the death of the survvng spouse
wthn 6 months after the decedent s death, or the death of such spouse as a
resut of a common dsaster whch aso resuted n the decedent s death, and
(6) such condton does not n fact occur. The foowng e ampes ustrate
the appcaton of the e cepton provded by secton 812(e) (1) (D) :
ampe (1). decedent bequeathed hs entre estate to hs spouse on con-
dton that she survve hm by 6 months. In the event hs spouse faed to
survve hm by 6 months, hs estate was to go to hs nece and her hers. The
decedent was survved by hs spouse. It w be observed that, as of the tme of
the decedent s death, t was possbe that the nece woud, by reason of the
nterest whch passed to her from the decedent, possess or en|oy the estate after
the termnaton of the nterest theren whch passed to the spouse. ence, under
the genera rue set forth n ths paragraph, the nterest whch passed to the
spouse woud be regarded as a nondeductbe nterest. If the survvng spouse
n fact ded wthn 6 months after the decedent s death, such genera rue Is to be
apped, and the nterest whch passed to such spouse s a nondeductbe
nterest. owever, f such spouse n fact survved the decedent by 6 months,
thus e tngushng the nterest of the nece, the case comes wthn the e cepton
provded by secton 812(e) (1) (D), and the nterest whch passed to such spouse
s a deductbe nterest. (It s assumed for the purpose of ths e ampe that
no other factor whch woud cause such nterest to be nondeductbe s present.)
ampe (2). The facts are the same as n e ampe (1) e cept that the w
provded that the estate was to go to the nece ether n case the decedent and
hs spouse shoud both de as a resut of a common dsaster, or n case the spouse
shoud fa to survve the decedent by 3 months. It s assumed that the decedent
was survved by hs spouse. In ths e ampe, the nterest whch passed from the
decedent to hs survvng spouse s to be regarded as a nondeductbe nterest
n case the survvng spouse n fact ded ether wthn 3 months after the
decedent s death or as a resut of a common dsaster whch aso resuted n the
decedent s death. owever, f such spouse n fact survved the decedent by 3
months, and dd not thereafter de as a resut of a common dsaster whch aso
resuted n the decedent s death, the e cepton provded under secton
812(e) (1) (D) w appy.
Where the ony condton whch w cause the nterest taken by the survvng
spouse to termnate s of such nature that It can occur ony wthn 0 months
foowng the decedent s death, the e cepton provded under secton
812(e) (1) (D) w appy, provded the condton does not n fact occur. ow-
ever, where such condton (uness t reates to death as a resut of a common
dsaster) s one whch may occur ether wthn such 6-month perod or thereafter,
the e cepton provded under secton 812(e) (1) (D) w not appy.
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Regs. 10 , 81.2, etc.
206
Where a property nterest passed from the decedent to hs survvng spouse
sub|ect to the condton that she does not de as a resut of a common dsaster
whch aso resuted In the decedent s death, the e cepton provded under sec-
ton 812(e) (1) (D) w not be apped n the fna audt of the return f there
s st a possbty that the survvng spouse may be deprved of such property
nterest by operaton of the common dsaster provson as gven effect by the
oca aw.
(e) Termnabe nterest to be acqured by e ecutor or trustee. Secton
812(e)(1)( ) aso provdes that no marta deducton may be taken wth re-
spect to a fe estate or other termnabe nterest whch s to be acqured for
the survvng spouse, pursuant to drectons of the decedent, by hs e ecutor or
by a trustee. Other e ampes of termnabe nterests are an annuty, an estate
for years, a patent, and a copyrght. Secton 812(e)(1)( ) provdes that a
property nterest sha not be consdered a termnabe nterest merey be-
cause t s the ownershp of a bond, note, or smar contraetura obgaton, the
dscharge of whch woud not have the effect of an annuty for fe or for a
term.
The foregong provson s appcabe ony wth respect to any property nterest
whch the decedent drected hs e ecutor or a trustee to e pend, subsequenty to
hs death, n the acquston of a fe estate,, annuty, or other termnabe
nterest for hs survvng spouse. In such a case the property nterest whch
s to be so e pended s a nondeductbe nterest. The foregong provson s
not appcabe, however, n the case of a genera authorzaton to renvest prop-
erty, whereunder the e ecutor or trustee may acqure ether termnabe n-
terests or other property nterests.
ampe. decedent bequeathed 100,000 to hs wfe, sub|ect to a drecton
to hs e ecutor to use such bequest for the purchase of an annuty for the wfe.
The bequest s of a nondeductbe nterest.
(f) Interest payabe out of a group of assets. Secton 812(e)(1)(C) pro-
vdes that where the assets (ncuded n the decedent s gross estate) out of
whch, or the proceeds of whch, an nterest passng to the survvng spouse
may be satsfed ncude a partcuar asset or assets wth respect to whch no
deducton woud be aowed f such asset or assets passed from the decedent
to such spouse, then the vaue of such nterest passng to such spouse sha, for
the purpose of the marta deducton, be reduced by the aggregate vaue of such
partcuar assets.
In order for the foregong provson to appy, two crcumstances must coe st,
as foows:
(1) The property nterest whch passed from the decedent to hs sur-
vvng spouse must he payabe out. of a group of assets Incuded n the gross
estate. ampes of property nterests payabe out of a group of assets
are a genera egacy, a bequest of the resdue of the decedent s estate or of
a porton of the resdue, and a rght to a share of the corpus of a trust upon
ts termnaton.
(2) The group of assets out of whch the property nterest Is payabe
must ncude one or more partcuar assets whch, f passng specfcay to
the survvng spouse, woud be nondeductbe nterests.
If the above crcumstances are both present, the property nterest payabe
out of the group of assets s (e cept as to any e cess of ts vaue over the aggre-
gate vaue of the partcuar asset or assets whch woud not be deductbe f
passng specfcay to the survvng spouse) a nondeductbe nterest.
ampe. decedent bequeathed one-thrd of the resdue of hs estate to
hs wfe. The property passng under the decedent s w ncuded a rght to
the rentas of an offce budng for a term of years, reserved by the decedent
under a deed of the budng by way of gft to hs son. The decedent dd not
make a specfc bequest of the rght to such rentas. Such rght, f passng
specfcay to the wfe, woud be a nondeductbe nterest. (See paragraph
(d) of ths secton.) If t s assumed that the vaue of the bequest of one-
thrd of the resdue of the estate to the wfe was 8 ,000, and that the rght
to the rentas was ncuded n the gross estate at a vaue of 60,000, then the
bequest s, to the e tent of 60,000, a nondeductbe nterest.
Sec. 81. 7c. auaton of Property; Interest Passng to Survvng Spouse.
(a) In genera. The vaue, for the purpose of the martta deducton, of any
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207
Regs. 10 , 81.2, etc.
deductbe Interest whch passed from the decedent to hs survvng spouse Is
to be determned as of the date of the decedent s death, uness the e ecutor
eects the optona vauaton method n accordance wth the provsons of
secton 81.11, n whch case the vaue of any such nterest s to be determned
as of such date wth ad|ustment as e paned n secton 81.11. The marta
deducton may be taken ony wth respect to the net vaue of any deductbe
nterest whch passed from the decedent to hs survvng spouse, the same
prncpes beng appcabe as f the amount of a gft to such spouse were beng
determned. In determnng the vaue of the nterest In property passng to
the spouse account must be taken of the effect of any matera mtatons upon
her rght to ncome from the property. n e ampe of a case n whch ths rue
may be apped s a case n whc the decedent bequeaths property n trust for
the beneft of hs spouse but the ncome from such property from the date of
the decedent s death unt dstrbuton of the property to the trustee s to be used
to pay e penses ncurred n the admnstraton of the estate.
(6) Property nterest sub|ect to an ncumbrance or obgaton. Secton
812(e) (1) ( ) provdes that where a property nterest passed from the decedent
to hs survvng spouse sub|ect to a mortgage or other ncumbrance, or where
an obgaton s mposed upon the survvng spouse by the decedent n connec-
ton wth the passng of a property nterest, the vaue of such property nterest
s to be reduced by the amount of such mortgage, other ncumbrance, or obga-
ton. The passng of a property nterest sub|ect to the mposton of an obga-
ton by the decedent does not ncude a bequest, devse, or transfer n eu of
dower, curtesy, or of a statutory estate created n eu of dower or curtesy,
or of other marta rghts n the decedent s property or estate. The passng
of a property nterest sub|ect to the mposton of an obgaton by the decedent
does, however, ncude a bequest, etc., n eu of the nterest of hs survvng
spouse under communty property aws uness such nterest was, mmedatey
pror to the decedent s death, a mere e pectancy. ( s to the crcumstances
under whch the nterest of the survvng spouse s regarded as a mere e pectancy
see paragraph (6) of secton 81. 7d.)
The foowng are ustratve of property nterests whch passed from the
decedent to hs survvng spouse sub|ect to the mposton of an obgaton by
the decedent:
(1) decedent devsed a resdence vaued at 2 ,000 to hs wfe, wth
a drecton that she pay ,000 to hs sster. For the purpose of the
marta deducton, the vaue of the property nterest passng to the wfe
s ony 20,000.
(2) decedent devsed rea property to hs wfe n satsfacton of a
debt owng to her. The debt s a deductbe cam under secton 812(b) (3).
Snce the wfe s obged to renqush such cam as a condton to acceptance
of the devse, the vaue of the devse s, for the purpose of the marta
deducton, to be reduced by the amount of such cam.
(3) decedent bequeathed certan securtes to hs wfe n eu of her
Interest n property hed by them as communty property under the aw
of the State of ther resdence. The wfe eected to renqush her com-
munty property nterest and to take the bequest. For the purpose of
the marta deducton, the vaue of the bequest s to be reduced by the
vaue of the communty property nterest renqushed by the wfe.
(o) ffect of death ta es. Secton 812(e)(1)( ) provdes that n the de-
termnaton of the vaue of any property nterest whch passed from the
decedent to hs survvng spouse, there sha be taken nto account, the effect
whch the Federa estate ta , or any estate, successon, egacy, or nhertance
ta , has upon the net vaue to the survvng spouse of such property nterest.
For e ampe, assume that the ony bequest to the survvng spouse s of
100,000 and such spouse s requred to pay State nhertance ta n the amount
of 1, 00. If no other death ta es affect the net vaue of the bequest, such
vaue, for the purpose of the marta deducton, s 08, 00.
To take another e ampe, assume that a decedent devsed to hs wfe rea
property havng a vaue for Federa estate ta purposes of 100,000, and aso
bequeathed to her a nondeductbe nterest for fe under a trust. The State
of resdence vaues the rea property at 90,000 and the fe nterest at 30,000,
and mposes an nhertance ta (at graduated rates) of ,800 wth respect
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Regs. 10 , 81.2, etc.
208
to the two nterests. If It s assumed that such nhertance ta Is requred
to be pad by the wfe, the amount thereof to be ascrbed to the devse s
,00- ,800 3,600
120,000
ccordngy, f no other death ta es affect the net vaue of the bequest, such
vaue, for the purpose of the marta deducton, s 100,000 ess 3,600, or 96, 00.
If the decedent bequeaths hs resduary estate, or a porton thereof, to hs
survvng spouse, and hs w contans a drecton that a death ta es sha be
payabe out of such resduary estate, the vaue of the bequest, for the purpose of
the marta deducton, s based upon the amount of the resdue as reduced pur-
suant to such drecton. If the resduary estate, or a porton thereof, s be-
queathed to the survvng spouse, and by the oca aw the Federa estate ta
s payabe out of the resduary estate, the vaue of the bequest, for the purpose
of the marta deducton, may not e ceed the amount thereof as reduced by the
Federa estate ta .
(d) Remander nterests. Where the ncome from property s made payabe
to another ndvdua for fe, or for a term of years, wth remander absoutey
to the survvng spouse or to her estate, the marta deducton Is based upon
the present vaue of the remander. The present vaue of the remander s to
be determned n accordance wth the rues stated n secton 81.10(t). For e -
ampe, f the survvng spouse s to receve 0,000 upon the death of a person
aged 31 years, the present vaue of the remander s 1 ,631. (See e ampe n
secton 81.10(t) ( ).) If the remander s such that ts vaue s to be determned
by a speca computaton (see secton 81.10() (3)), a request for a specfc factor
accompaned by a statement of the date of brth of each person, the duraton
of whose fe may affect the vaue of the remander, and by copes of the reevant
nstruments may be submtted to the Commssoner who n hs dscreton may
suppy the factor requested. If the Commssoner does not furnsh the factor,
the cam for deducton must be supported by a fu statement of the computaton
of the present worth made, n accordance wth the prncpes set forth n secton
81.10(t), by one sked n actuara computatons.
Sbc. 81. 7d. Lmtaton on mount of Marta Deducton. (a) In genera.
The aowabe marta deducton s mted to the smaer of the foowng
amounts:
(1) The aggregate vaue of the deductbe nterests whch passed from
the decedent to hs survvng spouse, as determned under sectons 81. 7a
to 81. 7c.
(2) Ffty percent of the vaue of the ad|usted gross estate, as deter-
mned under ths secton.
cept as provded n paragraph ( ) of ths secton (reatng to communty
property), the ad|usted gross estate s to be determned by subtractng from
the entre vaue of the gross estate the aggregate amount of the deductons a-
owed under secton 812(b). (See sectons 81.29 to 81. 0.)
ampe. The vaue of a decedent s gross estate Is 200,000 and the aggregate
amount of the deductons aowed by secton 812(b) s 30,000. (It s assumed
for the purpose of ths e ampe that the decedent and hs spouse never hed any
property as communty property.) The vaue of the ad|usted gross estate s,
therefore, 200,000 ess 30,000, whch s 170,000. It s assumed that the ag-
gregate vaue of the deductbe nterests whch passed from the decedent to
hs survvng spouse s 100,000. The aowabe marta deducton s mted to
8 ,000 ( 0 percent of the vaue of the ad|usted gross estate ).
(6) Speca rue n case nvovng communty property. If the decedent and
hs survvng spouse at any tme hed property as communty property, as
herenafter defned, the ad|usted gross estate referred to n paragraph (a) of
ths secton s to be determned by subtractng from the entre vaue of the gross
estate the sum of the foowng vaues and amounts:
(1) The vaue of any property ncuded n the gross estate whch was at
the tme of the decedent s death hed by hm and hs survvng spouse as
communty property, as herenafter defned.
(2) The vaue of property (to the e tent ncuded In the gross estate)
transferred by the decedent durng hs fe, f at the tme of such transfer
the property was hed by hm and hs survvng spouse as communty
property, as herenafter denned.
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209 Regs. 10 , 81.2, etc.
(3) The amount (to the e tent ncuded In the gross estate) recevabe
as nsurance under poces upon the fe of the decedent to the e tent pur-
chased wth premums or other consderaton pad out of property then hed
by hm and hs survvng spouse as communty property, as herenafter
defned.
( ) n amount, , whch bears the same rato to (the aggregate amount
of the deductons aowed by secton 812(b)) as C (the vaue of the gross
estate, dmnshed by the aggregate amount subtracted under subparagraphs
(1), (2), and (3) of ths paragraph) bears to D (the entre vaue of the
gross estate).
Where a pocy of nsurance upon the fe of the decedent was purchased
party wth property hed by hm and hs survvng spouse as communty prop-
erty, as herenafter defned, and party wth other property, the amount recev-
abe under such pocy s consdered, for the purpose of subparagraph (3) of
ths paragraph, to have been purchased wth such communty property n the
proporton that the payments made wth such communty property bear to
the tota amount pad. If ony a porton of the proceeds of a pocy s ncuded
n the gross estate, ony such porton of the proceeds, and ony the premums or
other consderaton pad for such porton, are to be ncuded n the computaton
stated n the precedng sentence. (See secton 81.27.)
In determnng the ad|usted gross estate under ths paragraph, property
hed by the decedent and hs survvng spouse as communty property, at the
tme of the death of the decedent (for the purpose of subparagraph (1) of ths
paragraph), at the tme of the transfer (for the purpose of subparagraph (2)
of ths paragraph), or at the tme of the payment of nsurance premums or other
consderaton (for the purpose of subparagraph (3) of ths paragraph), s
consdered to ncude:
() ny property hed by them at such tme as communty property under
the aw of any State, Terrtory, or possesson of the Unted States, or of
any foregn country, e cept such property n whch the survvng spouse had
at such tme merey an e pectant nterest.
() Separate property acqured by the decedent as a resut of a conver-
son (durng the caendar year 19 2 or after pr 2, 19 8) of property hed
by hm and hs survvng spouse as communty property under the aw of
any State, Terrtory, or possesson of the Unted States, or of any foregn
country (e cept such property n whch the survvng spouse had at the
tme of the converson merey an e pectant nterest) nto ther separate
property.
() Property acqured by the decedent n e change (by one e change
or a seres of e changes) for separate property acqured as set forth under
() of ths paragraph.
The survvng spouse s regarded as havng merey an e pectant nterest n
property hed as communty property under the aw of any State, Terrtory, or
possesson of the Unted States, or of any foregn country, (a) at the tme of
the decedent s death f the entre vaue of such property (and not merey one-
haf thereof) s ncudbe n the decedent s gross estate, or (6) at the tme of
any transfer, payment of nsurance premums or other consderaton, or conver-
son f, n case of the death of the decedent at such tme, the entre vaue of the
property nvoved n such transfer, payment, or converson (and not merey
one-haf thereof) woud, wthout regard to the provsons of secton 811(e) (2),
have been so ncudbe.
The characterstcs of property whch acqured a noncommunty nstead of a
communty status by reason of an agreement (whether antenupta or post-
nupta ) are such that secton 812(e) (2) (C) cassfes the property as communty
property of the decedent and hs survvng spouse n the computaton of the
ad|usted gross estate. In dstngushng property whch thus acqured a non-
communty status from property whch acqured such a status soey by opera-
ton of the communty property aw, secton 812(e) (2) (C) refers to the former
category of property as separate property acqured as a resut of a converson
of property hed as such communty property. s used n secton 812(e) (2) (C),
the phrase property hed as such communty property Is used to denote the
body of property comprehended wthn the communty property system; the
e presson separate property ncudes any noncommunty property (whether
hed n |ont tenancy, tenancy by the entrety, tenancy n common, or otherwse) ;
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210
and the term converson Incudes any transacton or agreement whch trans-
forms property from, a communty status nto a noncommunty status.
The separate property whch secton 812(e)(2)(C) cassfes as communty
property s not mted to that whch was n e stence at the tme of the con-
verson. The foowng are ustratve of the scope of secton 812(e) (2) (C) :
partton of communty property between husband and wfe, whereby a por-
ton of such property became the separate property of each, s a converson of
such property; a transfer of communty property nto some other form of co-
ownershp, such as a |ont tenancy, s a converson of such property; an agree-
ment (whether made before or after marrage) that future earnngs and gans
whch woud otherwse be communty property sha be shared by them as sep-
arate property effects a converson of such earnngs and gans; a change n the
form of ownershp of property whch causes the future rentas therefrom, whch
woud otherwse have been acqured as communty property, to be acqured as
separate property effects a converson of such rentas.
The rues of secton 812(e)(2)(C) are appcabe, however, ony f the con-
verson took pace durng the caendar year 19 2 or after pr 2, 19 8, and ony
to the e tent stated heren.
Where the vaue of te separate property acqured by the decedent as a resut
of a converson dd not e ceed the vaue of the separate property thus acqured
by the survvng spouse, the entre separate property thus acqured by the
decedent s to be consdered, for the purposes of ths paragraph, as hed by hm
and hs survvng spouse as communty property. Where the vaue (at the tme
of the converson) of the separate property so acqured by the decedent e ceeded
the vaue (at such tme) of the separate property so acqured by the spouse, ony
a part of the separate property so acqured by the decedent (and ony the same
fractona part of property acqured by hm n e change for such separate
property) s to be consdered, for the purposes of ths paragraph, as hed by hm
and hs survvng spouse as communty property. The part of such separate
property (or property acqured n e change therefor) whch s consdered as so
hed s the same proporton thereof whch the vaue (at the tme of the conver-
son) of the separate property so acqured by the spouse s of the vaue (at such
tme) of the separate property so acqured by the decedent.
ampe (1). The vaue of a decedent s gross estate Is 300,000, of whch
200,000 represents hs separate property and 100,000 represents hs one-haf
nterest n communty property. The decedent s separate property was nherted
from hs father. The deductons aowed under secton 812(b) tota ,000.
In ths e ampe, the ad|usted gross estate s computed as foows:
aue of gross estate 300,000
Reducton under subparagraph (1) 100,000
Reducton under subparagraph ( ) (200,000/300,000 of
,000) 30, 000
Tota reducton 130,000
d|usted gross estate-.; 170, 000
In ths e ampe the marta deducton w be 8 ,000 (one-haf the vaue of
the ad|usted gross estate ) n case the aggregate vaue of the deductbe nter-
ests whch passed from the decedent to hs survvng spouse equas or e ceeds
such amount.
ampe (2). The facts are the same as n e ampe (1) e cept that the
decedent s separate property was not nherted from hs father, but was acqured
under the foowng transacton :
On November 1, 19 2, the decedent and hs survvng spouse parttoned certan
communty property then havng a vaue of 22 ,000. porton of such prop-
erty, then havng a vaue of 160,000, was converted nto the decedent s separate
property, and the remanng porton, then havng a vaue of 6 ,000, was con-
verted nto hs spouse s separate property. The porton of the separate property
so acqured by the decedent whch s consdered as hed as communty prop-
erty at the tme of hs death s represented by that proporton of 200,000 (the
vaue, at the tme of death, of such separate property) whch 6 ,000 (the vaue,
at the tme of the converson, of the separate property so acqured by hs spouse)
bears to 160,000 (the vaue, at the tme of the converson, of the separate prop-
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211
Regs. 10 , 81.2, etc.
erty so acqured by the decedent), whch proporton equas 80,000. The
ad|usted gross estate s computed as foows:
aue of gross estate 300,000
Reducton under subparagraph (1) ( 100,000 pus 80.000)__ 180,000
Reducton under subparagraph ( ) (120,000/300,000 of
,000) 18,000
Tota reducton 198,000
d|usted gross estate 102, 000
The burden of estabshng the e tent to whch separate property of the decedent
was acqured other than as descrbed n () and () of ths paragraph rests
upon the e ecutor.
Sec. 81. 7e. I koof Rkqukkd. The e ecutor must submt such proof as s neces-
sary to estabsh the rght of the estate to the marta deducton, ncudng any
evdence requested by the Commssoner.
Par. 18. Secton 81. 3, as amended by Treasury Decson 239 26
CFR 81. 3 , s further amended as foows:
( ) y strkng out the three foowng e ceptons and by nsert-
ng n eu thereof the foowng: the four foowng e ceptons .
( ) y nsertng at the end thereof the foowng subparagraph:
( ) The condton set forth under secton 81. 1(a)(0) shoud be dsregarded
n determnng whether the deducton s avaabe.
Par. 19. There s nserted mmedatey precedng secton 81.83 26
CFR 81.83 the foowng:
S C. 36 . LI ILITY OF LIF INSUR NC N FICI RI S,
TC. (R NU CT OF 19 8; N CT D PRIL 2, 19 8.)
(a) Secton 820(c) of the Interna Revenue Code (reatng to abty
of fe nsurance benefcares) s hereby amended by addng at the
end thereof the foowng new sentence: In the case of such proceeds
recevabe by the survvng spouse of the decedent for whch a deducton
s aowed under secton 812(e) (the so-caed marta deducton ), ths
subsecton sha not appy to such proceeds e cept as to the amount
thereof n e cess of the aggregate amount of the marta deductons
aowed under such subsectons.
(b) Secton 826(d) of the Interna Revenue Code (reatng to abty
of recpent of property over whch decedent had power of appontment)
s hereby amended by addng at the end thereof the foowng new sen-
tence: In the case of such property receved by the survvng spouse of
the decedent for whch a deducton s aowed under secton 812(e) (the
so-caed marta deducton ), ths subsecton sha not appy to such
property e cept as to the vaue thereof reduced by an amount equa to the
e cess of the aggregate amount of the marta deductons aowed under
secton 812(e) over the amount of proceeds of nsurance upon the fe
of the decedent recevabe by the survvng spouse for whch proceeds
a marta deducton s aowed under such subsecton.
(c) The amendments made by ths secton sha be appcabe ony wth
respect to estates of decedents dyng after December 31, 19 7.
Par. 20. Secton 81.79(6) 26 CFR 81.79(b) s amended by nsert-
ng mmedatey precedng the perod at the end of the frst sentence
of the fourth undesgnated paragraph thereof the foowng: ; ( )
the porton of the marta deducton aowed under the provsons of
secton 812(e) on account of bequests, etc., of such nterests to the
decedent s survvng spouse.
(Ths Treasury Decson s ssued under authorty contaned n sec-
ton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C. 3791)
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Regs. 10 , 81.17. 212
and pursuant to the provsons of Pubc Laws 71 and 869, ghteth
Congress.)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved May 13,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 18, 19 9, 8: 0 a. m.)
S CTION 811(c)
Reguatons 10 , Secton 81.17: Transfers 19 9- -1302
ntended to take effect at or after the Ct. D. 1710
decedent s death.
estate ta nterna revenue code decson of supreme court
1. Gross state Transfer n Trust Intended To Take ffect n
Possesson or n|oyment at or fter Death.
trust, agreement was e ecuted n 192 by decedent, n whch he
and two brothers were named trustees. Decedent reserved no power
to ater, amend or revoke, but requred the trustees to pay hm the
trust ncome for fe. ed: The transfer was ntended to take
effect n possesson or en|oyment at decedent s death because the
trust agreement reserved to hm a fe ncome n the property, and
the vaue of the trust corpus s ncudbe n the decedent s gross
estate under the provsons of secton 811(c) of the Interna
Revenue Code.
2. Decson Reversed.
Decson of the Unted States Court of ppeas, Thrd Crcut
(161 Fed. (2d) 11), reversed.
3. Decson Foowed.
everng v. aoek, 309 U. S. 106 (Ct. D. 1 0, C. . 19 0-1,
223), foowed.
. Decson Overrued.
May v. ener, 281 U. S. 238 (Ct. D. 186, C. . I -1, 382 (1930)),
overrued.
Supreme Court of the Unted States
Commssoner of Interna Revenue, pettoner, v. state of Francos L. Church,
Deceased, dward . ack, ecutor
On wrt of certorar to the Unted States Court of ppeas for the Thrd Crcut
anuary 17, 19 9
opnon
Mr. ustce ack devered the opnon of the Court
Ths case rases questons concernng the nterpretaton of that part of secton
811(c) of the Interna Revenue Code whch for estate ta purposes requres n-
cudng n a decedent s gross estate the vaue of a the property the decedent
had transferred by trust or otherwse before hs death whch was ntended
to take effect n possesson or en|oyment at or after hs death state
of Spege v. Commssoner, post, page , nvoves questons whch aso depend
upon nterpretaton of that provson of secton 811(c). fter argument and
consderaton of the cases at the October 19 7 term, an order was entered
restorng them to the docket and requestng counse upon reargument par-
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213
Regs. 10 , 81.17.
tcnary to dscuss certan questons broader n scope than those orgnay pre-
sented and argued. ( ourna Supreme Court, 297-298, une 21, 19 8.) Those
addtona questons have now been fuy treated n brefs and ora arguments.
Ths case nvoves a trust e ecuted n 192 by Francos Church, then 21 years
of age, unmarred and chdess. e e ecuted the trust n New York n ac-
cordance wth State aw. Church and two brothers were named cotrustees.
Certan corporate stocks were transferred to the trust wth grant of power
to the trustees to hod and se the stocks and to renvest the proceeds. Church
reserved no power to ater, amend, or revoke, but requred the trustees to
pay hm the ncome for fe. Ths reservaton of fe ncome s the decsve
factor here.
t Church s death n 1939 the trust was to termnate and the trust agreement
contaned some drectons for dstrbuton of the trust assets when he ded.
These drectons as to fna dstrbuton dd not, however, provde for a pos-
sbe contngences. If Church ded wthout chdren and wthout any of hs
brothers or ssters, or ther chdren, survvng hm, the trust nstrument made
no provson for dsposa of the trust assets. ad ths unkey possbty
come to pass (at hs death there were vng, brothers, 1 sster, and 10 of
ther chdren) the dstrbuton of the trust assets woud have been controed
by New York aw. It has been the Government s contenton that under New
York aw had there been no such survvng trust benefcares the corpus woud
have reverted to the decedent s estate. Ths possbty of reverter pus the
retenton by the settor of the trust ncome for fe, the Government has argued,
requres ncuson of the vaue of the trust property n the decedent s gross
estate under our hodng n evern-g v. aock (309 U. S. 106 Ct. D. 1 0,
C. . 19 0-1,223 ).
The aock case hed that where a person whe vng makes a transfer
of property whch provdes for a reverson of the corpus to the donor upon a con-
tngency termnabe at death, the vaue of the corpus shoud be ncuded n the
decedent s gross estate under the possesson or en|oyment provson of sec-
ton 811(c) of the Interna Revenue Code.1 In ths case, the Ta Court, reyng
upon Its former hodngs2 decared that The mere possbty of reverter by
operaton of aw upon a faure of the trust, due to the death of a the re-
mandermen pror to the death of decedent, s not such a possbty as to come
wthn the aock case. Ths hodng made t unnecessary for the Ta Court
to decde the dsputed queston as to whether New York aw operated to create
such a reversonary nterest. The Unted States Court of ppeas for the
Thrd Crcut, one udge dssentng, affrmed on the ground that t coud not
dentfy a cear-cut mstake of aw n the Ta Court s decson. (161 Fed. (2d)
11.) The Unted States Court of ppeas for the Seventh Crcut n the
Spege case found that under Inos aw there was a possbty of reverter
and reversed the Ta Court, hodng that possbe reverson by operaton of aw
requred ncuson of a trust corpus n a decedent s estate. (Commgsoner v.
Spege s state, 1 9 Fed. (2d) 2 7.) Other Unted States courts of appea
have hed the same.3 ecause of ths confct we granted certorar n ths
and the Spege case.
Counse for the two estates have strongy contended n both arguments of
these cases that the aw of nether New York nor Inos provdes for a pos-
sbty of reverter under the crcumstances presented. They argue further
that even f under the aw of those States a possbty of reverter dd e st, It
woud be an un|ustfabe e tenson of the aock rue to hod that such a
possbty requres ncuson of the vaue of a trust corpus n a decedent s
estate. The respondent n ths case ponted out the e treme mprobabty
that the decedent woud have outved a hs brothers, hs sster, and ther
10 chdren. e argues that the happenng of such a contngency was so re-
mote, the money vaue of such a reversonary nterest was so nfntesma,
that t woud be entrey unreasonabe to hod that the aock rue requres
1 The aock case consdered the possesson or en|oyment anguage of secton 811(c)
whch appeared n secton 302(c) of the 1926 Revenue ct ( Stat. 9, 70), as amended
by secton 803(a) of the Revenue ct of 1932 ( 7 Stat. 169, 279, 26 U. S. C, secton
811(c)).
a state of Cass (3 T. C. 62), Commssoner v. eogg (119 Fed. (2d) . affrmng 0
. T. . 916). state of Downe (2 T. C. 907), state of oughton (2 T. C. 871), state of
Goodyear (2 T. C. 88 ), state of Deaney (1 T. C. 781).
Commssoner v. ayne s state (1 Fed. (2d) 7 ), Commssoner v. ank of Ca-
forna (1 Fed. (2d) 1), Thomas v. Graham (1 8 Fed. (2d) 61), each v. usey (1 6
Fed. (2d) 96).
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Regs. 10 , 81.17.
21
an estate ta because of such a contngency. ut see Fdety-Phadepha
Trust Co. v. Rotenses (32 U. S. 108, 112 Ct. D. 1630, C. . 19 , 06 ).
rguments and consderaton of ths and the Spege case brought promnenty
nto focus sharp dvsons among courts, |udges and ega commentators, as to
the ntended scope and effect of our aoek decson, partcuary whether
our hodng and opnon n that case are so ncompatbe wth the hodng and
opnon n May v. Rener (281 U. S. 238 Ct. D. 186, C. . I -1, 382 (1930) ),
that the atter can no onger be accepted as a controng nterpretaton of the
possesson or en|oyment provson of secton 811(c). May v. ener hed
that the corpus of a trust transfer need not be ncuded n a settor s estate,
even though the settor had retaned for hmsef a fe ncome from the corpus.
We have concuded that confuson and doubt as to the effect of our aoek
case on May v. ener shoud be set at rest n the nterest of sound ta and |ud-
ca admnstraton. Furthermore, f May v. ener s no onger controng,
the vaue of the Church trust corpus was propery ncuded n the gross estate,
wthout regard to the much dscussed State aw queston, snce Church reserved
a fe estate for hmsef. For reasons whch foow, we concude that the
aoek and May v. ener hodngs and opnons are rreconcabe. Snce we
adhere to aoek, the May v. ener nterpretaton of the possesson or en-
|oyment provsons of secton 811(c) can no onger be accepted as correct.
The possesson or en|oyment provson appearng n secton 811(c) seems
to have orgnated n a Pennsyvana nhertance ta aw n 1826. s eary as
188 the Supreme Court of Pennsyvana hed that where a ega transfer of
property was made whch carred wth t a rght of possesson wth a reserva-
ton by the grantor of ncome and profts from the property for hs fe, the
transfer was not ntended to take effect n en|oyment unt the grantor s death :
One certany cannot be consdered, as n the actua en|oyment of an estate,
who has no rght to the profts or ncomes arsng or accrung therefrom.
( esh, dm r v. Commonweath, 106 Pa. 21, 26.) That court further hed
that the possesson or en|oyment cause dd not nvove a mere technca
queston of tte, but that the aw mposed the death ta uness one had parted
durng hs fe wth hs. possesson and hs tte and hs en|oyment. It was
further hed n that case that the test of ntended was not a sub|ectve one,
that the queston was not what the partes ntended to do, but what the trans-
acton actuay effected as to tte, possesson and en|oyment.
Most of the States have ncuded the Pennsyvana-orgnated possesson
or en|oyment cause n death ta statutes, and wth what appears to be com-
pete unanmty, they have up to ths day, despte May v. ener, substantay
agreed wth ths 18S Pennsyvana Supreme Court nterpretaton. Congress
used the possesson or en|oyment cause n death ta egsaton n 1862, 186 ,
and 1898. (12 Stat. 32, 8 ; 13 Stat. 223, 28 ; 30 Stat 8, 6 .) In refer-
rng to the provson n the 1898 ct, ths Court sad that t made the a-
bty for ta aton depend, not upon the mere vestng n a technca sense of
tte to the gft, but upon the actua possesson or en|oyment thereof. ander-
Wt v. drnan, 196 U. S. 80, 93.) nd years before the 1916 estate ta
statute ncorporated the possesson or en|oyment cause to frustrate estate
ta evasons, 39 Stat. 7 6, 780, ths Court had affrmed a |udgment of the New
York Court of ppeas sustanng the consttutonaty of ts State nhertance
ta n an opnon whch sad: It s true that an ngenous mnd may devse
other means of avodng an nhertance ta , but the one commony used s a
transfer wth reservaton of a fe estate. (Matter of eeney, 19 N. Y. 281,
287; eeney v. ew York, 222 . S. 2 .) nd see everng v. ard (303
U. S. 297, 302 Ct. D. 1318, C. . 1938-1, 9 ), where the foregong quotaton
was repeated wth seemng approva.
Cf. state of uthes ( . T. . 1196). wth state of radey (1 T. C. 18, affrmed
sub. nom. everng v. Washngton Trust Co., 1 0 Fed. (2d) 87). See few York Trust Co.
. Unted States ( 1 F. Supp. 733). Cf. Montgomery, Federa Ta es states, Trusts and
Gfts, 61- 62. 80- 82 (19 6) wth Pau, Federa state and Gft Ta aton, 19 6 Rupp.
sectons 7.1 , 7.23. See aso note. Inter vos Transfers and the Federa state Ta , 9
Yae L. . 1118 (19 0) ; sensten, state Ta es and the gher Learnng of the Supreme
Court, 3 Ta L. Rev. 39 (19 8).
1 Note, Orgn of the Phrase. Intended To Take ffect n Possesson or n|oyment t
or fter Death (secton 811(c), Interna Revenue Code), 6 Tae L. . 176
(19 6).
See cases coected In 9 . L. R. 878-892 ; 67 . L. R. 12 0-12 : 100 . L. R. 12 6-
12 . See aso Rottschaefer, Ta aton of Transfers Takng ffect In Possesson at
Grantor s Death, 26 Iowa L. Rev. 1 (19 1) ; Over, Property Ratonasm and Ta
Pragmatsm, 20 Te . L. Rev. 67 , 70 -709 (19 2).
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21
Regs. 10 , 81.17.
Prom the frst estate ta aw n 1916 unt May v. ener, supra, was decded
n 1930, trust transfers whch were desgned to dstrbute the corpus at the
settor s death and whch reserved a fe ncome to the settor had aways been
treated by the Treasury Department as transfers ntended to take effect n
possesson or en|oyment at hs death. The reguatons had so pro-
vded and mons of doars had been coected from ta payers on ths bass.
See c. a., T. D. 2910, 21 Treas. Dec. 771 (1919) ; and see 7 Cong. Rec. 7078, 7198-
7199 (March 3, 1931). Ths prncpe of estate ta aw was so we setted
n 1928. that the Crcut Court of ppeas decded May v. ener n favor of
the Government n a one-sentence per curam opnon. (32 Fed. (2d) 1017.)
Nevertheess, March 2, 1931, ths Court foowed May v. encr n three cases
n per curam opnons, thus upsettng the century-od hstorc meanng and the
ong standng Treasury nterpretaton of the possesson or en|oyment cause.
( urnet v. Northern Trust Co., 283 . S. 782; Morsman v. urnet, 283 U. S. 783;
McCormck v. urnet, 283 U. S. 78 .)
March 3, 1931, the ne t day after the three per curam opnons were ren-
dered, ctng Secretary of the Treasury Ogden Ms wrote a etter to the
Speaker of the ouse e panng the hodngs n May v. e/ner and the three
cases decded the day before. e ponted out the dsastrous eff .cts they woud
have on the estate ta aw and urged that Congress n order to prevent ta
evason, mmedatey correct ths stuaton brought about by May v. ener
and the other cases. (7 Cong. Rec. 7198, 7199 (1931).) e e pressed fear
that wthout such acton the Government woud suffer a oss n e cess of one-
thrd of the revenue derved from the Federa estate ta , wth antcpated re-
funds of n e cess of 2 ,000,000. The Secretary s surprse at the decsons
and hs apprehensons as to ther ta evason consequences were repeated on the
foor of the ouse and Senate. (7 Cong. Rec. supra.) Senator Smoot, char-
man of the Senate Fnance Commttee, sad on the foor of the Senate that
ths |udca nterpretaton of the statute came amost ke a bombshe, be-
cause nobody ever antcpated such a decson. (7 Cong. Rec. 7078.) oth
houses of Congress unanmousy passed and the Presdent sgned the requested
resouton that same day.
February 28,1938, ths Court hed that nether passage of the resouton nor ts
ater ncuson n the 1932 Revenue ct was ntended to appy to trusts created
before Its passage. ( as ett v. Wech, everng v. Marsha, 303 U. S. 303 Ct.
D. 1317, C. . 1938-1, 90 .) ccordngy, f the corpus of the Church trust
e ecuted n 192 s to be ncuded In the settor s estate wthout ths court s
nvovement n the ntrcaces of State property aw, t must be done by vrtue
of the possesson and en|oyment secton as t stood wthout the anguage added
by the |ont resouton.
Cruca to the court s hodng n May v. ener was ts fndng that ho nterest
n the corpus passed at the settor s death because ega tte had passed from
tte settor rrevocaby when the trust was e ecuted; for ths reason the grantor s
reservaton of the trust ncome for hs fe8 one of the chef bunde-of-ownershp
nterests was hed not to brng the transfer wthn the category of transfers
ntended to take effect n en|oyment at hs death. Ths
Court had never before so mted the possesson or en|oyment secton. Thus
(c) To the e tent of any Interest theren of whch the decedent has at any tme made
a transfer, by trust or otherwse, n contempaton of or ntended to take effect n posses-
son or en|oyment at or after hs death, ncudng a transfer under whch the transferor
has retaned for hs fe or any perod not endng before h death II) the possesson or
en|oyment of, or the ncome from, the property or (2) the rght to desgnate the persons
rfto sha possess or en|oy the property or the ncome therefrom . The tacs
are added to ndcate the addtons made bv the amendments to secton 302(c) of the
Revenue ct of 1926. ont Resouton of March 3, 193), 6 Stat. 1 10-1 17.
The May v. fner trust provded for the ncome to so to arney May durng hs fe-
tme, after hs death to hs wfe, Paune May, the grantor, and upon her deat the corpus
was to be dstrbuted to the grantor s four chdren. The court sad that the record faed
ceary to dscose whether Mrs. May survved her husband, but hed ths was of no speca
mportance.
The court aso quoted from and reed heavv on Renecke v. Northern Trust Co. (278
n. S. 339, 3 T. D. 261, C. . III-1, 30 (1929) ). Ths Court there hed that the
corpus of two trusts that reserved a fe ncome to the grantor pus a power to revoke
shoud have been ncuded n the decedent s estate. The corpus of fve other trusts were
hed not ncudabe. These fve trusts dd not reserve a power n the grantor aone to
revoke, nor dd they reserve a fe estate to the grantor, but they provded for accumua-
ton of that ncome durng the settor s fe, and at hs death t was to go to the bene-
fcares, sub|ect to pror use by the benefcares as drected by the settor. Thus, ths case
dd not drecty support the May v. ener hodng. Nor s May v. ener supported bv
Shukcrt v. en (273 U. S. T. D. 071, C. . I-2, 3 9 (1927) ), as shown by
reference to Shukert v. en n the Renecke opnon at page 3 7.
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216
was forma ega tte rather than the substance of a transacton made the soe
test of ta abty under secton 811(c). For from the vewpont of the grantor
the sgnfcant effect of ths transacton was hs contnued en|oyment and re-
tenton of the ncome unt hs death; the mportant consequence to the re-
mandermen was the postponement of ther rght to ths en|oyment of the ncome
unt the grantor s death.
The effect of the court s nterpretaton of ths estate ta secton was to permt
a person to reeve hs estate from the ta by conveyng ts ega tte to trustees
whom he seected, wth an agreement that they manage the estate durng hs
fe, pay to hm a ncome and profts from the property durng hs fe, and
dever t to hs chosen benefcares at death. Preparaton of papers to defeat
an estate ta thus became an easy chore for one sked n the varous ncetes
of the art of conveyancng. ( en v. Unted States, 283 U. S. 231, 23 Ct. D.
333, C. . -, 62 (1931) .) nd by ths smpe method one coud, despte the
possesson or en|oyment cause, retan and en|oy a the fruts of hs property
durng fe and drect ts dstrbuton at death, free from ta es that others ess
sked n ta technque woud have to pay. Regardess of these facts May v.
ener hed that such an nstrument preservng the benefca use of one s
property durng fe and provdng for ts dstrbuton and devery at death was
not testamentary n character. (May v. ener, supra at 2 3. Cf. ceney v.
Nec York, supra at 3 , 36.)
One year after May v. ener, ths Court decded en v. Unted States, supra.
There the grantor made a deed conveyng property to her husband for hs fe
wth provsons that f he survved the wfe he shoud by vrtue of ths convev-
Code. ( 7 Stat. 169, 279, 26 U. S. C, secton 811(c).) The partcuar provson re-
man vested n the wfe shoud her husband de frst. Ths Court ponted out
that n genera and under the aw of Inos where the deed was made, vestng
of tte n the grantee depended upon the condton precedent that the death,
of the grantor happen before that of the grantee. Thus, snce t was found
that under Inos aw, ega tte to the and had been retaned by the wfe, t
was hed that the vaue of the and shoud be ncuded n her gross estate under
the possesson or en|oyment secton. The court dd not cte May v. ener.
In 193 , ths Court decded everng v. St. Lous Trust Co. (29G U. S. 39
Ct. D. 10 6, C. . I -2, 339 (193 ) ) and ecker v. St, Lous Trust Co. (296
U. S. 8 Ct. D. 10 . C. . I -2, 337 (193 ) ). In each of these cases the
court agan, as n May v. ener, deved nto the queston of ega tte under
rather subte property aw concepts and decded that the ega tte of the trust
propertes there, unke the stuaton n the en transfer, had passed rrevocaby
from the grantor. Ths passage of bare ega tte was hed to be enough to
render the possesson or en|oyment secton nappcabe. These cases were e -
pressy overrued by everng v. aock.
everng v. aock was decded n 19 0. Three separate trusts were con-
sdered n the aock case. These three trusts as those consdered n the St.
Lous Trust and ecker cases, had been e ecuted wth provsons for reverson
of the trust propertes to the grantors shoud the grantors outve the benefcares.
The trusts had been e ecuted n 1917, 1919, and 192 . In the aock case ths
Court was agan asked to mt the effect of secton 811(c) by emphass upon
the forma passage of ega tte. y such concentraton on eusve ega tte,
the Court was nvted to ose sght of the pan fact that compete en|oyment had
been postponed. We decned to mt the effectveness of the possesson or en-
|oyment provson of secton 811(c) by attemptng to defne the nature of the
nterest whch the decedent retaned after hs nter vvos transfer. We caed
attenton to the snares whch nevtaby awat an attempt to restrct estate ta
abty on the ncetes of the art of conveyancng at page 117. We decared
that the statute now under consderaton ta es not merey those nterests
whch are deemed to pass at death accordng to refned techncates of the aw
of property. It aso ta es nter vvos transfers that are too much akn to
testamentary dspostons not to be sub|ected to the same e cse, page 112, and
nter vvos gfts resorted to, as a substtute for a w, n makng dspostons of
property operatve at death, page 11 .
s )nted out by the dssent n aock, we there drecty and unequvocay
re|ected the ony support that coud possby suffce for the hodngs n May v.
ener. That support was the court s concuson n May v. ener, that reten-
ton of possesson or en|oyment of hs property was not enough to requre n-
cuson of ts vaue n the gross estate f a trust grantor had succeeded n passng
bare ega tte out of hmsef before death. In aock we emphaszed our re-
mova of that support by decarng that secton S(c) deas wth property not
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Regs. 10 , 81.17.
techncay passng at death but wth Interests theretofore created. The ta abe
event s a transfer nter vvos. ut the measure of the ta s the vaue of the
transferred property at the tme when death brngs t nto en|oyment, pages
110-111.
Moreover, the aock case, page 11 , stands pany for the prncpe that In
determnng whether a ta abe transfer becomes compete ony at death we ook
to substance, not to form owever we abe the devce f t s but
a means by whch the gft s rendered ncompete unt the donor s death the
possesson or en|oyment provson appes.
ow s t possbe to ca ths trust transfer compete e cept by nvokng a
fcton Church was soe owner of the stocks before the transfer. Probaby ther
greatest property vaue to Church was hs contnung rght to get ther ncome.
fter ega tte to the stocks was transferred, somebody st owned a property
rght n the stock ncome. That property rght dd not pass to the trust bene-
fcares when the trust was e ecuted; t remaned n Church unt he ded. e
made no compete gft effectve before that date, uness we vew the trust trans-
fer as a compete gft to the trustees. ut Church gave the trustees nothng,
ether partay or competey. e transferred no rght to them to get and spend
the stock ncome. nd under the teachng of the aock case, qute n contrast
to that of May v. ener, passage of the mere technca ega tte to a trustee s
not necessary cruca n determnng whether and when a gft becomes com-
pete for estate ta purposes. Lookng to substance and not merey to form, as
we must uness we depart from the teachng of aock, the nescapabe fact s
that Church retaned for hmsef unt death a most vauabe property rght n
these stocks the rght to get and to spend ther ncome. Thus Church dd far
more than attach a strng to a remotey possbe reversonary nterest n the
property, a suffcent reservaton under the aock rue to make the vaue of the
corpus sub|ect to an estate ta . Church dd not even rsk attachng an unbreak-
abe cabe to the most vauabe property attrbute of the stocks, ther ncome.
e smpy retaned ths vauabe property, the rght to the ncome, for hmsef
unt death, when, for the frst tme the stock wth a ts property attrbutes
passed from Church to the trust benefcares. ven f the nterest of Church
was merey obterated, n May v. ener anguage, t s beyond a doubt that
smutaneousy wth hs death. Church no onger owned the rght to the ncome;
the benefcares dd. It had then passed. It never had before. For the frst
tme, the gft had become compete.
Thus, what we sad n aock was not ony a repudaton of the reasonng
whch was advanced to support the two cases (St. Lous Trust and ecker) that
aock overrued, but aso a compete re|ecton of the ratonae of May v. ener
on whch the two former cases had reed. aock thereby returned to the n-
terpretaton of the possesson or en|oyment secton under whch an estate
ta cannot be avoded by any trust transfer e cept by a bona fde transfer n
whch the settor, absoutey, unequvocay, rrevocaby, and wthout possbe
reservatons, parts wth a of hs tte and a of hs possesson and a of hs en-
|oyment of the transferred property. fter such a transfer has been made, the
settor must be eft wth no present ega tte n the property, no possbe re-
versonary nterest n that tte, and no rght to possess or to en|oy the property
then or thereafter. In other words such a transfer must be mmedate and out
and out, and must be unaffected by whether the grantor ves or des. See Shukert
v. en (273 C. S. , 7) ; Smth v. Shaughnessy (318 U. S. 176 Ct. D. 1 7 ,
C. . 19 3, 11 ). We decared ths to be the effect of the aock case n God-
stone v. Unted States (32 U. S. 687, 690, 691 Ct. D. 16 , C. . 19 , 398 ).
There we sad wth reference to secton 811(c) n connecton wth our aock
rung: It thus sweeps nto the gross estate a property the utmate
possesson or en|oyment of whch s hed n suspense unt the moment of the
decedent s death or thereafter. Testamentary dspostons of an nter
vvos nature cannot escape the force of ths secton by hdng behnd ega nce-
tes contaned n devces and forms created by conveyancers. nd see Fdety-
Phadepha Trust Co. v. Rothemes, supra, and Commssoner v. state of Fed
(32 U. S. 113 Ct. D. 1631, C. . 19 , 08 ).
It s strongy urged that we contnue to regard May v. ener as controng
and eave ts fna repudaton to Congress. Ltte effort s made to defend the
May v. ener nterpretaton of possesson or en|oyment on the ground that
t truy refects the congressona purpose, nor do we thnk t possbe to attrbute
such a purpose to Congress. There s no persuasve argument, f any at a, that
trusts reservng fe estates wth remanders over at grantors deaths are not sat-
8 16 9 1
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Regs. 10 , 81.17.
218
sfactory and effectve substtutes for ws. In fact, the purpose of ths settor as
e pressed n hs trust papers was to make provson for any awfu ssue he
mght eave at the tme of hs death as we as provde an ncome for hmsef
for fe. Ths paper, abeed a trust, but provdng for a the substanta pur-
poses of a w, was ntended to and dd postpone unt the settor s death the
rght of hs reatves to possess and en|oy hs property. There may be trust
nstruments that fa more ceary wthn the cass ntended to be treated as
substtutes for ws by the possesson or en|oyment cause, but we doubt t.
The argument for contnung the error of May v. ener s not on the merts
but s advanced In the aeged nterest of ta stabty and certanty, stare decss
and a due deference to the |ust e pectatons of those who have reed on the May
v. ener doctrne. Speca stress s ad on Treasury reguatons whch snce the
assett v. Wech hodng n 1938 have accepted the May v. ener doctrne and
have not provded that the vaue of a trust corpus must be ncuded n the dece-
dent s gross estate where a grantor had reserved the trust ncome. It s even
argued that Congress n some way ratfed the May v. ener doctrne when t
passed the |ont resouton and that f not, the decson n the assett and Mar-
sha cases set at rest a questons as to the soundness of the May v. ener n-
terpretaton. We fnd no mert n these contentons.
What was sad n the aock opnon on the queston of stare decss woud
appear to be a suffcent answer to that contenton here. The aock opnon
aso answers the argument as to recent Treasury reguatons, a of whch were
made by the Treasury under compuson of ths court s cases. Furthermore, the
hstory of the strugge of the Treasury to sub|ect such transfers as ths to the
estate ta aw, a hstory shown n part n the assett v. Wech opnon, has served
to spotght the abdng convcton of the Treasury that the May v. ener statu-
tory nterpretaton shoud be re|ected. In vew of the strugge of the Treasury
n ths ta fed, the varant |udca and Ta Court opnons, our opnon n
the aock case and others whch foowed, It Is not easy to beeve that ta -
payers who e ecuted trusts pror to the 1931 |ont resouton fet secure n
a beef that May v. ener gave them a vested nterest n protecton from estate
ta es under trust transfers such as ths one. nd so far as ths trust s con-
cerned. Treasury reguatons requred the vaue of ts corpus to be ncuded In the
gross estate when t was made n 192 , and most of the perod from then up to
the settor s death n 1939.
Moreover, the May v. ener doctrne has been repudated by the Congress and
repeatedy chaenged by the Treasury. It certany s not an overstatement
to say that ths Court s aock opnon and hodng treated May v. ener wth
scant respect. We sad Congress had dspaced the May v. cner constructon
of secton 811(c) ; n overrung the St. Lous Trust cases we ponted out that
those cases had reed In part on the cougressonay dscarded May v. ener
doc-trne ; we thought Congress had n prncpe aready re|ected the genera
atttude underyng the May v. ener and St. Lous Trust cases; and fnay
our aock opnon demoshed the ony reasonng ever advanced to support
the May v. ener hodng. nd n the aock case, trusts created n 1917, 1919,
and 192 were hed sub|ect to the estate ta under the provsons ncuded n
secton 811(c). What we sad and dd about May v. ener n the aock case
took pace n 19 0, 2 years after assett v. Wech had hed that the 1931 and 1932
amendments coud not be apped to trusts created before 1931. Certany,
May v. ener cannot be granted the sanctuary of stare decss on the ground that
t has had a ong and tranqu hstory free from troubes and chaenges.
Nor does the |ont resouton or the opnon n the assett v. Wech and
everng v. Marsha cases, decded together, support an argument that the
May v. cner doctrne be eft undsturbed. It woud be mpossbe to say that
Congress n 1931 ntended to accept and rntfy decsons that ht the Congress
ke a bombshe. 10 nd n assett v. Wech the Government dd not ask ths
Court to ree amne or overrue May v. cner or the three per curam cases that
May 22, 1931, buetn of the Treasury Department ndcates a strong reason for
the Treasury Department s constructon of the resouton as nappcabe to pre-1931 trust
transfers. (T. D. 31 . -, Cum. u. 0 1 (1931).) That reason was obvousy a
fear that ths Court mght hod that the ta coud not consttutonay be apped to trusts
prevousy created under the cho v. Coodae (27 U. S. 31 T. D. 072, C. . I-2,
3 1 (1927) ) ne of cases. Ths same apprehenson may we have been the underyng
reason for a statement, reed on by the d sent, made on the foor of the ouse that the
resouton was not made retroactve for the reason that we were afrad that the Senate
woud not agree to It. (7 Cong. Rec. 7199 (1931).) Recent cases have ndcated that the
fear of such a consttutona nterpretaton s not a vad one. (Centra anover ank v.
ey, 319 U. S. 9 , 97-98 ; Fernandez v. Wener, 326 U. S. 3 0, 3 Ct. D. 16 7, C. .
19 6-1, 270 .)
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Regs. 10 , 81.17.
refed on May v. ener. In fact, the Government bref argued that May v.
ener on ts facts was dstngushabe from assett v. Wech. The Government
bref aso pontedy nssted that ts poston n assett v. Wech dd not requre
a ree amnaton of the three per curam decsons of March 2, 1031. It was the
Government s soe contenton n the assett and Marsha cases that the 1932
reenactment of the |ont resouton was not mted n appcaton to trusts
thereafter created, but was ntended to make the new 1932 amendment appcabe
to past trust agreements. That contenton was re|ected. The hodng was
mted to that snge queston.
The pan mpcatons of the aock opnon recognze that the assett and
Marsha cases dd not reaffrm the May v. ener doctrne. In the Marsha
case the trust, created n 1920, contaned a provson that shoud the settor
outve the trust benefcary, the trust corpus woud revert to the settor. That
s the very type of provson whch we hed n aock woud requre ncuson
of ts vaue n the settor s estate. Snce the aock case dd not overrue the
Marsha case nvovng a trust created n 1920, t must have accepted the
Marsha and assett cases as decdng no more than that the vaue of the trust
propertes there coud not be ncuded n the decedent s gross estate where the
Government s soe reance was on a retroactve appcaton of the 1931 and 1932
amendments to the estate ta aw.
That the aock opnon dd not treat the assett and Marsha cases as
havng reaffrmed tns court s nterpretaton of the pre-1931 possesson or en|oy-
ment cause s further emphaszed by the effect of the aock case on the type of
trust n McCortnck v. Unmet (283 U. S. 78 ), a trust created before 1931. The
Unted States Court of ppeas n that case had hed that the trust pro erty
shoud be ncuded n the decedent s estate chefy because of the trust provson
that the corpus shoud revert to the settor n the event that she outved her
three chdren. ( 3 Fed. (2d) 277.) Ths Court n ts per wrum opnon
reversed the court of appeas and hed that the McCorrnck corpus need not be
ncuded n the decedent s estate. Our aock case hed drecty the contrary,
for snce aock, the McCorrnck corpus woud have to be ta ed under the
pre-1931 anguage of secton 811(c). In so nterpretng the pre-1931 anguage n
the aock case, we necessary re|ected the contenton made there that the
Congress by passage of the resouton and ths Court by the assett and
Marsha opnons had accepted as correct the May v. ener restrctve Inter-
pretaton of secton 811(c). It s pan that ths Court n the aock case
consdered that the assett and Marsha cases hed no more than that the 1931
and 1932 amendments were prospectve, and that nether the congressona
resouton nor the assett and Marsha cases were desgned to gve new fe and
vgor to the May v. ener doctrne.11
The reance of respondent here on the assett and Marsha cases s mspaced.
We hod that ths trust agreement, because t reserved a fe ncome n the trust
property, was ntended to take effect n possesson or en|oyment at the settor s
death and that the Commssoner therefore propery ncuded the vaue of ts
corpus n the estate.
Reversed.
Mr. ustce ackson concurs n the resut.
Dssentng opnons by Mr. ustce Reed, Mr. ustce Frankfurter, and Mr.
ustce urton.
11 dssent fed n ths case has an append ctng decsons durng the past decade
IN W IC L GISL TI ISTORY W S D CISI OF CONSTRUCTION O P RTICUL R ST TUTORY
PRO ISION. Many other decsons of ess recent date coud aso be cted to estabsh ths
we known fact whch nobody dsputes. ut we thnk here. In the anguage of our opnon
n the aock case, whch opnon was wrtten by the author of today s dssent, that the
actons of Congress reed on n the dssent have not under any ratona canons of egsa-
tve sgnfcance mpedy enacted Into aw a partcuar decson whch, n the
ght of ater e perence, Is seen to create confuson and confct n the appcaton of a
setted prncpe of nterna revenue egsaton. ( evrng v. aock, 309 U. S. 106, 121,
note 7.) The basc setted prncpe now as when aock was wrtten s that where a
trust agreement reserves the settor s possesson or en|oyment of part or a of the trust
property unt death, the vaue of the trust shoud he ncuded n the settor s gross estate.
The arguments n dssent here based on stare decss, egsatve hstory, and possbe
consequences of ths Court s hodng, are strkngy ke the forcefu arguments made n the
aock dssent. ut the persuasve and sound arguments advanced by the Court s spokes-
man In aock were there consdered by the ma|orty of ths Court to be a suffcent
answer to what was sad n the aock dssent. Partcuary forcefu was ths Court s
statement n te aock opnon that we wak on qucksand when we try to fnd In the
absenceftf correctve egsaton a controng ega prncpe.
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Regs. 10 , 81.17.
220
Reguatons 10 , Secton 81.17: Transfers 19 9- -13026
ntended to take effect at or after the Ct. D. 1711
decedent s death.
ST T T INT RN L R NU COD D CISION OF SUPR M COURT
1. Gross state Transfer n Trust Intended To Take ffect
n Possesson or n|oyment at or fter Death Possbty
of Reverter
In 1920 decedent made a transfer n trust of certan stocks to
hmsef and another. Durng Is fe the trust ncome was to be
dvded among hs three chdren; f they dd not survve hm, to
any of ther survvng chdren. On hs death the corpus was to be
dstrbuted n the same manner, but no provson was made for ds-
trbuton of corpus and accumuated ncome shoud decedent survve
a of hs chdren and grandchdren. ed: The vaue of the trust
property and accumuated ncome s ncudbe n decedent s gross
estate under the rue decared n evcrng v. apcf, 309 U. S. 106
(Ct. D. 1 0, C. . 19 0-1, 223), because under the appcabe Inos
aw the trust agreement eft the way open for the property to revert
to decedent n case he outved a the benefcares. Incuson n
the gross estate of a trust corpus under secton 811 (c) of the Interna
Revenue Code s not dependent upon the vaue of the contngent
reversonary nterest, but upon whether after a trust transfer some
present or contngent rght or nterest n the property st remans
n the settor so that fu and compete tte, possesson or en|oyment
does not absoutey pass to the benefcares unt at or. after the
settor s death.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas, Seventh Crcut
(1 9 Fed. (2d) 2 7), afrmed.
Supreme Court of the Unted States
state of Sdney M. Spege, Deceased, atherne . Spege and Robert Mches,
Survvng ecutors under the Last W and Testament of Sdney M. Spege,
Deceased, pettoners, v. Commssoner of Interna Revenue
On wrt of certorar to the Unted States Court of ppeas for the Seventh Crcut
anuary 17, 19 9
opnon
Mr. ustce ack devered the opnon of the Court.
Ths s a Federa estate ta controversy. ere, as n Commssoner v. Church,
ante, page , we granted certorar to consder questons dependent upon the
meanng and appcaton of a provson of secton 811(c) of the Interna Revenue
Code. ( 7 Stat. 169,279,26 U. S. C, secton 811 (c).) The partcuar provson re-
qures ncudng n a decedent s gross estate the vaue at hs death of a property
To the e tent of any nterest theren of whch the decedent has at any tme made
a transfer, by trust or otherwse ntended to take effect n possesson
or en|oyment at or after hs death.
In 1920 Sdney M. Spege, a resdent of Inos, made a transfer by trust
of certan stocks to hmsef and another. e ded n 19 0. Durng hs fe the
trust ncome was to be dvded among hs three chdren; f they dd not survve
hm, to any of ther survvng chdren. On hs death the trust provded that
the corpus was to be dstrbuted n the same manner. ut no provson was
made for dstrbuton of the corpus and ts accumuated ncome shoud Mr.
Spege survve a of hs chdren and grandchdren. For ths reason the
Government has contended that under controng State aw the property woud
have reverted to Mr. Spege had he survved hs desgnated benefcares.
The vaue of the corpus of ths trust was not ncuded n the Spege estate ta
return. The Commssoner concuded that ts vaue wth accumuated rcome,
about 1,1 0,000, shoud have been ncuded n the gross estate under secton
811(c). The Ta Court hed otherwse n an unreported opnon. The Court of
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221
Regs. 10 , 81.17.
ppeas for the Seventh Crcut reversed. (1 9 Fed. (2d) 2 7.) It hed that the
possesson or en|oyment provson of secton 811 (c) requred Incuson of the
vaue of the trust property and accumuated ncome under the rue decared n
everng v. aock (309 U. S. 106 Ct. D. 1 0, C. . 19 0-1, 2211 ), because under
State aw the trust agreement eft the way open for the property to revert to
Mr. Spege n case he outved a the benefcares. Ths hodng rested on the
agreement of partes that whether there was a rght of reverter depended on
Inos aw, and the court s concuson that under Inos aw a rght of reverter
dd e st.1
The aock case on whch the court of appeas reed hed that the vaue of
trust propertes shoud have been ncuded n a settor s gross estate under the
possesson or en|oyment provson where trust agreements had e pressy pro-
vded that the corpus shoud revert to the settor n the event he outved the
benefcares. The ta payer has contended here, as n the Ta Court and the
court of appeas, that the aock rue s not appcabe to ths trust, where the
settor s chance to get back hs property depended on State aw and not on an
e press reservaton by the settor. Ths contenton of the ta payer rests n
part on the argument that secton 811(c) mposes a ta ony where t can be
shown that the settor s ntent was to reserve for hmsef a contngent reversonary
nterest n the property. nother contenton s that the vaue of ths contngent
reversonary nterest was so sma n comparson wth the tota vaue of the corpus
that the aock rue shoud not be apped. thrd contenton s that the court
of appeas hodng was erroneous n that under Inos aw the corpus of ths
trust woud not have reverted to the settor had a the benefcares ded whe
the settor was st vng. Pettoners urge that n that event the Inos
courts woud have hed that the corpus passed to the hers of the ast survvng
benefcary.
We hod that the aock rue was rghty apped by the court of appeas and
we accept Its hodng as to the appcabe Inos aw.
Frst. In Commssoner v. Church, ante, page , we have dscussed the aock
hodng n reaton to the scope of the possesson or en|oyment provson of
secton 811(c) and need not eaborate what we sad there. What we sad demon-
strates that the ta abty of a trust corpus under ths provson of secton 811(c)
does not hnge on a settor s motves, but depends on the nature and operatve
effect of the trust transfer. In the Church case we stated that a trust transacton
cannot be hed to aenate a of a settor s possesson or en|oyment under secton
811(c) uness It effects a bona fde transfer n whch the settor, absoutey,
unequvocay, rrevocaby, and wthout possbe reservatons, parts wth a of
hs tte and a of hs possesson and a of hs en|oyment of the transferred
property. fter such a transfer has been made, the settor must be eft wth
no present ega tte n the property, no possbe reversonary nterest n that
tte, and no rght to possess or to en|oy the property then or thereafter. In
other words such a transfer must be mmedate and out and out, and must be
unaffected by whether the grantor ves or des. We add to that statement, f t
can be conceved of as an addton, that t s mmatera whether such a present
or future nterest, absoute or contngent, remans n the grantor because he
deberatey reserves t or because, wthout consderng the consequences, he con-
veys away ess than a of hs property ownershp and attrbutes, present or
prospectve. In ether event the settor has not parted wth a of hs presenty
e stng or future contngent nterests In the property transferred. e has there-
fore not made that compete knd of trust transfer that secton 811(c) com-
mands as a prerequste to a showng that he has certany and rrevocaby parted
wth hs possesson or en|oyment. ny requrement ess than that whch we
have outned, such as a postdeath attempt to probe the settor s thoughts n
regard to the transfer, woud partay mpar the effectveness of the possesson
or en|oyment provson as an nstrument to frustrate estate ta evasons. To
ths e tent t woud defeat the precse purpose for whch the provson was org-
nated and whch prompted Congress to ncude t n secton 811(c).
Determnaton of such ssues as ownershp, possesson, en|oyment, whether
transfers have been made and the reach of those transfers, may nvove many
questons of fact. nd we have hed n many cases that to the e tent the deter-
mnaton of such ssues depends upon fact fndng, many dfferent facts may be
Ths court of appeas Interpretaton nn appcaton of secton 811(e) was n confct
wth the hodng of the Thrd Crcut n Commssoner of Interna Revenue v. Church s
state (161 Fed. (2d) 11). We granted certorar n both cases, arguments have been
heard together, and we have today reversed the Church case, ante, page .
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Regs. 10 , 81.17.
222
reevant. These fact ssues n Federa ta cases are for the Ta Court to decde
n cases brought before t.
In ths case the Ta Court made fndngs of fact and then decded aganst the
Government. It dd so, however, by hodng as a matter of aw that those facts
dd not requre ncuson of the vaue of ths corpus n the settor s estate.1 ut
the Ta Court s fndngs of fact showed that the trust contaned no provson
for dsposton of the corpus shoud the settor outve the benefcares. Ths fnd-
ng of fact, whch we accept, pus the court of appeas determnaton of controng
Inos aw, wthout more, brngs ths trust transacton wthn the scope of the
possesson or en|oyment provson of secton 811(c) as we have nterpreted that
secton n the aock and Church cases. nd pettoner has not contended that
t was dened an opportunty to present any reevant evdence concernng owner-
shp, possesson, or en|oyment. It s therefore not necessary to remand the case
to the Ta Court for any further fndng of facts. See ormv v. everng (312
U. S. 2, 9- 60 Ct. D. 1 98, C. . 19 1-1, 31 ).
Second. It s contended that snce the monetary vaue of the settor s con-
tngent reversonary nterest s sma n comparson wth the tota vaue of
the corpus, the possesson or en|oyment provson of secton 811(c) shoud
not be apped. ut ncuson of a trust corpus under that provson s not
dependent upon the vaue of the reversonary nterest. Fdety-Phadepha
Trust Co. v. Rothenses, 32 U. S. 108, 112 Ct. D. 1630, C. . 19 , 06 ; Comms-
soner v. state of Fed, 32 U. S. 113, 116 Ct. D. 1631, C. . 19 , 08 ; see God-
stone v. Unted States, 32 U. S. 687, 691 Ct. D. 16 , C. . 19 , 398 .) The
queston s not how much s the vaue of a reservaton, but whether after a trust
transfer, consdered by Congress to be a potentay dangerous ta evason trans-
acton, some present or contngent rght or nterest n the property st remans
n the settor so that fu and compete tte, possesson or en|oyment does not
absoutey pass to the benefcares unt at or after the settor s death. See
Smth v. Shaughnessy (318 U. S. 176, 181).
Thrd. It Is contended that under Inos aw the corpuR of ths trust woud
not have reverted to the settor had he outved the benefcares. The record
reveas that the State aw probem here s not an easy one, but under ths Court s
decson n Meredth v. Wnter aven (320 U. S. 228), the dffcuty nvoved dd
not reeve the court of appeas of ts duty to make a decson. The questoned
rung was made by three |udges who are constanty requred to pass upon Inos
aw questons. One of the three |udges has ong been a resdent and awyer of
Inos. amnaton of the Inos State court opnons pressed upon us eaves
us unabe to say wth any degree of certanty that the court of appeas hodng
was wrong. It s certany nether nove nor unreasonabe for State aw to pro-
vde that when a trust benefcares de the trust corpus shoud revert to the
donor. It woud be whoy unproftabe for us to anayze Inos cases on the
pont here urged. It s suffcent for us to say that we thnk reasonabe argu-
ments can be made based on Inos cases to support a determnaton of ths ques-
ton ether for or aganst the pettoner s contenton. Under these crcumstances
we w foow our genera pocy and eave undsturbed ths court of appeas
hodng on a queston of State aw.3
other arguments of the pettoners have been noted and we fnd them
wthout mert.
ffrmed.
Mr. ustce ackson dssents.
Concurrng opnon by Mr. ustce Reed.
Dssentng opnons by Mr. ustce Frankfurter and Mr. ustce urton.
The Ta Court s concuson of aw that the possesson or en|oyment cause of secton
811(c) was nappcabe to the facts of ths trust rested In part on ts beef that Renecke
. Northern Trust Co. (278 U. S. 339 IT. D. 201, C. . III-1, 30 (1929) ) had decded
the ssue. ut the aock case was decded after Renecke, and the queston here nvoved
was not specfcay rased n the Renecke case. Nor dd the Court s opnon n that case,
wrtten by the ate Chef ustce Stone, ndcate that a transfer of bare ega tte n a
transfer must aways be accepted as a concusve showng that the possesson and en|oy-
ment provson of secton 811 (c) cannot be apped to the trust corpus. Cf. Court s opnon
n arrson v. Schaffner (312 U. S. 70 Ct. D. 1 03, C. . 19 1-1, 321 ). wrtten by Chef
ustce Stone.
everng v. Stuart (317 U. S. 1 , 162-16 Ct. D. 1 66, C. . 19 2-2, 198 ) ; cf.
Steee v. Genera Ms (329 U. S. 33).
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223
Regs. 10 , 81. .
S CTION 812(d), S M ND D
Reguatons 10 , Secton 81. : Transfer for 19 9-3-13019
pubc, chartabe, regous, etc., uses. Ct. D. 1709
( so Secton 81. 6.)
ST T T INT RN L R NU COD D CISION OF SUPR M COURT
1. Gross state Deductons Chartabe equest n Reman-
der Possbty of Invason of Corpus for eneft of Lfe
enefcary.
Under the terms of decedent s w, hs entre gross estate was
bequeathed to trustees to hod n trust for hs mother durng her fe.
The w drected payment of 7 0 a mouth to be used by hs mother
as she saw ft, and n the event the trust ncome was nsuffcent, the
e ecutors and trustees were empowered to encroach on corpus to
pay such amount. In addton, they were authorzed to use n ther
dscreton ether ncome or prncpa for the peasure, comfort and
wefare of my mother, a paragraph n the w statng that The
frst ob|ect to be accompshed s to take care of and pro-
vde for my mother n such manner as she may desre .
t the mother s death, after the payment of certan egaces, the ba-
ance of the estate was to be pad to four named chartes, n equa
shares. ed: The possbty of nvason of corpus on behaf of de-
cedent s mother prevented the utmate chartabe nterest, at hs
death, from beng presenty ascertanabe, and hence severabe
from the nterest n favor of the prvate use, wthn the meanng of
secton 81. of Reguatons 10 . It s not sgnfcant that the trust
corpus was ntact at the mother s death, for the test of present
ascertanabty of the utmate chartabe nterest s apped at
the death of the decedent.
2. Decson Foowed.
Merchants ank v. Commssoner, 320 U. S. 2 7 (Ct. D. 1 91, C. .
19 3, 1123), foowed.
3. Decson Reversed.
Decson of the Unted States Court of ppeas, S th Crcut
(166 Fed. (2d) 993), reversng 7 Fed. Supp. 113, reversed.
Supreme Court of the Unted States
pe ensee, ndvduay, now resdng n Davdson County, Tenn., Coector
of Interna Revenue, Dstrct of Tennessee, pettoner, v. Unon Panters
Natona ank Trust Co., a natona bank at Memphs, Tenn., et a., etc.
On wrt of certorar to the Unted Stutes Court of ppeas for the S th Crcut
T anuary 3, 19 9
OPINION
Per Curam : Respondents are the e ecutors and trustees of the estate of
Wam ate Wams. They brought ths acton for refund, wth nterest, of
. 3 ,899.12 of Federa estate ta es and nterest pad under protest. The ree-
vant facts, set forth n respondents compant and admtted by the coector s
moton to dsmss, are as foows:
Wam ate Wams ded n 19 3. Under the terms of hs w, the entre
gross estate of 08, 11.17 was bequeathed to respondents to hod n trust for
the testator s
beoved mother, zabeth ate Wams, for and durng her natura fe,
wth the fu power and authorty heren conferred.
I hereby drect both my e ecutors and my trustees to pay to my mother
the sum of seven hundred ffty (7 0.00) doars a month to be used by her
as she sees ft. In the event the ncome from my estate s not suffcent
to pay te sad seven hundred ffty ( 7 0.00) doars each month, then my
e ecutors and trustees are hereby empowered, authorzed and drected to
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Regs. 10 , 81. .
22
encroach on the corpus of the estate to pay sad amount and to se any
of my property, rea or persona, for ths purpose.
In addton to ths amount my sad e ecutors and trustees are authorzed
and empowered to use and e pend n ther dscreton any porton of my
estate, ether ncome or prncpa, for the peasure, comfort and wefare
of my mother.
The frst ob|ect to be accompshed n the admnstraton and manage-
ment of my estate and ths trust s to take care of and provde for my
mother n such manner as she may desre and my e ecutors and trustees
are fuy authorzed and kewse drected to manage my estate prmary
for ths purpose.
The w went on to provde for dstrbuton of the corpus of the estate re-
manng at the mother s death. Twenty-fve percent of the tota remanng
estate was bequeathed to the testator s cousn, and stated sums n cash were
eft to other named egatees. fter these egaces, the baance of the estate
was drected to be pad over to four named chartes, n equa shares.
t the tme of the testator s death the estate was earnng a net ncome of
appro matey 1 ,000 per year, 0,000 more than the amount drected to be
pad, at 7 0 per month, to the testator s mother. The mother at that tme was
8 years od, ved on substantay ess than 7 0 per month, and had nde-
pendent nvestments worth appro matey 100,000 whch netted her an ncome
of about 300 per month. woman of moderate needs and wthout dependents,
she ded 3 years ater wthout havng requested respondents to nvade the trust
corpus n her behaf.
The dsputed estate ta abty resuted from respondents attempt to deduct
from the gross estate the porton bequeathed to the four chartes, n reance
on the chartabe deducton provson of secton 812(d) of the Interna Revenue
Code.1 The Commssoner dened the deducton. The coector here ressts the
refund cam, on the ground that the possbty of nvason of the corpus on
behaf of the testator s mother prevented the utmate chartabe nterest, at
the testator s death, from beng presenty ascertanabe, and hence severabe
from the nterest n favor of the prvate use, wthn the meanng of the ap-
pcabe Treasury Reguaton.
On the authorty of Merchants ank v. Commssoner, 320 U. S. 2 6 Ct. D.
1 91, C. . 19 3, 1123 , the dstrct court granted the coector s moton to ds-
mss. (7 Fed. Supp. 113.) The court of appeas reversed. (166 Fed. (2d)
903.) It hed that, notwthstandng the anguage of the testamentary provson
for the peasure, comfort and wefare of the mother, the compant s aega-
tons of the mother s great age, ndependent means and modest tastes rased
a trabe ssue of fact as to whether the trust corpus was threatened wth n-
vason and the chartabe nterest hence sub|ect to depeton n favor of the
testator s mother.
We agree wth the dstrct court that ths case s governed by the decson
n the Merchants ank case and that the sut shoud be dsmssed. It s ap-
parent on the face of the compant that ths testator s w dd not mt the
trustees dsbursements to conformty wth some ready standard as where,
for e ampe, trustees are to provde the prme benefcary wth such sums as may
be necessary to sutaby mantan her n as much comfort as she now en|oys.
(Ithaca Trust Co. v. Unted States, 279 U. S. 1 1, 1 Ct. D. 61, C. . III-1,
313 (1929) .) The stated ncome here drected to be pad to the mother was
to be used by her as she sees ft. eyond ths the trustees were empowered
to nvade or whoy utze the corpus of the estate for the mother s peasure,
comfort and wefare, bearng n mnd the testator s n|uncton that The frst
ob|ect to be accompshed s to take care of and provde for my
1 26 U. S. C, secton 812(d), 3 Stat. 12 -12 , as amended by Revenue ct of 19 2, sec-
ton 08(a), 6 Stat. 9 9. and Revenue ct of 19 3, secton 11(a), 8 Stat. 7 -7 .
2 If a trust s created for both a chartabe and a prvate purpose, deducton may be
taken of the vaue of the benefca Interest n favor of the former ony nsofar as such
Interest Is presenty ascertanabe, and hence severabe from the nterest n favor of the
prvate use. (U. S. Treasury Reguatons 10 . secton 81. (19 2).) Cf. d.
at secton 81. 6 : If the egatee, devsee, donee, or trustee s empowered to dvert the prop-
erty or fund, n whoe or n part, to a use or purpose whch woud have rendered t. to the
e tent that t s sub|ect to such power, not deductbe had t been drecty so bequeathed,
devsed, or gven by the decedent, deducton w be mted to that porton, f any, of the
property or fund whch s e empt from an e ercse of such power.
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22
Regs. 10 , 81. .
mother n such manner as she may desre s n the Merchants
ank case, where the trustees had dscreton to dsburse sums for the com-
fort, support, mantenance, and/or happness of the prme benefcary, so here
we thnk t the saent fact that the purposes for whch the wdow
coud, and mght wsh to have the funds spent do not end themseves to reabe
predcton. (320 U. S. 2 G, 262.)
We do not overook the unkehood that a woman of the mother s age and
crcumstances woud abandon her customary frugaty and squander her son s
weath. ut, though there may have been tte chance of that e travagance
whch woud waste a part or consume the whoe of the chartabe nterest, that
chance remaned. What common e perence mght regard as remote n the gen-
eraty of cases may nonetheess be beyond the ream of precse predcton n
the snge nstance. The contngency whch woud have dmnshed or destroyed
the chartabe nterest here consdered mght we have been nsured aganst,
but such an arthmetc generazaton of e perence woud not have made ths
chartabe nterest presenty ascertanabe. Rough guesses, appro ma-
tons, or even the reatvey accurate vauatons on whch the market pace mght
be wng to act are not suffcent. (Merchants ank v. Commssoner, supra,
at 261.)
or do we thnk t sgnfcant that the trust corpus was ntact at the mother s
death, for the test of present ascertanabty of the utmate chartabe nterest
s apped at the death of the testator. (Ibd.) The chartabe deducton s
a matter of congressona grace, and t s for Congress to determne the ad-
vsabty of permttng amendment of estate ta returns at such tme as the
probabe vestng of the chartabe nterest has reduced tsef to unaterabe
fact.
Reversed.
Mr. ustce Douoas and Mr. ustce ackson dssent upon the grounds stated
n dssent n Merchants ank v. Commssoner, 320 U. S. 2 7, at 263.
Dssentng opnon by Mr. ustce Frankfurter.
In vew of the e press prorty accorded the mother s wshes, respondents fducary
duty to the utmnte benefcares, prvate and chartabe, was neffectve to guarantee
preservaton of any predctabe fracton of the corpus for dsposton after the mother s
death. The testator, ndeed, made the pfts to chnrty subordnate not ony to hs mother s
nterest but to that of a the prvate benefcares, statng n hs w that the chartabe
Interest s a resduary bequest and s not to nfrnge on any of the other
egaces herenbefore provded.
T he fundamenta queston n the case at bar, s not whether ths contngent
Interest can he nsured aganst or Its vaue guessed at, but what constructon sha be
gven to a statute. Dd Congress n provdng for the determnaton of the net estate
ta abe. Intend that a deducton shoud be made for a contngency, the actua vaue of
whch cannot be determned from any known data Nether ta payer, nor revenue offcer
even t equpped wth a the ad whch the actuara art can suppy coud do more than
uess at the vaue of ths contngency. It s cear that Congress dd not Intend that a de-
ucton shoud be made for a contngent gft of that character. umeu v. Unted States,
276 U. S. 87. 9 T. D. 18 , C. . 1I-2, 378 (1928) .)
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Regs. 108, 86.2(a), etc. 226
GIFT T
INT RN L R NU COD
Reguatons 108, Sectons 86.2(a), tc. 19 9-12-1310
T. D. 698
TITL 26. INT RN L R NU . C PT R I, SU C PT R . P RT 86.
GIFT T UND R C PT R OF T INT RN L R NU COD , S
M ND D
Reguatons 108 amended to conform to the Revenue ct of 19 8
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On November 6, 19 8, notce of proposed rue makng, regardng
the gft ta provsons of the Revenue ct of 19 8, enacted pr
2,19 8, was pubshed n the Federa Regster (13 F. R. 6 76). fter
consderaton of a such reevant matter as was presented by n-
terested persons regardng the rues proposed, the amendments to
Reguatons 108 26 CFR, Part 86 set forth beow are hereby adopted.
Such amendments are necessary n order to conform such reguatons
to the Revenue ct of 19 8.
Paragraph 1. There s nserted mmedatey precedng secton 86.1
26 CFR 86.1 the foowng:
S C. 371. GIFTS OF COMMUNITY PROP RTY. (R NU CT
OF 10 8; N CT D PRIL 2, 10 8.)
Secton 1000(d) of the Interna Revenue Code (reatng to gfts of
property hed as communty property) s amended by addng at the end
thereof a new sentence to read as foows: Ths subsecton sha be
appcabe ony to gfts made after the caendar year 19 2 and on or
before the date of the enactment of the Revenue ct of 19 8.
S C. 37 . GIFT OF US ND OR WIF TO T IRD P RTY.
(R NU CT OF 19 8; N CT D PRIL 2, 19 8.)
Secton 1000 of the Interna Revenue Code (reatng to mposton of
gft ta ) Is hereby amended by addng at the end thereof a new sub-
secton to read as foows:
(f) Gft of usband ok Wfe to Thrd Pabtt.
(1) Consdered as made one-haf dt each.
( ) In Genera. gft made after the date of the enact-
ment of the Revenue ct of 19 8 by one spouse to any person
other than hs spouse sha, for the purposes of ths chapter, be
consdered as made one-haf by hm and one-haf by hs spouse,
but ony f at the tme of the gft each spouse s a ctzen or
resdent of the Unted States. Ths subparagraph sha not
appy wth respect to a gft by a spouse of an nterest n prop-
erty f he creates n hs spouse a power of appontment, as
denned n subsecton (c) of ths secton, over such nterest.
For the purposes of ths subsecton an ndvdua sha be
consdered as the spouse of another ndvdua ony f he s
marred to such ndvdua at the tme of the gft and does
not remarry durng the remander of the caendar year.
( ) Consent of oth Spouses. Subparagraph ( ) sha
be appcabe ony f both spouses have sgnfed (n accord-
ance wth the reguatons provded for n paragraph (2))
ther consent to the appcaton of subparagraph ( ) n the
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227 Regs. 108, 86.2(a), etc.
case of a such gfts made durng the caendar year by ether
whe marred to the other.
(2) Manneb and tme of sgnfyng consent.
( ) Manner. consent under ths subsecton sha be
sgnfed n such manner as s provded under reguatons
prescrbed by the Commssoner wth the approva of the
Secretary.
( ) Tme. Such consent may be so sgnfed at any tme
after the cose of the caendar year n whch the gft was made,
sub|ect to the foowng mtatons
() the consent may not be sgnfed after the 1 th day
of March foowng the cose of such year, uness before
such 1 th day no return has been fed for such year by
ether spouse, n whch case the consent may not be sgn-
fed after a return for such year s fed by ether spouse;
(11) the consent may not be sgnfed after a notce of de-
fcency wth respect to the ta for such year has been sent
to ether spouse n accordance wth secton 1012(a).
(3) Revocaton of consent. Revocaton of a consent prevousy
sgnfed sha be made n such manner as s provded under regua-
tons prescrbed by the Commssoner wth the approva of the Sec-
retary, but the rght to revoke a consent prevousy sgnfed wth
respect to a caendar year
( ) sha not e st after the 1 th day of March foowng
the cose of such year f the consent was sgnfed on or before
such 1 th day; and
( ) sha not e st f the consent was not sgnfed unt after
such 1 th day.
( ) ont and severa abty fob ta . If the consent re-
qured by paragraph (1) ( ) s sgnfed wth respect to a gft made
n any caendar year the abty wth respect to the entre ta
mposed by ths chapter of each spouse for such year sha be |ont
and severa.
Par. 2. Secton 86.2(a) 26 CFR 86.2(a) s amended as foows:
( ) y nsertng mmedatey after the seventh sentence (n
parentheses), the foowng:
Where a ont ncome ta return s fed under chapter 1 by husband and wfe
for a ta abe year the payment by one spouse of a or port of the ncome ta
abty for such year s not treated as resutng n a transfer whch s sub|ect
to gft ta . The same rue s appcabe to the payment of gft ta for a caendar
year n the case of husband and wfe who have consented to the appcaton of
secton 1000(f) for such year.
( ) y nsertng at the end thereof the foowng:
(9) Where property hed by a husband and wfe as communty property s
used to purchase nsurance upon the husband s fe and a thrd person s rev-
ocaby desgnated as benefcary and under the State aw the husband s death
s consdered to make absoute the transfer by the wfe, there s a gft by the
wfe at the tme of such death of one-haf the amount of the proceeds of such
nsurance. (For speca provsons wth respect to transfers of communty
property after 19 2 and on or before pr 2, 19 8, see subsecton (c) of ths
secton.)
Par. 3. Secton 86.2(c) 26 CFR 86.2(c) s amended as foows:
( ) y nsertng n the headng mmedatey foowng and
precedng the perod the foowng: and on or before pr 2,19 .
( ) y strkng from the frst sentence Durng the caendar year
19 3 and any caendar year thereafter any gft and by nsertng n
eu thereof the foowng: ny gft after December 31, 19 2, and on
or before pr 2,19 8, .
(C) y strkng from the ast sentence of the second undesgnated
paragraph on or after anuary 1,19 3 and by nsertng n eu there-
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Regs. 108, 86.2(a), etc. 228
of the foowng: after December 31, 19 2, and on or before pr
2, 19 8 .
Par. . There s nserted mmedatey foowng secton 86.3 26
CFR 86.3 the foowng:
Sec. 86.3a. Gft of usband or Wfe to Thrd Party fter pr 2, 19 8.
(a) In genera. Secton 1000(f), as added by secton 37 of the Revenue ct
of 19 8, makes provson whereby a gft made after pr 2, 19 8, by one spouse
to a person other than hs spouse may, for the purpose of the gft ta , be con-
sdered as made one-haf by hm and one-haf by hs spouse, but ony f at the
tme of the gft each spouse was a ctzen or resdent of the Unted States. For
the purposes of secton 1000(f) an ndvdua s to be consdered as the spouse
of another ndvdua ony f he s marred to such ndvdua at the tme of the
gft and does not remarry durng the remander of the caendar year.
The provsons of secton 1000(f) w appy ony f both spouses consent. s
to the manner and tme of sgnfyng such consent, see paragraph (6) of ths
secton. Such consent, f sgnfed wth respect to any caendar year, s effectve
wth respect to a gfts made to thrd partes durng such year, e cept as
foows:
(1) If the consentng spouses were not marred to each other durng a
porton of the caendar year, the consent s not effectve wth respect to
any gft made durng such porton of the caendar year.
(2) If ether spouse was a nonresdent not a ctzen of the Unted States
durng any porton of the caendar year, the consent s not effectve wth
respect to any gft made durng such porton of the caendar year.
(3) The consent s not effectve wth respect to a gft by one spouse of a
property nterest f he created n hs spouse a power of appontment (as
defned n secton 1000(c)) over such property nterest.
( ) If one spouse transferred property n part to hs spouse and n part
to thrd partes, the consent s effectve wth respect to the nterest trans-
ferred to thrd partes ony nsofar as such nterest s ascertanabe at the
tme of the gft, and hence severabe from the nterest transferred to hs
spouse. Secton 86.19(/) ndcates the prncpes to be apped n the
vauaton of annutes, fe estates, terms for years, remanders and
reversons.
( ) consent sgnfed for the caendar year 19 8 s not effectve wth
respect to gfts made on or before pr 2,19 8.
The consent appes ake to gfts made by one spouse aone and to gfts made
party by each spouse, provded such gfts were to thrd partes and do not fa
wthn any of the foregong e ceptons. The consent may not be apped ony
to a porton of the property nterests consttutng such gfts.
If consent to the appcaton of the provsons of secton 1000(f) s sgnfed
as provded n paragraph (6) for any caendar year and not revoked as provded
n paragraph (o), the abty wth respect to the entre gft ta of each spouse
for such caendar year sha be |ont and severa.
(6) Manner and tme of sgnfyng consent. Consent to the appcaton of
the provsons of secton 1000(f) wth respect to a caendar year sha, n order
to be effectve, be sgnfed by both spouses. If both spouses fe gft ta returns.
Form 709, wthn the tme for sgnfyng consent t s suffcent f (1) the consent
of both spouses s sgnfed on one of such returns or (2) the consent of one
spouse s sgnfed on one such return and the consent of the other spouse
s sgnfed on the other return. If ony one spouse fes a gft ta return wthn
the tme provded for sgnfyng consent, the consent of both spouses sha be
sgnfed on such return. owever, wherever possbe notce of the consent s
to be shown on both returns. The consent may be revoked ony as provded n
paragraph (c) of ths secton. ( s to whether one or both spouses are requred
to fe returns, see secton 86.20.) Where one spouse fes more than one Form
709 for a caendar year on or before the 1 th day of March foowng the cose
of such year, the ast Form 709 so fed w, for the purpose of determnng
whether a consent has been sgnfed, be consdered as the return.
The consent may be so sgnfed at any tme after the cose of the caendar year,
sub|ect to the foowng mtatons
(1) the consent may not be sgnfed after the 1 th day of March foowng
the cose of such year, uness before such 1 th day no return has been fed
for such year by ether spouse, n whch case the consent may not be sg-
nfed after a return for such year s fed by ether spouse; and
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229
Regs. 108, 86.2(a), etc
(2) the consent may not be sgnfed after a notce of defcency wth re-
spect to the ta for such year has been sent to ether spouse n accordance
wth secton 1012(a).
The e ecutor or admnstrator of a deceased spouse or the guardan or com-
mttee of a egay ncompetent spouse, as the case may be, may sgnfy such
consent.
s to the preparaton of the return n case consent s sgnfed, see secton
86.23.
(c) Revocaton of consent. It the consent to the appcaton of the provsons
of secton 1000(f) wth respect to a caendar year was effectvey sgnfed on
or before the 1 th day of March foowng the cose of such year, ether spouse
may revoke such consent by fng n dupcate wth the coector of nterna
revenue a sgned statement of revocaton; but the rght to revoke sha not e st
after such 1 th day. consent whch was not effectvey sgnfed unt after
the oth day of March foowng the cose of the caendar year to whch t ap-
pes may not be revoked.
Par. . Secton 86.7 26 CFR 86.7 s amended by nsertng mme-
datey after the s th sentence thereof the foowng:
Where a consent under secton 1000(f) was effectvey sgnfed wth respect to
any precedng caendar year, the aggregate sum of the net gfts for such precedng
caendar year s to be determned pursuant to the provsons of such secton.
Par. 6. Secton 86.9 26 CFR 86.9 s amended by changng the ast
sentence thereof to read as foows: (See sectons 86.12 to 86.16d,
ncusve.)
Par. 7. There s nserted mmedatey precedng secton 86.12 26
CFR 86.12 the foowng:
S C. 372. M RIT L D DUCTION. (R NU CT OF 19 8; N-
CT D PRIL 2, 19 8.)
Secton 100 (a) of the Interna Revenue Code (reatng to deductons
n computng net gfts n the case of a ctzen or resdent of the Unted
States) s hereby amended by addng at the end thereof a new paragraph
to read as foows:
(3) Gft to spouse.
( ) In Genera. Where the donor transfers durng the
caendar year (and after the date of the enactment of the
Revenue ct of 19 8) by gft an nterest n property to a donee
w ho at the tme of the gft s the donor s spouse an amount
wth respect to such nterest equa to one-haf of ts vaue.
( ) Lfe state or Other Termnabe Interest. Where,
upon the apse of tme, upon the occurrence of an event or con-
tngency, or upon the faure of an event or contngency to occur,
such nterest transferred to the spouse w termnate or fa,
no deducton sha be aowed wth respect to such nterest
() f the donor retans n hmsef, or transfers or has
transferred (for ess than an adequate and fu consdera-
ton n money or money s worth) to any person other than
such donee spouse (or the estate of such spouse), an nterest
n such property, and f by reason of such retenton or trans-
fer the donor (or hs hers or assgns) or such person (or
hs hers or assgns) may possess or en|oy any part of such
property after such termnaton or faure of the nterest
transferred to the donee spouse; or
() f the donor mmedatey after the transfer to the
donee spouse has a power to appont an nterest n such
property whch he can e ercse (ether aone or n con-
|uncton wth any person) n such manner that the ap-
pontee may possess or en|oy any part of such property after
such termnaton or faure of the nterest transferred to
the donee spouse. For the purposes of ths cause the donor
sha be consdered as havng mmedatey after the transfer
to the donee spouse such power to appont even though such
power cannot be e ercsed unt after the apse of tme, upon
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Regs. 108, 86.2(o), etc.
230
the occurrence of an event or contngency, or upon the
faure of an event or contngency to occur.
n e ercse or reease at any tme by the donor, ether aone or
n con|uncton wth any person, of a power to appont an nterest
n property, even though not otherwse a transfer, sha, for
the purposes of cause () of ths subparagraph, be consdered as
a transfer by hm. cept as provded n subparagraph ( ),
where at the tme of the transfer t s mpossbe to ascertan the
partcuar person or persons who may receve from the donor an
Interest n property so transferred by hm, such nterest sha,
for the purposes of cause () of ths subparagraph, be consdered
as transferred to a person other than the donee spouse.
(C) Where the assets out of whch, or the proceeds of whch,
the nterest transferred to the donee spouse may be satsfed
ncude a partcuar asset or assets wth respect to whch no
deducton woud be aowed f such asset or assets were trans-
ferred from the donor to such spouse, then the vaue of the
nterest transferred to such spouse sha, for the purposes of
subparagraph ( ), be reduced by the aggregate vaue of such
partcuar assets.
(D) ont Interests. If the nterest s transferred to the
donee spouse as soe |ont tenant wth the donor or as tenant
by the entrety, the nterest of the donor n the property whch
e sts soey by reason of the possbty that the donor may
survve the donee spouse, or that there may occur a severance of
the tenancy, sha not be consdered for the purposes of sub-
paragraph ( .) as an nterest retaned by the donor n hmsef.
( ) Trust wth Power of ppontment n Donee Spouse.
Where the donor transfers n trust an nterest n property, f
under the terms of the trust hs spouse s entted for fe to
a the ncome from the corpus of the trust, payabe annuay
or at more frequent ntervas, wth power n the donee spouse
to appont the entre corpus free of the trust (e ercsabe n favor
of such donee spouse, or of the estate of such donee spouse, or
n favor of ether, whether or not n each case the power s
e ercsabe n favor of others), and wth no power n any other
person to appont any part of the corpus to any person other
than the donee spouse
() the nterest so transferred n trust sha, for the pur-
poses of subparagraph ( ), be consdered as transferred to
the donee spouse, and
() no part of the nterest so transferred n trust sha,
for the purposes of subparagraph ( ) (), be consdered as
retaned n the donor or transferred to any person other
than the donee spouse.
Ths subparagraph sha be appcabe ony f, under the terms of
the trust, such power n the donee spouse to appont the corpus,
whether e ercsabe by w or durng fe, s e ercsabe by such
spouse aone and n a events.
(F) Communty Property.
() deducton otherwse aowabe under ths para-
graph sha be aowed ony to the e tent that the transfer
can be shown to represent a gft of property whch s not,
at the tme of the gft, hed as communty property under
the aw of any State, Terrtory, or possesson of the Unted
States, or of any foregn country.
() For the purposes of cause (), communty property
(e cept property whch s consdered as communty prop-
erty soey by reason of the provsons of cause ())
sha not be consdered as hed as communty property f
the entre vaue of such property (and not merey one-haf
thereof) s treated as the amount of the gft.
() If durng the caendar year 19 2 or after the date
of the enactment of the Revenue ct of 19 8, property hed
as such communty property (uness consdered by reason of
cause () as not so hed) was by the donor and the donee
spouse converted, by one transacton or a seres of trans-
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231 Regs. 108, 86.2(a), etc.
actons, nto separate property of the donor and such spouse
(ncudng any form of coownershp by them), the separate
property so acqured by the donor and any property acqured
at any tme by the donor In e change therefor (by one e -
change or a seres of e changes) sha, for the purposes of
cause (), be consdered as hed as communty property .
(v) Where the vaue (at the tme of such converson) of
the separate property so acqured by the donor e ceeded the
vaue (at such tme) of the separate property so acqured by
such spouse, the rue n cause () sha be apped ony
wth respect to the same porton of such separate property
of the donor as the porton whch the vaue (as of such
tme) of such separate property so acqured by such spouse
Is of the vaue (as of such tme) of the separate property
so acqured by the donor.
S C. 373. T C NIC L M NDM NT. (R NU CT OP 19 8;
N CT D PRIL 2, 19 8.)
Secton 100 (c) of the Interna Revenue Code Is hereby amended
to read as foows:
(c) tent of Deductons. The deductons provded n subsecton
(a) (2) or (3) or n subsecton (b) sha be aowed ony to the e tent
that the gfts theren specfed are Incuded n the amount of gfts
aganst whch such deductons are apped.
Par. 8. There s nserted mmedatey foowng secton 86.16 26
CFR 86.16 the foowng:
Sec. 86.16a. Gfts to Spouse fteb pr 2, 19 8. (a) owance of marta
deducton. In determnng the amount of net gfts for the caendar year 19 9 or
for any caendar year thereafter, n the case of a donor who was a ctzen or
resdent of the Unted States at the tme the gft was made, there may be
deducted an amount equa to one-haf the vaue of any property Interest (e cept
as otherwse provded heren or n sectons 86.16b and 86.16c) transferred by
gft to a donee who at the tme of the gft was the donor s spouse. Such
deducton s aso authorzed for the caendar year 19 8, e cept wth respect to
gfts made on or before pr 2, 19 8. Such deducton s herenafter referred
to as the marta deducton.
No marta deducton s authorzed wth respect to a gft n case the donor
was, at the tme of the gft, a nonresdent not a ctzen of the Unted States.
owever, f the donor was, at the tme of the gft, a ctzen or resdent, he s
not deprved of the rght to the marta deducton by reason of the fact that hs
spouse was a nonresdent not a ctzen.
For convenence the donor s spouse s generay referred to n the femnne
gender, but f the donor s a woman the reference s to her husband.
(6) Trust wth power of appontment n donee spouse. In the case of property
Interests transferred by the donor n trust, If the terms of the trust satsfy the
fve condtons stated n the ne t sentence, the donor s spouse s (for the purpose
of determnng the marta deducton) consdered as the donee, not ony of her
benefca nterest theren, but aso of the nterest theren sub|ect to her power to
appont. The fve condtons whch must be satsfed by the terms of the trust
are as foows:
(1) The donee spouse must be entted for fe to a the Income from the
the corpus of the trust.
(2) Such ncome must be payabe annuay or at more frequent, ntervas.
(3) The donee spouse must have the power, e ercsabe In favor of hersef
or of her estate, to appont the entre corpus free of the trust.
( ) Such power In the donee spouse must be e ercsabe by such spouse
aone and (whether e ercsabe by w or durng fe) must be e ercsabe
n a events.
( ) The corpus of the trust must not be sub|ect to a power In any other
person to appont any part thereof to any person other than the donee spouse.
In determnng whether the above-stated condtons (1) to ( ), ncusve, are
satsfed by the terms of the trust, regard s to be had to the appcabe provsons
of the aw of the |ursdcton governng the admnstraton of the trust. For
e ampe, sence of the trust as to the frequency of payment w not be regarded
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Regs. 108, 86.2(a), etc.
232
as a faure to satsfy condton (2) n case the appcabe aw requres payment
to be made annuay or more frequenty.
The donor s spouse s entted for fe to a the ncome from the corpus of the
trust, wthn the meanng of secton 100 (a) (3) ( ), f the effect of the trust s
to gve her substantay that degree of benefca en|oyment of the trust property
durng her fe whch the prncpes of the aw of trusts accord to a person who
s unquafedy desgnated as the fe benefcary of a trust. Such degree of en-
|oyment s gven ony f t was the donor s ntenton, as manfested by the terms of
the trust nstrument and the surroundng crcumstances, that the trust shoud
produce for the spouse durng her fe sueh an ncome, or that the spouse shoud
have such use of the trust property, as s consstent wth the vaue of the trust
corpus and wth ts preservaton. The desgnaton of the spouse as soe ncome
benefcary for fe w be suffcent to quafy the trust uness the terms of the
trust consdered as a whoe evdence an ntenton to deprve the spouse of the
requste degree of en|oyment. In determnng whether a trust evdences such
ntenton the treatment requred or permtted wth respect to ndvdua tems
must be consdered n reaton to the entre system provded for the admnstra-
ton of the trust.
If the over-a effect of the trust Is to gve to the donor s spouse such enforceabe
rghts as w preserve to her the requste degree of en|oyment, t s mmatera
whether such resut s effected by rues specfcay stated n the trust nstrument,
or, n ther absence, by the rues for the management of the trust property and
the aocaton of recepts and e pendtures supped by the State aw. For
e ampe, where the State aw does not provde for amortzaton of bond premum,
a provson n the trust nstrument for such amortzaton by approprate perodc
charges to nterest w not dsquafy the trust.
The rues to be apped by the trustee n aocaton of recepts and e penses be-
tween ncome and corpus must be consdered n reaton to the nature and e pected
productvty of the assets transferred n trust, the nature and frequency of occur-
rence of the e pected recepts, and any provsons as to change n the form of
nvestments. Where t s evdent from the nature of the trust assets and the
rues provded for management of the trust that the aocaton to ncome of such
recepts as rents, ordnary cash dvdends and Interest w gve to the spouse
the substanta en|oyment durng fe requred by the statute, provsons that such
recepts as stock dvdends and proceeds from the converson of trust assets sha
be treated as corpus w not dsquafy the trust. Smary, provson for a
depeton charge aganst ncome n the case of trust assets whch are sub|ect
to depeton w not dsquafy the trust, uness the effect s to deprve the spouse
of the requste benefca en|oyment. The same prncpe Is appcabe n the
case of deprecaton, trustees commssons, and other charges.
Provsons grantng admnstratve powers to the trustee w not have the
effect of dsquafyng the trust uness the grant of such powers evdences the
ntenton to deprve the spouse of the benefca en|oyment requred by the
statute. Such ntenton w not be consdered to e st f the entre terms of the
nstrument are such that the oca courts w mpose reasonabe mtatons
upon the e ercse of such powers. mong the powers whch f sub|ect to such
mtatons w not dsquafy the trust are the power to aocate recepts
between ncome and corpus, the power to determne the charges whch sha be
made aganst ncome and corpus, the power to appy the Income for the beneft
of the spouse, and the power to retan the assets transferred n trust. For
e ampe, a power to retan trust assets whch consst substantay of unpro-
ductve property w not dsquafy f the appcabe rues for the admnstraton
of the trust requre the trustee to ether make the property productve or convert
t wthn a reasonabe tme. Nor w such a power dsquafy f such appcabe
rues requre the trustee to use the degree of |udgment and care n the e ercse
of the power whch a prudent man woud use f he were owner of the trust assets.
power to retan a resdence for the spouse or other property for her persona
use w not dsquafy the trust
trust w not quafy f ts prmary purpose s to safeguard property wthout
provdng the spouse wth the requred benefca en|oyment. Such trusts ncude
not ony trusts whch e pressy provde for the accumuaton of the ncome but
aso trusts whch ndrecty accompsh a smar purpose. For e ampe, assume
that the corpus of a trust conssts substantay of property whch s not key
to be ncome producng durng the fe of the spouse and that such spouse cannot
compe the trustee to convert or otherwse dea wth the property as descrbed
above. Such a trust w not quafy uness the trustee s drected to provde the
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233 Regs. 108, 86.2(a), etc.
requred benefca en|oyment, such as by payments to the spouse out of other
assets of the trust.
If the donee spouse s entted to ony a porton of the trust ncome, or has
power to appont ony a porton of the corpus, the trust fas to satsfy condtons
(1) and (3), respectvey. owever, such condtons may be satsfed by one or
more of severa separate trusts created by the donor. n undvded nterest n
property may consttute the corpus of a trust, and a snge trust nstrument may
create more than one trust.
trust fas to satsfy condton (1) f the ncome s requred to be accumu-
ated n whoe or n part, or may be accumuated n the dscreton of any person
other than the donee spouse, f the consent of any person other than the donee
spouse s requred as a condton precedent to dstrbuton of the Income, f any
person other than the donee spouse has the power to ater the terms of the
trust so as to deprve such spouse of her rght to the ncome, or f any person
other than the donee spouse s entted to any part of the ncome durng the fe of
such spouse. trust w not fa to satsfy condton (1) merey because ts
terms provde that the rght of the spouse to the ncome sha not be sub|ect to
assgnment, aenaton, pedge, attachment or cams of credtors.
The terms entted for fe and payabe annuay or more frequenty, as
used n condtons (1) and (2), requre that under the terms of the trust the
ncome referred to must be currenty (at east annuay) dstrbutabe to the
spouse or that she must have such command over the ncome that t s vrtuay
hers. Thus, condtons (1) and (2) are satsfed n ths respect f, under the
terms of the trust nstrument, the spouse has the rght e ercsabe annuay
(or more frequenty) to requre dstrbuton to hersef of the trust Income, and
otherwse the trust ncome s to be accumuated and added to corpus. Smary,
as respects the ncome for the perod between the ast dstrbuton date and the
date of the spouse s death, t s suffcent f such ncome s sub|ect to the spouse s
power to appont. In the case of a trust whch may be termnated durng the
fe of the donee spouse, under her e ercse of a power of appontment or by
dstrbuton of the corpus to her, the trust satsfes condton (1) f such spouse
s entted to the ncome unt the trust termnates.
In order to satsfy condtons (3) and ( ), the power of the donor s spouse to
appont the entre corpus free of the trust must fa wthn one of the foowng
categores:
(1) a power so to appont fuy e ercsabe n her own favor at any tme
durng fe (as for e ampe, an unmted power to nvade).
() a power so to appont e ercsabe n favor of her estate. Such power,
f e ercsabe durng fe, must be fuy e ercsabe at any tme durng fe,
or If e ercsabe by w, must be fuy e ercsabe rrespectve of the tme
of her death.
( ) a combnaton of the powers descrbed under (I) and (). For
e ampe, the donor s spouse may unt she attans the age of r 0 years have
a power to appont to hersef and thereafter have a power to appont to
her estate. owever, condton ( ) s not satsfed uness rrespectve
of when the spouse may de the trust corpus w at the tme of her death
be sub|ect to one or the other such power.
The power n the donee spouse must be a power to appont the corpus to hersef
as unquafed owner or to appont the corpus as a part of her estate; that s,
n efTect, to dspose of t to whomsoever she peases. Thus, f the donee spouse en-
tered nto a bndng agreement wth the donor to e ercse the power ony n favor
of ther ssue, condton (3) s not met. The trust w not e regarded as fang
to satsfy condton (3) merey because takers n defaut of the donee spouse s
e ercse of the power are desgnated by the donor. The donor may provde that,
n defaut of e ercse of the power, the trust sha contnue for an addtona
perod.
In order for condton ( ) to be satsfed, the power n the donee spouse to
appont the corpus to hersef or to her estate must be e ercsabe wthout the
|onder or consent of any other person. The power Is not e ercsabe n a
events, as requred by secton 100 (a)(3)( ), f t can be termnated durng
the fe of the donee spouse by any event other than her compete e ercse or
reease thereof. For e ampe, a power whch s not e ercsabe n the event of
the spouse s remarrage s not e ercsabe n a events. If the power In the
donee spouse s n e stence at a tmes foowng creaton of the trust, mta-
tons of a forma nature w not dsquafy. ampes of forma mtatons on
a power e ercsabe durng fe are requrements that e ercse must be n a
8 16 9 16
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Regs. 108, 86.2(a), etc. 23
partcuar form, that t must be fed wth the trustee, that reasonabe notce
must be gven or that resonabe ntervas must eapse between successve parta
e ercses. ampes of forma mtatons on a power e ercsabe by w are
that t must be e ercsed by a w e ecuted by the donee spouse after the
creaton of the trust by the donor or that e ercse must be by specfc reference
to the power.
The trust w fa to satsfy condton ( ) f the donor created a power n
the trustee, or n another person, to nvade the corpus of the trust for the beneft
of any person other than the donee spouse. owever, ony powers n otber
persons whch are n opposton to that of the donee spouse w cause the trust
to fa to satsfy condton ( ). For e ampe, assume that a donor created a
trust, desgnatng hs donee spouse as ncome benefcary for fe and as donee
of a power to appont the corpus. The donor further provded that n the event
the donee spouse shoud de wthout havng evercsed the power, the trust shoud
contnue for the fe of hs son wth power n such son to appont the corpus.
Snce the power n the son coud become e ercsabe ony after the death of the
donee spouse, the trust s not regarded as fang to satsfy condton ( ).
(c) Remander nterests. Where the ncome from property s made payabe
to the donor or another ndvdua for fe, or for a term of years, wth remander
absoutey to the donor s spouse or to her estate, the marta deducton s equa
to one-haf the present vaue of the remander. It shoud be noted, however, that
where such remander Is dstrbutabe to the estate of the donor s spouse (or to
her e ecutors or admnstrators) n the event of her death pror to the termna-
ton of a trust or of a precedent nterest, the marta deducton s aowabe ony
f under such crcumstances the remander nterest woud be ncudbe n her
gross estate under secton 811(a). The present vaue of the remander (that
s, ts vaue as of the date of the gft) s to be determned n accordance wth
the rues stated n secton 86.19(f). For e ampe, f the donor s spouse s to re-
ceve 0,000 upon the death of a person aged 31 years, the present vaue of the
remander s 1 ,631. (See e ampe n secton 86.19(f) (6).) If the remander
s such that ts vaue s to be determned by a speca computaton (see secton
86.19(f) ( )), a request for a specfc factor accompaned by a statement of the
date of brth of each person, the duraton of whose fe may affect the vaue of
the remander, and by copes of the reevant nstruments may be submtted to
the Commssoner who n hs dscreton may suppy the factor requested. If the
Commssoner does not furnsh the factor, the cam for deducton must be sup-
ported by a fu statement of the computaton of the present worth made, n ac-
cordance wth the prncpes set forth n secton 86.19(f), by one sked n
actuara computatons.
( ) Lmtaton on deducton. Under the provsons of secton 100 (c), as
amended by secton 373 of the Revenue ct of 19 8, the marta deducton Is
aowabe ony to the e tent that the gfts wth respect to whch such deducton
s authorzed are ncuded n the tota amount of gfts made durng the caendar
year computed as provded n secton 1003. (See secton 86.10.) The mta-
ton under secton 100 (c) s effectve where ess than one-haf of the gfts wth
respect to whch the deducton s authorzed s ncuded n such tota amount
of gfts.
ampe. The ony gfts made by a donor to hs spouse durng the caendar
year 19 8 were a gft of 3,000 n May and a gft of 2,000 n ugust. The frst
3,000 of such gfts s e cuded under the provsons of secton 1003 n determnng
the tota amount of gfts made durng the caendar year. The marta de-
ducton of 2, 00 (one-haf of 3,000 pus one-haf of 2,000) otherwse aowabe
s mted by secton 100 (c) to 2,000.
Sec. 80.16b. Gft ok Lfe state or Other Termnabe Interest. (a) In
genera. The provsons of secton 100 (a)(3)( ) generay prevent the a-
owance of the marta deducton wth respect to certan property nterests (re-
ferred to generay as termnabe nterests ) transferred to the donee spouse,
n case the transfer was upon the terms descrbed n paragraph (6), (c), or (d)
of ths secton. In genera, the provsons of secton 100 (a) (3) ( ) are appca-
be n case the donor transferred an nterest n property to the donee spouse and
aso (1) transferred an nterest n the same property to another donee, or (2)
retaned an nterest n the same property n hmsef, or (3) retaned a power to
appont an nterest n the same property. Under such crcumstances, f the
other donee, the donor, or the possbe appontee, may, by reason of such trans-
fer or retenton, possess or en|oy any part of the property after the termnaton
or faure of the nterest theren transferred to the donee spouse, no marta de-
ducton may be taken wth respect to such transfer to the donee spouse.
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23
Regs. 108, 86.2(a), etc
For the purposes of ths secton, a dstncton s to be drawn between prop-
erty, as such term s used n secton 100 (a) (3), and an nterest n property.
The property referred to s the underyng property n whch varous Interests
e st; each such nterest s not, for ths purpose, to be consdered as property.
The e presson termnabe nterest refers to a fe estate, an estate for years,
or any other property nterest whch, upon the apse of tme, upon the occurrence
of an event or contngency, or upon the faure of an event or contngency to
occur, w termnate or fa.
(6) Interest n property wheh another donee may possess or en|oy. Secton
100 (a) (3) ( ) provdes that no marta deducton sha be aowed wth respect
to the transfer to the donee spouse of a termnabe nterest n property, n
case
(1) The donor transferred (for ess than an adequate and fu con-
sderaton n money or money s worth) an nterest n the same property to
any person other than the donee spouse (or the estate of such spouse), and
(2) y reason of such transfer, such person (or hs hers or assgns)
may possess or en|oy any part of such property after the termnaton or fa-
ure of the nterest theren transferred to the donee spouse.
The above-stated provson s appcabe whether the transfer to the person other
than the donee spouse was made at the same tme as the transfer to such spouse,
or at any earer tme.
cept as provded n paragraph (6) of secton 86.16a, where at the tme of
the transfer t s mpossbe to ascertan the partcuar person or persons who
may receve a property nterest transferred by the donor, such nterest sha,
for the purpose of secton 100 (a)(3)( ), be consdered as transferred to a
person other than the donee spouse. Ths rue Is partcuary appcabe n the
case of the transfer of a property nterest by the donor sub|ect to a reserved
power. (See secton 86.3.) Under ths rue, any property nterest over whch
the donor reserved a power to revest the benefca tte n hmsef, or over whch
the donor reserved the power to name new benefcares or to change the nterests
of the benefcares as between themseves, s, for the purpose of secton
100 (a)(3)( ), consdered as transferred to a person other than the donee
spouse. Thus, f a donor transferred property n trust, namng hs wfe as
ncome benefcary for 10 years, and provdng that, upon the e praton of
such term, the corpus shoud be dstrbuted among hs wfe and chdren n such
proportons as he shoud determne, the rght to the corpus s, for the purpose
of the marta deducton, consdered as transferred to a person other than the
donee spouse. Or, f the donor had provded that, upon the e praton of the
10-year term, the corpus was to be pad to hs wfe, but had reserved the power
to revest such corpus n hmsef nstead, the rght to the corpus s, for the pur-
pose of the marta deducton, consdered as transferred to a person other than
the donee spouse.
Under the above-stated rue, the term person other than the donee spouse
ncudes the possbe unascertaned takers of a property nterest, as, for e ampe,
the members of a cass to be ascertaned n the future. s another e ampe,
assume that the donor created a power of appontment over a property nterest,
whch does not come wthn the purvew of paragraph (6) of secton 86.16a. In
such a case, the term person other than the donee spouse refers to the possbe
appontees and possbe takers In defaut (other than the spouse) of such property
nterest.
n e ercse or reease at any tme by the donor (ether aone or n con|uncton
wth any person) of a power to appont an nterest n property, even though not
otherwse a transfer by hm, sha, In determnng for the purpose of secton
100 (a) (3) ( ) whether he transferred an nterest n such property to a person
other than the donee spouse, be consdered as a transfer by hm.
In the foowng e ampes t s assumed that the property nterest whch the
donor transferred to a person other than the donee spouse was not for an adequate
and fu consderaton n money or money s worth :
(I) (the donor) transferred rea property to W (hs wfe) for fe,
wth remander to and hs hers. No marta deducton may be taken wth
respect to the nterest transferred to W, snce t w termnate upon her
death and (or hs hers or assgns) w thereafter possess or en|oy the
property.
() transferred rea property to W for fe, and created n W a power,
e ercsabe by w, to appont the remander nterest to any person. In
defaut of appontment by W, the remander nterest was to go to and hs
hers. ssumng that under the oca aw W dd not take the rea property
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Regs. 108, 86.2(o), etc.
236
as absoute owner, nor as trustee of a trust meetng the requrements of
secton 8C.16a(6), no marta deducton may be taken wth respect to the
nterest whch passed from to W, snce such nterest w termnate upon
her death and (or hs hers or assgns) may thereafter possess or en|oy
the property. ( s to cases n whch a marta deducton may be taken where
a fe nterest s couped wth a power to appont under a trust, see paragraph
(6) of secton 86.16a.)
() transferred property n trust for the beneft of W and . The
trust ncome was payabe to W for fe, and upon her death the corpus was
to be dstrbuted to or hs ssue. owever, f -shoud de wthout ssue,
eavng W survvng, the corpus was then to be dstrbuted to W. No marta
deducton may be taken wth respect to the nterest transferred to W, snce
t w termnate n the event of her death f or hs ssue survve, and
or hs ssue w thereafter possess or en|oy the property.
(v) purchased for 100,000 a fe annuty for W. If the annuty pay-
ments made durng the fe of W shoud be ess than 100,000, further pay-
ments were to be made to . No marta deducton may be taken wth
respect to the nterest transferred to W, snce may possess or en|oy a part
of the property foowng the termnaton of such nterest. If, however,
the contract provded for no contnuaton of payments, and provded for
no refund upon the death of W or provded that any refund was to go to
the estate of W, then a marta deducton may be taken wth respect to
the gft.
(v) transferred property to W and as |ont tenants wth rght of
survvorshp. No marta deducton may be taken wth respect to the
Interest transferred to W, snce, f the tenancy s not severed and sur-
vves W, the nterest of W w termnate and w contnue to possess or
en|oy the property.
(vt) transferred property to for fe wth remander to W provded
W survves , but f W predeceases , the property s to pass to and hs
hers. No marta deducton may be taken wth respect to the Interest
transferred to W.
(v) transferred rea property to , reservng the rght to the rentas
of the property for a term of 20 years. ater transferred the rght to the
remanng rentas to a trust. The terms of the tmst satsfy the fve cond-
tons stated n paragraph (6) of secton 86.16a, so that the nterest trans-
ferred n trust s consdered as transferred soey to W. No marta deduc-
ton may be taken wth respect to such nterest, snce t w termnate upon
the e praton of the baance of the 20-year term and w thereafter possess
or en|oy the property.
(v) transferred a patent to W and as tenants In common. In ths
case, the nterest of W w termnate upon the e praton of the term of
the patent, but possesson and en|oyment of the property by must neces-
sary cease at the same tme. Therefore, snce s possesson or en|oyment
cannot outast the termnaton of W s nterest, the provsons of secton
100 (a) (3) ( ) do not dsaow the marta deducton wth respect to such
nterest.
(c) Interest n property whch the donor may possess or en|oy. Secton
100 (a)(3)( ) aso provdes that no marta deducton sha be aowed wth
respect to the transfer to the donee spouse of a termnabe nterest In prop-
erty, n case
(1) The donor retaned n hmsef an nterest n the same property, and
(2) y reason of such retenton, the donor (or hs hers or assgns) may
possess or en|oy any part of such property after the termnaton or faure
of the nterest theren transferred to the donee spouse.
owever, secton 100 (a)(3)(D) provdes that f a property nterest s
transferred to the donee spouse as soe |ont tenant wth the donor or as tenant
by the entrety, the nterest of the donor n the property whch e sts soey by
reason of the possbty that the donor may survve the donee spouse, or that
there may occur a severance of the tenancy, s not for the purposes of secton
100 (a) (3) ( ), to be consdered as an nterest retaned by the donor n hmsef.
Under ths provson, the fact that the donor may, as survvng tenant, possess or
en|oy the property after the termnaton of the nterest theren transferred to
the donee spouse does not precude the aowance of the marta deducton wth
respect to the atter nterest.
In genera, the prncpes Iustrated by the e ampes under paragraph (6) of
ths secton are appcabe n determnng whether the marta deducton may be
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237 Regs. 108, 86.2(a), etc.
taken wth respect to a property Interest transferred to the donee spouse sub|ect
to the retenton by the donor of an Interest n the same property.
ampe. The donor purchased three annuty contracts for the beneft of hs
wfe and hmsef. The frst contract provded for payments to the wfe for fe,
wt h refund to the donor n case the aggregate payments made to the wfe were
ess than the cost of the contract The second contract provded for payments
to the donor for fe, and then to the wfe for fe If she survved the donor. The
thrd contract provded for payments to the donor and hs wfe for ther |ont
ves, and then to the survvor of them for fe. No marta deducton may be
taken wth respect to the gfts consummated by the purchase of the contracts
snce, n the case of each contract, the donor may possess or en|oy a part of the
property after the termnaton or faure of the Interest theren transferred to
the wfe.
(d) Interest n property over whch the donor retaned a power to appont.
Secton 100 (a) (3) ( ) aso provdes that no marta deducton sha be aowed
wth respect to the transfer to the donee spouse of a termnabe Interest In
property, n case
(1) The donor had, mmedatey after such transfer, a power to appont
an nterest n the same property, and
(2) Such power was e ercsabe (ether aone or n con|uncton wth any
person) n such manner that the appontee may possess or en|oy any part
of such property after the termnaton or faure of the nterest theren
transferred to the donee spouse.
For the purposes of secton 100 (a)(3)( ), the donor s to be consdered as
havng, mmedatey after the transfer to the donee spouse, such a power to
appont even though such power cannot be e ercsed unt after the apse of tme,
upon the occurrence of an event or contngency, or upon the faure of an event
or contngency to occur. It s Immatera whether the power retaned by the
donor was a ta abe power of appontment under secton 1000(c).
In genera, the prncpes ustrated by the e ampes under paragraph (6) of
ths secton are appcabe n determnng whether the marta deducton may
be taken wth respect to a property nterest transferred to the donee spouse
sub|ect to retenton by the donor of a power to appont an Interest n the same
property.
ampe. The donor, havng a power of appontment over certan property,
apponted a fe estate theren to hs spouse. No marta deducton may be taken
wth respect to such transfer, snce, f the retaned power s e ercsed, the ap-
pontee thereunder may possess or en|oy the property after the termnaton or
faure of the nterest taken by the donee spouse.
(e) Interest payabe out of a group of assets. Secton 100 (a)(3)(C) pro-
vdes that where the assets out of whch, or the proceeds of whch, an nterest
transferred to the donee spouse may be satsfed ncude a partcuar asset or
assets wth respect to whch no deducton woud be aowed f such asset or assets
were transferred from the donor to such spouse, then the vaue of the nterest
transferred to such spouse sha, for the purpose of the marta deducton, be
reduced by the aggregate vaue of such partcuar assets.
In order for the foregong provson to appy, two crcumstances must coe st,
as foows:
(1) The property Interest transferred to the donee spouse must be pay-
abe out of a group of assets. n e ampe of a pro erty nterest payabe
out of a group of assets Is a rght to a share of the corpus of a trust upon
ts termnaton.
(2) The group of assets out of whch the property Interest s payabe must
Incude one or more partcuar assets whch, f transferred by the donor to
the donee spouse, woud not quafy for the marta deducton.
If the above crcumstances are bot present, the marta deducton wth re-
spect to such property nterest may not e ceed one-haf of the e cess, f any, of
Its vaue over the aggregate vaue of the partcuar asset or assets whch, If
transferred to the donee spouse, woud not quafy for the marta deducton.
Sec. 86.16c. Gft of Communty Property. (a) Genera. The marta de-
ducton s aowabe wth respect to any transfer by a donor to hs spouse ony
to the e tent that such transfer can be shown to represent a gft of property
whch was not, at the tme of the gft, hed as communty property, as de-
fned n paragraph (6) of ths secton. The burden of estabshng the e tent
to whch a transfer represents a gft of property not so hed rests upon the donor.
(6) Defnton of communty property. For the purpose of paragraph (a)
of ths secton, the term communty property s consdered to ncude:
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Regs. 108, 86.2(a), etc. 238
(1) ny property hed by the donor and hs spouse as communty property
under the aw of any State, Terrtory, or possesson of the Unted States, or
of any foregn country, e cept such property n whch the donee spouse had
at the tme of the gft merey an e pectant nterest. The donee spouse s
regarded as havng, at any partcuar tme, merey an e pectant nterest
n property hed at such tme by the donor and hersef as communty prop-
erty under the aw of any State, Terrtory, or possesson of the Unted States,
or of any foregn country, f, n case such property were transferred by gft
nto the separate property of the donee spouse, the entre vaue of such
property (and not merey one-haf thereof) woud be treated as the amount
of the gft.
(2) Separate property acqured by the donor as a resut of a converson
(durng the caendar year 19 2 or after pr 2, 19 8) of property hed by
hm and the donee spouse as communty property under the aw of any State,
Terrtory, or possesson of the Unted States, or of any foregn country
(e cept such property n whch the donee spouse had at the tme of the
converson merey an e pectant nterest) nto ther separate property.
(3) Property acqured by the donor n e change (by one e change or a
seres of e changes) for separate property resutng from such a
converson.
The characterstcs of property whch acqured a noncommunty nstead of
a communty status by reason of an agreement (whether antenupta or post-
nupta) are such that secton 100 (a)(3)(F) cassfes the property as com-
munty property of the donor and hs spouse n the computaton of the marta
deducton. In dstngushng property whch thus acqured a noncommunty
status from property whch acqured such a status soey by operaton of the
communty property aw, secton 100 (a(3) (F) refers to the former category
of property as separate property acqured as a resut of a converson of
property hed as such communty property. s used n secton 100 (a) (3) (F),
the phrase property hed as such communty property s used to denote the
body of property comprehended wthn the communty property system; the
e presson separate property ncudes any noncommunty property (whether
hed n ont tenancy, tenancy by the entrety, tenancy n common, or otherwse) :
and the term converson ncudes any transacton or agreement whch trans-
forms property from a communty status nto a noncommunty status.
The separate property whch secton 100 (a) (3) (F) cassfes as communty
property s not mted to that whch was n e stence at the tme of the con-
verson. The foowng are ustratve of the scope of secton 100 (a) (3) (F) :
partton of communty property between husband and wfe, whereby a por-
ton of such property became the separate property of each, s a converson of
such property; a transfer of communty property nto some other form of co-
ownershp, such as a |ont tenancy, s a converson of such property; an agree-
ment (whether made before or after marrage) that future earnngs and gans
whch woud otherwse be communty property sha be shared by them as Sep
arate property effects a converson of such earnngs and gans; a change n the
form of ownershp of property whch causes the future rentas therefrom, whch
woud otherwse have been acqured as communty property, to be acqured as
separate property effects a converson of such rentas.
The rues of secton 100 (a) (3) (F) are appcabe, however, ony f the con-
verson took pace durng the caendar year 19 2 or after pr 2, 19 8, and ony
to the e tent stated heren.
Where the vaue of the separate property acqured by the donor as a resut
of a converson dd not e ceed the vaue of the separate property thus acqured
by the donee spouse, the entre separate property thus acqured by the donor
s to be consdered, for the purposes of ths secton, as hed by hm and the donee
spouse as communty property. Where the vaue (at the tme of the converson)
of the separate property so acqured by the donor e ceeded the vaue (at such
tme) of the separate property so acqured by the donee spouse, ony a part of
the separate property so acqured by the donor (and ony the same fractona
part of property acqured by hm n e change for such separate property) s
to be consdered, for the purposes of ths secton, as hed by hm and the donee
spouse as communty property. The part of such separate property (or property
acqured n e change therefor) whch s consdered as so hed s the same pro-
porton thereof whch the vaue (at the tme of the converson) of the separate
property so acqured by the donee spouse s of the vaue (at such tme) of the
separate property so acqured by the donor.
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239
Regs. 108, 86.2(a), etc.
ampe. On November 1, 19 2, the donor and hs spouse parttoned certan
rea property hed by them under communty property aws. The rea property
then had a vaue of 22 ,000. porton of such property, then havng a vaue
of 160,000, was converted nto the donor s separate property, and the remanng
porton, then havng a vaue of 6 ,000, was converted Into hs spouse s separate
property. On ugust 1, 19 8, the donor made a gft to hs spouse of the property
acqured by hm as a resut of the partton, whch property then had a vaue of
200,000. The porton of the property transferred by gft whch s consdered as
communty property Is
200,000 80,000
The marta deducton wth respect to the gft s, therefore, mted to one-haf
of the dfference between 200,000 (the vaue of the gft) and 80,000 (the porton
of the gft consdered to have been of communty property ). The marta
deducton wth respect to the gft, s, therefore, 60,000.
Sec. 86.16d. Proof Requred. The donor must submt such proof as s neces-
sary to estabsh the rght to the marta deducton, ncudng any evdence re-
quested by the Commssoner.
Pak. 9. Secton 86.20 26 CFR 86.20 s amended as foows:
( ) y strkng the headng and by nsertng n eu thereof the
foowng: Persons Requred to Fe Return. (a) In genera.
( ) y nsertng at the end thereof the foowng paragraph:
(6) In case of consent under secton 1000(f). cept as otherwse provded
heren, the provsons of paragraph (a) of ths secton are appcabe wth respect
to the fng of a gft ta return or returns for the caendar year 19 8 or any
subsequent caendar year n the case of a husband and wfe who consent (see
secton 86.3a) to the appcaton of the provsons of secton 1000(f) for such
year. In such cases, f both of the consentng spouses are (wthout regard to
the provsons of secton 1000(f)) requred under the provsons of paragraph (a)
of ths secton to fe returns for such year, returns must be fed by bot spouses.
If ony one of the consentng spouses s (wthout regard to the provsons of sec-
ton 1000(f)) requred under the provsons of such paragraph (a) to fe a
return for such year, a return must be fed by such spouse. In the atter case,
f after gvng effect to the provsons of secton 1000(f) the other spouse s
consdered to have made any gft (regardess of vaue) of a future nterest n
property or any gft or gfts to any one thrd-party donee e ceedng 3,000 n
vaue, then a return for such year must aso be fed by such other spouse. Thus,
f durng any such caendar year the husband made a gft of ,000 to a son and
the wfe made no gfts, ony the husband s requred to fe a return for such
year. owever, f the wfe had made a gft of 2,000 to the same son, or f the
gft made by the husband had amounted to 7,000, each spouse woud be requred
to fe a return n the event consent s sgnfed as provded under secton 1000(f).
Par. 10. Secton 86.21, as amended by Treasury Decson 608 C. .
19 8-1, 131 , approved March 19, 19 8 26 CFR 86.21 , s further
amended by nsertng mmedatey precedng the ast sentence thereof
the foowng sentence:
Where a husband and wfe consent (or contempate consentng) that gfts made
by ether of them to thrd-party donees durng the caendar year 19 8 or any
subsequent caendar year sha be consdered as made one-haf by each spouse,
as provded by secton 1000(f), the notce on Form 710 sha, nevertheess, Identfy
the actua donor.
Par. 11. Secton 86.23 26 CFR 86.23 s amended by nsertng m-
medatey after the s th sentence thereof the foowng:
If the return s fed for the caendar year 19 8 or for any caendar year thereafter
and the donor and hs spouse consent (see secton 86.3a) to the appcaton of the
provsons of secton 1000(f) for such year the return must set forth, to the
e tent provded thereon, nformaton wth respect to transfers made by each
spouse.
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Regs. 108, 86.2(a), etc. 2 0
Par. 12. Secton 86.3 26 CFR 86.3 s amended by nsertng m-
medatey after the thrd sentence thereof the foowng:
If a husband and wfe effectvey sgnfy consent (see secton 86.3a) to the
appcaton of the provsons of secton 1000(f) for any caendar year, the
abty wth respect to the entre gft ta of each spouse for such caendar year
sha be |ont and severa.
(Ths Treasury Decson s ssued under authorty contaned n sec-
tons 1029 and 3791 of the Interna Revenue Code ( 3 Stat. 1 7, 67;
U. S. C. 1029, 3791) and pursuant to the provsons of Pubc Law 71,
ghteth Congress.)
Feed S. Martn,
ctng Commssoner of Interna Revenue.
pproved May 13, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 18, 19 9, 8: 0 a. m.)
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2 1
Regs. 71 (19 1), 113.33.
ST MP T S
INT RN L R NU COD
S CTION 1802(a). ORIGIN L ISSU
Reguatons 71 (19 1), Secton 113.22: Issu-
ance of stock.
19 9-9-13077
M. T. 37
Labty for stamp ta mposed by secton 1802(a) of the Interna
Revenue Code on the orgna ssue of stock attaches at the tme
the subscrpton for stock s uncondtonay accepted, and t s not
matera that the stock certfcates are ssued at a ater tme or are
not ssued at a.
dvce s requested concernng the abty for stamp ta on the
orgna ssue of stock where the subscrpton for stock s uncondton-
ay accepted but the stock certfcates are ssued at a ater tme or
are not ssued at a.
Under the provsons of secton 113.22 of Reguatons 71 stock s
deemed to be ssued when subscrbed for and the subscrpton s
accepted.
ccordngy, abty for stamp ta mposed by secton 1802(a)
of the Code on the orgna ssue of stock attaches at the tme the
subscrpton for stock s uncondtonay accepted. Where abty
for the ta has been so ncurred, t s not matera that the stock cer-
tfcates are ssued at a ater tme or are not ssued at a.
S CTION 1802(b). S L S ND TR NSF RS
Reguatons 71 (19 1), Secton 113.33: Saes and 19 9- 130 8
transfers sub|ect to ta . M. T. 3
ppcaton of the ta on the sae and transfer of stock mposed
by secton 1802(b) of the Interna Revenue Code to the sae of stock
receved as a dvdend by a trustee.
dvce s requested whether the sae of stock by a trustee, under the
crcumstances stated heren, w ncur ony one transfer ta .
It s stated that under the terms of a trust nstrument a stock dv-
dend receved by the trustee s apportoned to ncome and that the
benefcary, havng power of dsposton of ncome, drects that the
stock dvdend be sod.
It s hed, under the crcumstances stated, that the ony ta ncurred
under secton 1802(b) of the Code s on the sae of the stock by the
trustee. owever, n any case where the stock s frst transferred by
the trustee to the benefcary and then sod by the benefcary, two
transfer ta es are ncurred, one on the transfer of the stock to the
benefcary and the second on ts sae by the benefcary.
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Regs. 71 (19 1), 113.127. 2 2
S CTION 1802(b). S L S ND TR NSF RS
Reguatons 71 (19 1), Secton 113.3 : Specfc 19 9-8-1306
e emptons provded n Secton 1802(b). M. T. 36
The specfc e emptons from ta provded by secton 1802(b)
of the Interna Revenue Code do not appy to a transfer of stock
from the name of one nomnee of a broker to the name of another
nomnee of the same broker.
dvce s requested whether the specfc e emptons provded by
secton 1802(b) of the Interna Revenue Code are appcabe to a
transfer of stock from one nomnee of a broker to another nomnee of
the same broker.
Under secton 1802(b) of the Code the ta does not appy to dev-
eres or transfers (1) to a broker or hs regstered nomnee for sae.
(2) by a broker or hs regstered nomnee to a customer for whom
and upon whose order the stock was purchased, or (3) by a purchas-
ng broker to hs regstered nomnee f the shares so transferred are
hed for the same purpose as f hed by the broker.
It s hed, snce the transfer of stock from the name of one nom-
nee of a broker to the name of another nomnee of the same broker
does not fa wthn one of the foregong specfc e emptons, that
such a transfer s ta abe under secton 1802(b) of the Code.
Reguatons 71 (19 1), Secton 113.127. 19 9-9-13078
T. D. 69
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 118.
DOCUM NT RY ST MP T S
empton of certan securtes and conveyances of carrers
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 71 (19 1 edton) (26 CFR. Part
113 to Pubc Law 78 ( ghteth Congress, second sesson), ap-
proved pr 9, 19 8 C. . 19 8-1, 23 , such reguatons are hereby
amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
113.120 26 CFR 113.120 the foowng:
INT RST T COMM RC CT
S CURITI S ND CON Y NC S OF C RRI RS
Secton 20b (12) of Interstate Commerce ct. added by ct of pr 9,
19 s, Pubc Law 78 ( ghteth Congress, second sesson)
The provsons of sectons 1S01, 1802, 3 81, and 3 82 of the Interna
Revenue Code and any amendments thereto, uness specfcay provd-
ng to the contrary, sha not appy to the ssuance, transfer, or e change
of securtes or the makng or devery of conveyances to make effectve
any ateraton or modfcaton effected pursuant to ths secton.
Par. 2. There s nserted mmedatey foowng secton 113.126 the
foowng:
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2 3
Regs. 66, rt. 8.
Sec. 113.127. teraton and Modfcaton of Securtes Under the Inter-
state Commerce ct. Secton 201) added to the Interstate Commerce ct by
secton 2 of the ct approved pr 9, 19 8, Pubc Law 78 ( ghteth Congress,
second sesson), provdes for ateraton or modfcaton of securtes of a carrer
as denned n secton 20a(1). Paragraph (12) of secton 20b, effectve on and
after pr 9, 19 8, renders sectons 1801, 1802, 3 81, and 3 82 of the Interna
Revenue Code and any amendments thereto, uness specfcay provdng to the
contrary, nappcabe to the ssuance, transfer, or e change of securtes or the
makng or devery of conveyances to make effectve any ateraton or modfca-
ton effected pursuant to such secton 20b.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C.
3791).)
ecause the purpose of ths Treasury Decson s merey to conform
the reguatons to the provsons of secton 20b(1 2) as added to the
Interstate Commerce ct by the ct approved pr 9, 19 8, Pubc
Law 78 ( ghteth Congress), grantng mmunty from stamp ta
as to certan securtes and conveyances, t s found that t s un-
necessary to ssue ths Treasury Decson 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.
Ths Treasury Decson sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr 7, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 12, 19 9, 8: 9 a. m.)
S CTION 1807. PL YING C RDS
Reguatons 66, rtce 8: Ta on payng cards. 19 9-6-130 7
M. T. 33
Payng cards removed from stamped packages and reassembed
nto trck decks cannot be returned to the packages and sod under
a broken stamp. new stamp must be aff ed to each package and
duy canceed.
dvce s requested whether payng cards, whch have been re-
moved from stamped packages and reassembed nto trck decks, may
be returned to the packages and sod wthout aff ng a new stamp to
each package.
Secton 1807 of the Interna Revenue Code, as amended, mposes
upon every pack of payng cards contanng not more than cards,
manufactured or mported, and sod, or removed for consumpton
or sae, a ta of 13 cents per pack.
rtce 8 of Reguatons 66 provdes n part that where packages of
payng cards are sent out from the factory duy stamped and are
thereafter opened and the stamp broken, the cards cannot be returned
to the packages and sod under a broken stamp; a new stamp must be
aff ed to each package and duy canceed.
rtce of Reguatons 66 ncudes n the defnton of a manufac-
turer of payng cards a person who packs or repacks for sae payng
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Regs. 66, rt. 8.
2
cards upon whch the ta had been prevousy pad. Such person s
requred by artce 6 of the reguatons to regster on Form 277,
appropratey modfed, wth the coector of nterna revenue for hs
dstrct.
ccordngy, a person who repacks for Sae payng cards upon
whch the ta had been prevousy pad must regster as a manufac-
turer of payng cards wth the coector of nterna revenue for hs
dstrct, and such person ncurs abty for the stamp ta on the cards
so repacked whch must be pad by the aff ng of a new 13-cent payng
card stamp on each such package.
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2 Regs. 3 (19 1), 101. (6),etc.
T S ON DMISSIONS, DU S, ND INITI TION F S
INT RN L R NU COD
Reguatons 3 (19 1), Sectons 101. (6) and 19 9-2-13011
101.1 (6). T.D. 682
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 101.
T S ON DMISSIONS, DU S, ND INITI TION F S
osptazed servcemen and veterans admtted free
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton , D. C.
To Coectors of Interna R venue and Others Concerned:
In order to conform Reguatons 3 (19 1 edton) 26 CFR, Part
101 to Pubc Law 706 ( ghteth Congress), approved une 19,19 8
C. . 19 8-2,320 , such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
101.2 26 CFR 101.2 the foowng:
PU LIC L W 706 ( IG TI T CONGR SS), PPRO D UN 19,
19 8
That secton 1700(a)(1) of the Interna Revenue Code
(reatng to the ta on amounts pad for admsson) s amended by
addng at the end thereof a new sentence as foows: Sub|ect to such
reguatons as the Commssoner, wth the approva of the Secretary,
sha prescrbe, no ta sha be mposed n the case of admsson free of
charge of a hosptazed member of the mtary, nava, or ar forces of
the Unted States or of a person hosptazed as a veteran by the Federa
Government n a Federa, State, muncpa, prvate, or other hospta or
nsttuton, e cept when such member or veteran s on eave or furough.
Sec. 2. The amendment made by ths ct sha be effectve on and
after the frst day of the frst month whch commences more than twenty
days after the enactment of ths ct.
Par. 2. Secton 101. (6), as amended by Treasury Decson 611,
approved March 16, 19 8 C. . 19 8-1, 137 26 CFR 101. (b) , s
further amended by nsertng mmedatey precedng the ast
paragraph thereof a new paragraph readng as foows:
ffectve ugust 1, 19 8, the ta does not appy to the admsson free of charge
of a hosptazed member of the mtary, nava, or ar forces of the Unted
States or of a person hosptazed as a veteran by the Federa Government n a
Federa, State, muncpa, prvate, or other hospta or nsttuton, provded
such member or veteran s not on eave or furough. Where t s necessary
for an attendant to accompany such member or veteran so admtted free of
charge, the ta does not appy to the admsson of the attendant f he Is aso
admtted free of charge. Where the e empton s camed on behaf of a hos-
ptazed member or veteran propery entted thereto, who s sngy admtted,
the rght to the e empton sha be evdenced by a statement, personay sgned,
of an admnstratve offcer of the hospta or nsttuton, dentfyng by name
such member or veteran (and attendant, f any) and certfyng that the member
or veteran () s a hosptazed member of the mtary, nava, or ar forces of
the Unted States or a veteran hosptazed by the Federa Government, and ()
s not on eave or furough. Where the e empton s camed on behaf of hos-
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Regs. 3 (19 1), 101. (b), etc. 2 6
ptazed members or veterans who are coectvey admtted the statement
need not dentfy the members or veterans ndvduay, but sha specfy t f
number of such members or veterans (and attendants, f any) and certfy that
the members or veterans ( ) are hosptazed members of the mtary, nava,
or ar forces of the Unted States or are veterans hosptazed by the Federa
Government and (6) are not on eave or furough. In ether case the state-
ment evdencng the rght to the e empton sha be taken up by the propretor
of the pace, and retaned as part of hs records. (See secton 101.32 26 CF
101.32 .)
Par. 3. The foowng s nserted mmedatey precedng secton
101.1 26 CFR 101.1 :
PU LIC L W 706 ( IG TI T CONGR SS), PPRO D UN 19,
19 8
That secton 1700(a) (1) of the Interna Revenue Code (re-
atng to the ta on amounts pad for admsson) Is amended by addng
at the end thereof a new sentence as foows: Sub|ect to such regua-
tons as the Commssoner, wth the approva of the Secretary, sha pre-
scrbe, no ta sha be mposed n the case of admsson free of charge
of a hosptazed member of the mtary, nava, or ar forces of the
Unted States or of a person hosptazed as a veteran by the Federa
Government n a Federa, State, muncpa, prvate, or other hospta
or nsttuton, e cept when such member or veteran Is on eave or
furough.
Sec. 2. The amendment made by ths ct sha be effectve on and
after the frst day of the frst month whch commences more than twenty
days after the enactment of ths ct.
Par. . Secton 101.1 ( ), as amended by Treasury Decson 611
26 CFR 101.1 , s further amended by addng at the end thereof a
paragraph readng as foows:
ffectve ugust 1, 19 8, no ta s mposed when a hosptazed member of
the mtary, nava, or ar forces of the Unted States, or a person hosptazed
as a veteran by the Unted States n a Federa, State, muncpa, prvate, or
other hospta or nsttuton, s admtted free, provded such member or veteran
s not on eave or furough. (See secton 101. 26 CFR 101. .)
ecause the soe purpose of ths Treasury Decson s to reeve re-
strcton, t s found that t s unnecessary to ssue such 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.
(Ths Treasury Decson s ssued under the authorty contaned
n secton 1700(a)(1) of the Interna Revenue Code as amended b-
secton 1 of Pubc Law 706 ( ghteth Congress), approved une
19, 19 8, and secton 3791 of the Interna Revenue Code ( 3 Stat. 189,
67; 26 U. S. C. 1700(a) (1), 3791).)
Fred S. Martn.
ctng Commssoner of Interna Revenue.
pproved December 30, 19 8.
Thomas . Lynch,
ctng Secretary of the Trra tury.
(Fed wth the Dvson of the Federa Regster anuary , 19 9, 8: 7 a. m.)
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2 7
Regs. 3 (19 1), 101.1 .
S CTION 1700(e), S M ND D
Reguatons 3 (19 1), Secton 101.1 : Scope
of ta .
19 9-8-13063
Ct. D. 1716
DMISSIONS T INT RN L R NU COD , S M ND D D CISION OF
COURT
1. Cabaret Musc and Dancng Pktveges Interpretaton of
Statute adty of Reguatons.
Ta payers operated a tavern where beer and wne were sod to
patrons, and provded foor space for dancng to musc furnshed by
a mechanca musc payng devce whch was operated by the patrons
by nsertng ther own nckes. Ta payers dd not own the |uke
bo , but permtted ts nstaaton and shared n the recepts there-
from. No admsson was charged the patrons, and no cover charge
was coected at any tme. ed: Ta payers were sub|ect to the ta
mposed by secton 1700(e)(1) of the Interna Revenue Code, as
amended by secton 622 of the Revenue ct of 19 2. Secton 101.1
of Reguatons 3, as amended by Treasury Decson 192 C. .
19 2-2, 2 9 , does nothng more than ampfy, carfy, and furnsh a
practca nterpretaton of secton 622 of the Revenue ct of 19 2.
The reguaton s not egsatve n ts nature and must be gven app-
caton to the stuaton here presented.
2. Case Foowed.
vaon musement Corp. v. Unted States, 16 Fed. (2d) 6 3
Ct. D. 1700, C. . 19 8-2, 168 , foowed.
Unted States Dstrct Court, Western Dstrct of Washngton, Southern
Dvson
. W. adwnson and Wam ecker, copartners, dong busness under the name
and stye of ady s Tavern, pantffs, v. Unted States of merca,
defendant
Leavy, Dstrct udge: Pantffs heren have ted an acton for the recovery
of ta es pad under protest durng two perods of tme: uy 1, 19 , to December
31, 19 ; and anuary 1, 19 6, to ugust 31, 19 6. The ta es were eved under
the provsons of secton 1700(e) (1) of the Interna Revenue Code, as amended
by secton 622 of the Revenue ct of 19 2.
The defendant moved to dsmss the compant on the ground and for the reason
that the facts, as peaded by the pantffs, do not entte them to the reef they
seek. Upon presentaton of the moton to dsmss, the pantffs sought, and
were granted, permsson to fe an amended compant. The defendant has
renewed ts moton to dsmss on the same ground and for the same reason.
The facts, as aeged by the pantffs n ther amended compant, are:
That from uy 1, 19 , to ugust 31, 19 6, whch perod of tme ncudes
both causes of acton, the pantffs served beer and wne and sod other mer-
chandse to ther customers n ther pace of busness, whch was known and
desgnated as aky s Tavern ; that the tavern conssted of a snge arge
storeroom wth booths stuated aong two sdes and a bar on the thrd sde;
That a mechanca musc payng devce, commony known as a |uke bo ,
was ocated on the fourth sde of the space whch consttuted the dance foor;
that the |uke bo was not the property of fhe pantffs, but was owned by a
thrd-party corporaton, whch corporaton pad to the pantffs appro matey
one-haf of the ncome from such devce for the prvege of mantanng the
nstrument on ther premses; that between the hours of 9 a. m. and 12 p. n.,
on the nghts of Wednesday, Frday, and Saturday of each week, durng the
perod heren nvoved, the patrons danced to musc furnshed by the con-operated
|uke bo . The dance foor conssted of a space appro matey 13 feet wde and
20 feet one; that the ony musc furnshed was from the |uke bo , whch was
operated by the patrons by nsertng ther own nckes and at ther own e pense;
October 7, 19 8
M MOR NDUM decson
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Regs. 3 (19 1), 101.1 .
2 8
that the pantffs nserted no nckes n the |uke bo to furnsh musc for the
entertanment of the patrons durng such tmes or perod and no other type of
musc was supped by the pantffs;
That the patrons at pantffs tavern were charged no admsson and there was
no cover charge coected at any tme; that the patrons pad ony for such beer
and wne as was served them on the premses; and that the prces charged for
beer and wne were not ncreased durng any perod the tavern was open for
busness, whether or not dancng was aowed.
Snce ths matter comes on for hearng on defendant s moton to dsmss, the
facts as aeged by the pantffs are accepted by the court, and there s no ssue
of fact eft for determnaton, the soe ssue beng one of aw.
It w serve no usefu purpose to e amne n deta the earer congressona
enactments coverng the sub|ect matter here n controversy, nor can we ook
to the earer |udca decsons nvovng the egsatve enactments or Treasury
reguatons. We must confne ourseves to the aw as t e sted durng the
perod n queston. We w aso need to e amne the Treasury reguaton
effectve for the enforcement of ths provson.
The aw, as t e sted durng the tme nvoved heren, 26 U. S. C. ., ppend ,
secton 1700(e) (1), and whch appears n the Interna Revenue Code as secton
622 of the ct of 19 2, provdes, among other thngs:
The term roof garden, cabaret, or other smar pace1 sha ncude any room
n any hote, restaurant, ha, or other pubc pace where musc and dancng
prveges or any other entertanment, e cept nstrumenta or mechanca musc
aone, are afforded the patrons n connecton wth the servng or seng of food,
refreshment, or merchandse. performance sha be regarded as beng fur-
nshe for proft for purposes of ths secton even though the charge made for
admsson, refreshment, servce, or merchandse s not ncreased by reason of
the furnshng of such performance. Itacs mne.
The Treasury reguaton effectve for the enforcement of ths provson s
Treasury Reguatons 3 (19 1 ed.), secton 101.1 , as amended by Treasury
Decson 192, C. . 19 2-2, 2 9, 2 0, entted Scope of Tu . It provdes:
Where musc, whether by an orchestra, a mechanca devce or otherwse, and
a space n whch the patrons may dance s furnshed n the dnng room of a
hote, or n a restaurant, bar, etc., the entertanment consttutes a pubc per-
formance for proft at a roof garden, cabaret, or smar pace, and the payments
made for admsson, refreshment, servce, and merchandse are sub|ect to the
ta . Itacs mne.
The pantffs attack the reguaton on the ground that t s egsatve rather
than nterpretatve, and they rey on the cases of Unted States v. roadmoor
ote Co., Coo., 1929. 30 Fed. (2d) 0; usey v. Dcsher ote Co., 6th Cr.,
19 2, 130 Fed. (2d) 187, affrmng 36 Fed. Supp. 392; Schuster s Whoesae Pro-
duce Co., Inc., v. Unted States, La., 10 3, 9 Fed. Supp. 909.
( ater case from ths crcut, hodng to the same effect, and reyng upon
the usey and the Schuster cases, supra, s Sr Francs Drake ote Co. v. Unted
States, Caf., 19 7, 7 Fed. Supp. 668.)
n e amnaton of these cases reveas that they dea wth ta es eved pror
to the effectve date of the Revenue ct of 19 2, and they are not controng or
a precedent n ths controversy. They a concern themseves wth orgna
Treasury Reguaton 101.1 , and hod, n effect, that the reguaton was egsa-
tve n ts nature rather than nterpretatve, and, therefore, dd not appy.
Congress, n passng the Revenue ct of 19 2, overcame the ob|ectons to the
reguaton by enactng the substance of the reguaton nto aw and furnshng
a egsatve defnton of paces where abty for ta es woud arse, as we as
a defnton of when a performance shoud be regarded as beng furnshed for
proft. It aso emnated the charge for admsson. The effectve Treasury-
reguaton does nothng more than ampfy, carfy, and furnsh a practca
nterpretaton of the statute, whch by some may be consdered ambguous or
doubtfu. It s not egsatve n ts nature and must be gven appcaton to the
stuaton we have here presented.
The Supreme Court of the Unted States, n rewster v. Gage, 1930, 280 U. S.
327 Ct. D. 1 8, C. . I -1, 27 , supports the foregong statement. That case
s aso authorty for the concuson that Congress, by the enactment of the 19 2
Revenue ct, sought to offset the effect of |udca nterpretaton of the earer
revenue aws and reguatons, the Court sayng, page 337:
The deberate seecton of anguage so dfferng from that used n the earer
cts ndcates that a change of aw was ntended.
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2 9
Regs. 3 (19 1), 101.1 .
The pantffs, n ther amended compant, further contend that they dd not
furnsh musc for dancng prveges, because, frst, they were not the owners
of the nstrumentaty used to furnsh the musc; and, second, the nstrumen-
taty was ony brought nto pay by the act of the patron hmsef by hs de-
postng the con that produced the musc.
It s admtted by the peadngs that the pantffs permtted the nstaaton
of the |uke bo , shared n the recepts therefrom, and furnshed the pace where
the dancng occurred, thus brngng themseves ceary wthn the anguage of
amended Treasury Reguaton 101.1 .
Ths case s not one of frst mpresson nterpretng the Revenue ct of 19 2.
We have the unreported case, cted n the defendant s bref, of Rogers v. Stuart,
n the Unted States Dstrct Court for the Dstrct of rzona, decded November
19, 19 . where the- facts are amost dentca wth those we have here, whch
hos there s abty for the ta . Whe ths s a dstrct court case, and
s not necessary controng as a precedent, st t s entted to great con-
sderaton. There s, however, another ate case that deas wth the aw here
under consderaton: vaon musement Corp. v. Unted States, 7th Cr., 19 8,
16 Fed. (2d) r.3 tCt. D. 1700, O. . 19 8-2, 168 , affrmng 73 Fed. Supp. 328.
Ths case, comng from a court of appeas, s, I fee, controng n the stuaton
here presented, and must be accepted as a precedent. The court there says,
page 6 :
The provson of the statute under consderaton became effectve n ts
present form October 21, 19 2. It s not free from ambguty. Snce
the statute s ambguous n ts defnton of a roof garden, cabaret, or other sm-
ar pace and does not attempt to defne a pubc performance, t was a proper
sub|ect for an nterpretatve reguaton. Ths reguaton s n accord-
ance wth our understandng of the statute and s vad. Itacs mne.
I consder the pronouncement made n the vaon case as authorty and de-
termnatve of the ssue here rased, and therefore grant the moton of the
defendant to dsmss. n approprate order may be submtted, aowng e cep-
tons to the pantffs.
8 16 9 17
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Regs. 113, 1 3.13.
2 0
TR NSPORT TION T S
INT RN L R NU COD
S CTION 3 7 , S M ND D. TR NSPORT TION OF PROP RTY
ppcaton of ta mposed by secton 3 7 of the Interna Revenue
Code to amounts pad for towng of vesses and for tugboat servces
rendered n assstng or maneuverng vesses to or from docks.
dvce s requested whether amounts pad for the towng of vesses
and for tugboat servces rendered n assstng or maneuverng vesses
to or from docks are sub|ect to ta under secton 3 7 of the Interna
Revenue Code.
Secton 3 7 of the Code mposes a ta equvaent to 3 percent upon
amounts pad wthn the Unted States, to a person engaged n the
busness of transportng property for hre, for the transportaton of
property by ra, motor vehce, water, or ar, from one pont n the
Unted States to another, e cept that, n the case of coa, the rate of
ta s cents per short ton.
Secton 1 3.1 of Reguatons 113 provdes, n part, that the term
transportaton means the movement of property by a person en-
gaged n the busness of transportng property for hre, ncudng
nterstate, ntrastate, and ntracty or other oca movements, as we
as towng, ferryng, swtchng, etc. owever, under the provsons
of secton 1 3.13 of such reguatons, the ta does not appy to an
amount pad by a carrer, a freght forwarder, e press company, or
smar person for transportaton wth respect to whch a ta s pay-
abe to such person.
It s hed, n genera, that the towng of a vesse not operatng under
ts own power consttutes transportaton of property by water wthn
the meanng of secton 3 7 of the Code, and s accordngy ta abe.
owever, the ta woud not appy to amounts pad for towng a ves-
se whch at the tme s carryng cargo wth respect to whch trans-
portaton charges are beng coected from a shpper or consgnee by
the person operatng such vesse. Furthermore, the ta does not
appy to amounts pad for tugboat servces rendered n assstng or
maneuverng a vesse to or from a dock, snce such servces do not
consttute transportaton of property wthn the meanng of the Code.
Reguatons 113, Secton 1 3.13: ppcaton
of ta .
19 9-7-130 7
M. T. 3
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2 1 Regs. 6 (19 0), 316.63.
M NUF CTUR RS CIS T S
INT RN L R NU COD
Regttatons 6 (19 0), Secton 316.63. 19 9-9-13079
T. D. 697
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 316.
CIS T S ON S L S Y T M NUF CTUR R
Musca Instruments sod for use for regous or educatona
purposes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On December 22, 19 8, notce of proposed rue makng regardng
the e empton from ta of musca nstruments sod for use of re-
gous or nonproft educatona nsttutons for e cusvey regous
or educatona purposes was pubshed n the Federa Regster (13
F. R. 8221). fter consderaton of a such reevant matter as was
presented by nterested persons regardng the proposa, the foowng
amendments to Reguatons 6 (19 0 edton) 26 CFR, Part 316
are hereby adopted. The amendments are desgned to conform Regu-
atons 6 (19 0 edton) to sectons and 6 of Pubc Law 899
( ghteth Congress), approved uy 3,19 8 C. . 19 8-2, 32 .
Paragraph 1. There s nserted mmedatey precedng secton
316.60 the foowng:
PU LIC L W 899 ( IG TI T CONGR SS), PPRO D
ULY 3, 19 8
Sec. . That secton 3 0 (d) of the Interna Revenue Code (reatng
to manufacturers e cse ta es on musca nstruments) s hereby
amended to read as foows:
(d) Musca nstruments, but the ta mposed by ths secton sha
not appy to musca nstruments sod for the use of any regous
or nonproft educatona Insttuton for e cusvey regous or educa-
tona purposes. The rght to e empton under ths subsecton sha be
evdenced n such manner as the Commssoner, wth the approva of
the Secretary, may prescrbe by reguatons.
Par. 2. Secton 316.03, as amended by Treasury Decson 189
C. . 19 2-2, 226 , approved November 30, 19 2 26 CFR 316.63 ,
s further amended by addng at the end thereof the foowng new
paragraphs:
y vrtue of the provsons of secton of Pubc Law 899 ( ghteth Con-
gress) no ta attaches to musca nstruments sod by the manufacturer on or
after uy , 19 8, for the use of any regous or nonproft educatona nst-
tuton for e cusvey regous or educatona purposes, e cept that no sae of
musca nstruments may be made ta free by the manufacturer to a deaer
for resae for the use of a regous or nonproft educatona nsttuton even
though t s known at the tme of the sae that such resae w be made. ow-
ever, where any deaer reses ta -pad musca nstruments to a regous or
nonproft educatona nsttuton for e cusvey regous or educatona pur-
poses, the manufacturer who pad the ta may secure a refund or credt n
accordance wth secton 316.20 .
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Regs. 6 (19 0), 316.63. 2 2
To consttute a regons or nonproft educatona nsttuton wthn the
meanng of secton 3 0 (d) of the Code (1) there must be a defnte organzaton
wth offcers, drectors, or trustees, and the usua essenta features (ncorpo-
raton not beng essenta) of an organzaton of ts cass; (2) the organzaton
must have a purpose whch as put nto practce s regous or educatona,
and (3) n the case of an educatona nsttuton ts funds must be used soey
n furtherance of suc purpose, none of them beng pad or otherwse dstrbuted
to any of Its members or other persons e cept as reasonabe compensaton for
servces actuay rendered or n furtherance of the educatona purposes of
the organzaton.
To estabsh the rght to e empton from ta on the ground that a sae of
musca nstruments by the manufacturer s for the use of a regous or
nonproft educatona nsttuton for e cusvey regous or educatona pur-
poses, t s necessary that (a) the manufacturer at the tme of sae have
defnte knowedge that the purchaser s such an nsttuton and that, t ntends
to use the nstruments e cusvey for such purposes, and (6) he obtan from
the purchaser and retan n hs possesson a certfcate propery e ecuted n tre
form prescrbed by ths secton.
The manufacturer must be prepared to estabsh by further competent evdence
that the purchaser s an nsttuton to whch ta -free sae may propery be
made. owever, n case of a church such further evdence s not necessary
to estabsh the fact that t s a regous nsttuton. statement from the
purchaser that t has receved a rung from the Commssoner hodng t
to be a regous or nonproft educatona nsttuton entted to e empton
under secton 101(6) of the Code (reatng to ncome ta ) whch shows the
date of the rung and that t has not been wthdrawn or revoked s generay
acceptabe to support ta -free sae thereto. Where the status of the nsttuton
as one to whch ta -free sae may propery be made s not estabshed by a
rung under secton 101(6) or n some other manner as prevousy ndcated
In ths secton, the nsttuton may appy to the Commssoner for a rung.
The appcaton for a rung may be made by fng wth the coector Form
1023, reatng to e empton under secton 101(6). The coector w forward
the appcaton to the Commssoner for rung. Copes of the form and nstruc-
tons as to the procedure to be foowed In fng t may be procured from the
approprate coector. In the absence of crcumstances ndcatng a dfferent
use, the e empton certfcate procured by the manufacturer from the regous
or nonproft educatona nsttuton may be accepted as prma face proof that
the musca nstrument s purchased for e cusvey regous or educatona
purposes.
Where a sae s otherwse e empt but the certfcate Is not obtaned pror to
the tme the manufacturer fes a return coverng ta es for the month durng
whch the sae s made, the manufacturer must ncude the ta on such sae n
such return. owever, f the certfcate s ater obtaned, a cam for refund of the
ta pad on such sae may be fed on Form 8 3, or a credt taken upon a sub-
sequent return, but such acton must be taken wthn the -year perod of mta-
ton prescrbed by secton 3313. See secton 316.20 .
The certfcate must ncude an agreement that f the musca nstruments
are used otherwse than by a regous or nonproft educatona nsttuton for
e cusvey regous or educatona purposes, the person who sgns the certfcate
w report such fact to the manufacturer. The ta appcabe to the sae of the
nstruments sha be ncuded by the manufacturer n hs return for the month
durng whch such report s receved by hm.
The foowng form of e empton certfcate w be acceptabe for the purposes
of ths secton and must be adhered to n substance:
MPTION C RTIFIC T
(For use by a regous or nonproft educatona Insttuton purchasng musca In-
struments sub|ect to ta under secton 3 0 (d) of tbe Interna Revenue Code for
e cusvey regous or educatona purposes.)
19
(Date)
The undersgned purchaser hereby certfes that he s
(Tte)
of ;
(Regous or nonproft educatona nsttuton)
that he s authorzed to e ecute ths certfcate; and that the musca nstru-
ments specfed n the accompanyng order or on the reverse sde hereof, are
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2 3 Regs. 6 (19 0), 316.63.
purchased by such nsttuton for e cusvey regous or educatona pur-
poses.
It s understood that ths e empton certfcate s for use ony by a re-
gous or nonproft educatona nsttuton n the ta -free purchase of musca
nstruments for e cusvey regous or educatona purposes; and t s
agreed that f the musca nstruments purchased ta free under ths e emp-
ton certfcate are used otherwse, such fact w be reported to the manu-
facturer from whom they were purchased ta -free.
The organzaton camng ths e empton (has) (has not) receved a
rung from the ureau of Interna Uevenue hodng t to be an e empt
regous or nonproft educatona nsttuton under secton 101(6) of the
Interna Revenue Code. The dae of such rung s
and such rung has not been wthdrawn or revoked.
(Sgnature)
(Tte)
The frauduent use of ths certfcate for the purpose of securng e emp-
ton from the payment or ad|ustment of ta es w sub|ect the guty party
to a fne of not more than 10,000 or mprsonment for not more than years
or both.
Such certfcates and proper records of nvoces, orders, etc., reatve to ta -free
saes must be retaned as provded n secton 310.202 and must be ready access-
be for nspecton by nterna revenue offcers. If a manufacturer s records wth
respect to any sae camed to be ta -free under ths secton do not ncude a
proper certfcate, as outned above, wth supportng nvoces and such other
evdence as may he necessary to estabsh the e empt character of the saes, ta
s payabe by the manufacturer on such sae.
Par. 3. Immedatey precedng secton 316.20 , as renumbered by
Treasury Decson 099 C. . 19-11-2, 267 , approved November 28,
19 1 26 CFR 316.20 , there s nserted the foowng:
PU LIC L W 809 ( IG TI T CONOt SS), PP O D ULY 3,
19 S
Sec. 6. Secton 3 3(a) (3) ( ) () of the Interna Revenue Code
(reatng to credts and refunds) s hereby amended to read as foows:
() resod for the e cusve use of any State, Terrtory of the Unted
States, or any potca subdvson of the foregong, or of the Dstrct of
Coumba, or, n the case of musca nstruments embraced n secton
3 0 (d), resod for the use of any regous or nonproft educatona In-
sttuton for e cusvey regous or educatona purposes; .
Par. . Secton 316.20 , as renumbered by Treasury Decson 099,
and as amended by Treasury Decson 67 C. . 19 8-2, 18 , ap-
proved November 23, 19 8 26 CFR 316.20 , s further amended by
addng at the end of the ffth paragraph thereof the foowng
sentence:
The refund or credt wth respect to musca Instruments resod to a regous
or nonproft educatona nsttuton for e cusvey regous or educatona pur-
poses under secton 3 3(a) (3) ( ) () of the Interna Revenue Code, as amended
by Pubc Law 899 ( ghteth Congress), appes ony to resaes of such nstru-
ments on or after uy , 10 8, to the nsttutons named and for the purposes
stated, and e cept for appcaton of the statutory perod of mtatons upon
credt or refund, the date of the orgna sae by the manufacturer s not
matera.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n secton of Pubc Law 899 ( ghteth Congress), and secton
3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C. 3791).)
ecause the amendments to the Interna Revenue Code made by
Pubc Law 899 ( ghteth Congress) became effectve on uy ,19 8,
the day after the date of the enactment of such pubc aw, t s found
that t s unnecessary to ssue ths Treasury Decson sub|ect to the
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Regs. 6 (19 0), 316.190. 2
effectve date mtaton of secton (c) of the dmnstratve Pro-
cedure ct, approved une 11, 19 6.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr 7,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 12, 19 9, 8 : 9 a. m.)
Reguatons 6 (19 0), Secton 316.70( ). 19 9-9-13080
T. D. 696
TITL 20 INT RN L R NU . C PT R I, SU C PT R C, P RT 316.
CIS T S ON S L S Y T M NUF CTUR R
Defnton of househod type refrgerator modfed
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On anuary 13,19 9, notce of proposed rue makng regardng; the
defnton of the term househod type refrgerator was pubshed n
the Federa Regster (1 F. R. 183). No ob|ecton havng been re-
ceved, the foowng amendment to Reguatons 6 26 CFR, Part
316 s hereby adopted. The amendment s desgned to conform
Reguatons 6 to the present manufacturng desgn n the refrgerator
ndustry.
Secton 316.70( ) as added by Treasury Decson 189 C. . 19 2-
2, 226 , approved November 30, 19 2 26 CFR 316.70( ) , s further
amended by strkng therefrom 20 cubc feet and nsertng n eu
thereof 1 cubc feet.
The amendment made by ths Treasury Decson sha be appcabe
wth respect to househod type refrgerators sod on or after the date
of fng of such Treasury Decson wth the Federa Regster.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n sectons 3 0 and 3791 of the Interna Revenue Code ( 3
Stat. 19, 67; 26 U. S. C. 3 0,3791).)
Geo. . Schoeneman,
C ommssoner.
pproved pr 7,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 12, 19 9, 8 : 9 a. m.)
S CTION 3 11(a), S M ND D
Reguatons 6 (19 0), Secton 316.190: Scope of 19 9-7-130 6
ta . Ct, D. 171
ta on eectrca energy nterna revenue code decson of
supreme court
1. eectrca enebgy sod to dary customers commerca
Consumpton.
Pettoner company sod eectrca energy to certan dary pants
engaged prmary n the coecton, pasteurzaton, and dstrbuton
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2
Regs. 6 (19 0), 316.190.
of fresh mk. The eectrcty used by some of the pants s meas-
ured through a snge meter, that of others through two or more
meters, but n no case are the meters so connected to the ncomng
power ne as to enabe the energy supped for one purpose to be
dfferentated from that supped for another. ed: The eectrca
energy supped to these dary pants through snge meters, or
through more than one but wthout dfferentaton as to use, s
energy sod for commerca consumpton wthn the meanng of
secton 3 11 of the Interna Revenue Code.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas, Seventh Crcut
Ct. D. 1706, C. . 19 8-2, 188 , 168 Fed. (2d) 28 , affrmed.
Supreme Court of the Unted States
Wsconsn ectrc Power Co., pettoner, v. The Unted States of merca
On wrt of certorar to the Unted States Court of ppeas for the Seventh Crcut
February 1 , 19 9
OPINION
Mr. ustce Reed devered the opnon of the Court.
Pettoner, engaged n the busness of suppyng eectrc energy to the pubc,
seeks the refund of ta es pad by t pursuant to secton 3 11 of the Interna
Revenue Code. That secton, n pertnent part, provdes for a ta
upon eectrca energy sod for domestc or commerca consumpton
equvaent to 3 per centum 1 of the prce for whch so sod, to be pad by the vendor
under such rues and reguatons as the Commssoner, wth the approva of the
Secretary, sha prescrbe. a Note that the statute ta es energy for domestc or
commerca consumpton. There s no provson for ta aton of eectrca energy
used for ndustra purposes.
The purchasers of the eectrc power here nvoved are 27 dary pants whch
are engaged prmary n the coecton, pasteurzaton, and dstrbuton of
fresh mk. The soe queston presented by the case s whether the use of eec-
trcty by these dares s commerca consumpton wthn the meanng of the
statute or ndustra consumpton, a use not covered by the statute.
The functons of the dary pants are suffcenty smar so that they can be
treated as one for the purpose of descrbng ther methods of operaton. The
pants are budngs equpped wth mk-handng machnery and factes o-
cated ether off the dary farms, or on the dary farm tsef as an actvty apart
from mk producton. Contracts for the purchase of raw mk are negotated
wth nearby farms. Ths mk s devered n trucks of the producers or of
the dary pant, as the case may be, to the pant where t s receved, weghed,
tested for butterfat content, cooed, and m ed and standardzed so as to acheve
the proper butterfat content. Ne t t Is pasteurzed. Pasteurzaton conssts
of heatng the mk to 1 3 to 1 F., mantanng t at that eve for about 30
mnutes, and then sub|ectng t to sudden coong to a pont between 38 and
0 F. The process s desgned to k pathogenc bactera wthout destroyng
the natura creamng propertes or the taste of the mk. Then the mk s
drawn nto bottes or cans whch have been washed, sterzed, and cooed.
Fnay t s stored n refrgerated rooms to permt the cream ne to form and to
awat devery. Most of t s devered to customers n the dary pant s trucks
or wagons. In some nstances a sma proporton s sod at the pant tsef.
1 mended by the Revenue ct of 19 1. c. 12, Stat. 687, 707, secton 21(a) (19),
to chance the 3 percent ta to 3 percent.
26 U. S. C. secton 3 11.
See, n/ro, page , et seq.
few of the consumers of eectrcty here nvoved produce ther own mk.
One of the pants pasteurzes by the so-caed fash method, heatng the mk to 161
F. for 16 seconds and rapdy coong t to 32 F.
8 mnor proporton of the mk purchased by these pants s manufactured nto butter,
cheese, or other byproducts. n undscosed amount of ths mk s separated from the
cream It contans ; some s aso homogenzed.
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2 6
ectrc power s empoyed by the purchasng dary pants n a number of
ways. It s used to ght the pants, ncudng the garage space for the coectng
and dstrbutng trucks. It drves eectrc motors whch pump refrgerants, de-
ver mk to and from the pasteurzer and to the bottng machnes, operate the
homogenzer, the bottng machne, the cream separator, and the machnery
used n washng, sterzng, and conveyng bottes. The eectrcty used by some
of the pants s measured through a snge meter, that of others through two or
more meters, but n no case are the meters so connected to the ncomng power
ne as to enabe the energy supped for one purpose to be dfferentated from
that supped for another. We do not have before us a stuaton where pasteur-
zaton utzes eectrca energy that s measured by a meter e cusvey used
for pasteurzaton.
Pasteurzaton s accompshed by the use of speca equpment desgned for
that purpose. Most of the eectrcty attrbutabe to the process s devoted to the
ce machnes whch perform the rapd coong of the mk after the nta heat-
ng. Snce the same coong unts perform the coong whch s necessary before
and after pasteurzaton, however, the eectrcty whch they consume for
pasteurzaton aone cannot be ascertaned. Pasteurzaton equpment, ncud-
ng the ncreased coong equpment necessary therefor, accounts for about 1
or 20 percent of the tota cost of pant equpment, e cudng trucks and other
vehces. bout one-tenth of the cost of pant operaton, e cudng the cost of
the raw mk and costs attrbutabe to dstrbuton, Is attrbutabe to
pasteurzaton.
Pettoner pad the ta on eectrca energy sod to the dary pants durng the
perod from pr, 19 0, to uy, 19 3, and then brought sut to recover t on the
ground that such energy was sod not for commerca but for ndustra con-
sumpton. The Unted States Dstrct Court for the astern Dstrct of Ws-
consn hed that the saes were for commerca consumpton wthn the meanng
of the statute, and therefore that the ta was vad. (69 Fed. Supp. 7 3.) The
Unted States Court of ppeas for the Seventh Crcut affrmed. (168 Fed.
(2d) 28 .) It summarzed ts vews as foows:
We agree wth Dstrct udge Duffy that the wordng and egsatve hs-
tory of the ct make t cear that the predomnant character of the busness
carred on by a consumer of eectrca energy s what determnes whether the
eectrcty sod has been sod for commerca consumpton ; hence we are con-
tent to adopt hs opnon as that of ths court. (Id. at 286.)
The Unted States Court of ppeas for the Tenth Crcut had hed n Unted
States v. Pubc Servce Co. of Coorado (1 3 Fed. (2d) 79), that eectrca energy
sod to dary pants operatng substantay as these was sod for ndustra
rather than commerca consumpton, and consequenty was not ta abe under
secton 3 11. We granted certorar n ths case n order to resove the apparent
confct between crcuts and to sette the meanng of the statute as t appes
to the busness of ths genera type of dary pant. (33 U. S. 8 2.)
The ta now emboded n secton 3 11 was orgnay mposed upon the con-
sumer of eectrcty by the Revenue ct of 1932. ( 7 Stat 169, 266.) Ths ct
was amended n 1933 to make the burden of the ta fa drecty upon the vendor.
( 8 Stat. 2 , 2 6.) No change of any sgnfcance for our purposes has occurred
snce the orgna enactment of ths provson.
though the anguage of the secton does not ncude the word ndustra,
t s cear from the egsatve hstory that commerca was used n contra-
dstncton to ndustra. Whe eectrcty sod for commerca consumpton
s ta ed, that sod for ndustra consumpton s not. Thus our task resoves
tsef to a determnaton of the category n whch the consumpton of eectrcty
by these dary pants shoud be cassfed. We sha not undertake the dffcut
and here needess task of genera defnton whch dfferentates for ths statutory
cause between ndustra and commerca n other nes of busness actvty.
That s a probem prmary for the admnstrators of the secton, wth knowedge
of the s ecfc and varyng facts.
The egsatve hstory ndcates that the term commerca was meant to
appy to the nature of the busness n whch the energy s consumed, and not to
. Conference Rept. No. 1 92, 72d Cong., 1st sees., page 22; Senator arrson, 77
Cong. Rec. 3212-1 , 321 .
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2 7
Regs. 6 (19 0), 316.190.
the specfc purpose to whch each measurabe unt of eectrcty s devoted.
Where t s devered through a snge meter at one ocaton, energy utzed to
operate sewng machnes for a mnor manufacturng unt, e. g., shrts, n a
department store, woud he deemed power sod for commerca consumpton,
athough t mght fa wthn the ndustra category f sod to a consumer who
dd nothng but manufacture shrts. Snce any other nterpretaton of the
secton woud enta the amost nsurmountabe admnstratve dffcuty of cas-
sfyng a the eectrcty sod to a pant accordng to the specfc operatons to
whch such power was devoted by the consumer, the concuson that the con-
trong factor s the genera nature of a busness at a ocaton accords wth the
natura meanng to be gven the words empoyed by Congress to e press ts
purpose.
The reguatons nterpret the secton n ne wth the egsatve hstory.
U. S. Treasury Reguatons 0 () 0 ed.), secton . U(.90 as amended by T. D.
009 (C. . 10 1-2, 2t 7) , presenty appcabe, provdes n pertnent part:
Scope of ta . The ta mposed by secton 3 11(a) of the Interna Revenue
Code, as amended, appes, e cept as provded herenafter, to a eectrca energy
sod for domestc or commerca consumpton and not for resae.
The term eectrca energy sod for domestc or commerca consumpton
does not ncude (1) eectrca energy sod for ndustra consumpton, e. g., for
use n manufacturng, mnng, refnng, shpbudng, budng constructon,
rrgaton, etc., or (2) that sod for other uses whch kewse cannot be cassed
as domestc or commerca, such as the eectrca energy used by eectrc and
gas companes, waterworks, teegraph, teephone, and rado communcaton com-
panes, raroads, other smar common carrers, educatona nsttutons not
operated for prvate proft, churches, and chartabe nsttutons n ther opera-
tons as such. owever, eectrca energy s sub|ect to ta f sod for consump-
ton n commerca phases of ndustra or other busnesses, such as n offce
budngs, saes and dspay rooms, reta stores, etc., or n domestc phases, such
as n dormtores or vng quarters mantaned by educatona nsttutons,
churches, chartabe nsttutons, or others.
Where eectrca energy s sod to a consumer for two or more purposes,
through separate meters, the specfc use for whch the energy Is sod through
each meter, . e., whether for domestc or commerca consumpton, or for other
use, sha determne Its ta abe status. Where the consumer has a the eec-
trca energy consumed at a gven ocaton furnshed through one meter, the
predomnant character of the busness carred on at such ocaton sha deter-
mne the cassfcaton of consumpton for the purposes of ths ta .
The ast sentence of ths reguaton makes t cear that a eectrca energy
furnshed to a predomnanty commerca estabshment through a snge meter
s sub|ect to the ta athough portons of such energy are devoted to purposes
whch, consdered separatey, mght be cassfed as ndustra.10 Whe the
reguaton does not dea wth the pont, we thnk t obvous from the ast quoted
paragraph that where the energy s furnshed at a snge ocaton through varous
meters, athough none of them are shown to carry current for predomnanty
ndustra uses, the same rue woud be apped. The ast sentence of the regu-
aton adds a quafcaton, however, whch drects our attenton, not necessary
The egsatve e panatons treat of busness consumers as unts and do not dfferentate
as to use wthn the unts.
Senator arrson, charman of the Senate Fnance Commttee, whch reported the b,
sad :
I am teng Senators nothng new when I remnd them that we had a fght here In
1932 over the Imposton of ths ta . The Senate mposed a 3 percent eectrc-energy ta ,
and It was nay adopted, to be coected from the consumer of eectrc energy. We apped
that ony on domestc nnd commerca energy ; that Is, eectrc energy used n stores and
dwengs that are cassfed as commerca and domestc. There was no ta In the 1932
act mposed upon energy empoyed n Industry. (77 Cong. Rec. 3212-13.)

Senator Couzens, a member of a subcommttee of the Senate Fnance Commttee, whch
was consttuted to consder the eectrca energy ta . sad : I mean they emnated that
feature of the ta ; they emnated the ta on eectrca energy sod to manufacturng pants
and eft the ta on eectrcty used commercay, that s by stores and on eectrcty used
for domestc purposes (77 Cong. Rec. 3218.)
Th reguaton was substantay the same n ts earer versons. U. S. Treasury
Reguatons 2, rt. 0 (1932) ; T. D. 3 2. C. . I-2. 9 (1932) ; T. D. 393, C. .
II-2, 322 (1933). The quoted verson, however, omtted the word processng, whch
was formery Incuded n the st of actvtes e empfyng Industra consumpton. We do
not consder ths deeton sgnfcant for purposes of ths case.
10 Cf. St. Lous Refrgeratng t Coh fttorage Co. v. Unted States ( 3 Fed. Supp. 76) ;
Futon Market Cod Storage Co. v. Unted States ( 3 Fed. Supp. 8 ).
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Regs. 6 (19 0), 316.190
2 8
to the nature of a busness as a whoe, but to the nature as a whoe of the
actvtes carred on at a gven ocaton.
We accept the ast sentence of the quoted reguaton as proper under the
Statute. s apped to these pants we thnk that the eectrcty furnshed
by the pettoner was sod for commerca consumpton and consequenty was
propery ta ed. dmttedy the actvtes of these consumers woud he consdered
commerca f they dd not pasteurze the mk pror to ts sae. Such busness
woud accuratey be caed the dstrbuton of fresh mk. The butter and cream
e tracton appears ncdenta. We are not deang wth a creamery n the
sense of a butter or cheese factory. We agree wth the courts beow that the
addton of pasteurzaton to the other actvtes descrbed above does not
change the nature of the dary pants busness from commerca to ndustra
any more than woud the cookng of food for sae n a restaurant, or the ceanng
of raw food products pror to dstrbuton or sae. The dstrct court found that
pasteurzaton pays a mnor part n the tota busness of the dares, and that
the predomnant busness of the dares here nvoved s, and was,
that of fud mk deaers and dstrbutors. 11
Pettoner argues that the test apped by the court of appeas, whether
the predomnant character of the enterprse carred on by such consumer s
commerca, s erroneous and contrary to the reguaton n that t drects
attenton to the busness as a whoe rather than to the actvtes at a gven
ocaton. Whe the anguage quoted s susceptbe to ths crtcsm, the vara-
ton s harmess because the pant tsef s the ocaton or the foca pont of
a the reevant actvtes of each of these consumers of eectrcty. Pasteurza-
ton does not occur at a separate ocaton, but at the same pant where the mk
s receved, weghed, tested, cooed, homogenzed, separated and botted. The
mk s brought to ths pant when purchased, and from the pant t s ds-
trbuted to customers. The fact that most of the saes or deveres occur off
the premses does not ater the essenta fact that a actvtes occur n or
pvot around the pant.
Thus, though pasteurzng, we assume, s processng and though processng
Separatey vewed may be conceded to be ndustra,1 we concude that the
busness conducted by these dary pants s essentay commerca. The con-
trary concuson reached n Unted Sates v. Pubc Servce Co. of Coorado
(1 3 Fed. (2d) 79), may be ascrbed to the fact that there the court apparenty
ooked to the use to whch the eectrca energy was devoted rather than to the
nature of the busness at a gven ocaton.
Rungs of the ureau of Interna Revenue support our concuson. In 1932.
S. T. 18 stated that, ectrca energy furnshed for consumpton by bottng
works, mk companes, or creameres engaged n the pasteurzaton and bottng
of mk, and n the manufacture of butter, buttermk, chocoate mk, and
cottage cheese, s not furnshed for domestc or commerca consumpton
. ,c pparenty, however, the ureau ntended ths rung to appy ony
to those pants whose busness was predomnanty pasteurzaton and the manu-
facture of mk byproducts, because S. T. 637, ssued the foowng year,
contaned the foowng statement:
dary whch obtans mk and converts t nto use for reta purposes
Is hed to be engaged n a busness commerca n character. ectrca energy
used n such operatons w be sub|ect to ta .
In carfcaton of these two rungs the ureau e paned:
ectrca energy furnshed a commerca dary or mk company whch
merey produces or purchases raw mk n buk and pasteurzes t for sae
11 We do not Intend by these words of mtaton to approve or dsapprove other prov-
sons. There nre ambgutes n ths secton of the reguaton. In the second paragraph,
wthout reference to separate meters, It hods that energy used In the commerca phases
of an Industra busness s ta abe. The reverse woud seem to foow as to Industra
phases of a commerca busness. Yet the thrd paragraph aows the avodance of such
a ta on ndustra use ony by the empoyment of separate meters.
uFor State cases to the effect that ths busness s prmary commerca, see e. tt.
Cty of Loum-e v. wng on- men D. Co. (268 y. 6 2. 10 S. W. 2d 801) : Peope
e rc. . d. Dary Co. v. ohmer (218 N. Y. 199, 112 N. . 7 ) : Rchmond v. Dary Co.
(1 0 a. 03, 1 7 S. . 728). ut sec Dary ssn. v. d. of Ta dmn. (302 Mch. 6 3.
6 N. W. 2d 16).
11 See note 9, supra.
-The eectrca energy was not used n the commerca phase of the daryng enter-
prse, but n the processng or ndustra phase of the enterprse. (1 3 Fed. (2d) 79, 82.)
C. . I -2, 98 (1932).
C. . 1I-1, 09, 10 (1933).
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2 9
Regs. 6 (19 0), 316.190.
ether In buk, or botted quanttes, whose actvtes consst prncpay In the
handng, dstrbuton and sae of mk, s aso sub|ect to the ta .
It s ony eectrca energy that s furnshed for drect consumpton by dares
whch n addton to pasteurzng and bottng mk are aso engaged n a the
essenta manufacturng processes necessary for the producton of dary products,
such as the manufacturng of butter, cheese and other dary products, for sae
on the open market as an artce of commerce, that s not sub|ect to the ta .
Thus we hod that eectrca energy supped to these dary pants through
snge meters, or through more than one but wthout dfferentaton as to
use, s energy sod for commerca consumpton.
ffrmed.
ureau etter, dated May 13. 1033 (symbos MT : ST: F) (333 C. C. . par. 6260),
C. C. . Tu Scrv. pur. 2633G. 17 (19 9).
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Regs. 1 (19 1), 320.21.
260
R T IL RS CIS T S
INT RN L R NU COD
S CTION 2 06. T -FR S L S
Reguatons 1 (19 1), Secton 320.21: Saes
for e port.
19 9-1-1300
S. T. 936
ppcabty of the e empton from retaers e cse ta es pro-
vded y secton 2 0( (b) of the Interna Revenue Code, n respect
of eportatons, to the sae of a ta abe artce to an aen gong
abroad, where the artce s devered drecty by the retaer to the
purser or other responsbe offca of a foregn-bound vesse or ar-
craft.
dvce s requested concernng the appcaton of the e empton
from retaers e cse ta es provded by secton 2106(b) of the Interna
Revenue Code, n respect of e portatons, where artces ta abe under
Chapter 19 or 9 of the Code are sod to an aen gong abroad and
are devered drecty by the retaer to the purser of a foregn-bound
vesse.
The proof of e portaton requred wth respect to the e empton
provded by secton 2 06(b) of the Interna Revenue Code may be
(a) a copy of the e port b of adng ssued by the deverng carrer,
or, where the artces are maed, a cert fcate sgned by a postmaster
that the artces have been receved from the retaer n the post
offce for forwardng to the foregn address shown; (b) a certfcate
by a representatve of a carrer showng actua foregn devery of
the artces; (c) a certfcate of adng ssued by customs offcer of
a foregn country; or (d) where such foregn country has no customs
admnstraton, a statement of the foregn consgnee showng recept
of the artces.
Where artces, ta abe under Chapter 19 or 9 of the Interna
Revenue Code, are sod to an aen gong abroad and are devered
drecty by the retaer to the purser or other responsbe offca of a
foregn-bound vesse, or to an offca of a foregn-bound arcraft,
for devery outsde the Unted States to the purchaser whose dest-
naton s a foregn port, a certfcate subsequenty furnshed to the
retaer by the purser or other responsbe offca of the carrer show-
ng that the artces were devered to the purchaser ony after the
carrer was outsde the terrtora mts of the Unted States w be
consdered as satsfactory proof of e portaton of the artces pror
to use. Such certfcate s to be retaned by the retaer for nspecton
by nterna revenue offcers.
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MISC LL N OUS RULINGS
S CTION 3 OF T INSON CT ( 8 ST T. 03, 0 ),
S M ND D
19 9-1-13003
Mra. 63 0
ppcabty to the Secretary of the r Force and the Department
of the r Force of Treasury Decson 900 C. . 1939-2, 221 con-
tanng reguatons under the proft-mtng provsons of the nson
ct respectng e cess proft on contracts and subcontracts for rmy
arcraft.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, December 1 ,19 8.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
Ths mmeograph e pans the appcabty to the Secretary of the
r Force and the Department of the r Force of Treasury Decson
909 C. . 19: 9-2, 22 , approved une 16, 1939, by the ctng Sec-
retary of the Treasury and on une 28, 1939, by the ctng Secretary
of War, whch contans reguatons under secton 1 of the ct of
pr 3, 1939 (T|3 Stat. , at 60) and other provsons of aw,
respectng e cess proft on contracts and subcontracts for rmy
arcraft.
The Natona Securty ct of 19 7 (61 Stat. 9 ), approved uy
26, 19 7, provdes, among other thngs, for the desgnaton of the
Department of War as the Department of the rmy, the change of
the tte of the Secretary of War to that of Secretary of the rmy,
the estabshment of an e ecutve department known as the Depart-
ment of the r Force, the estabshment of the offce of Secretary of
the r Force, and for the transfer of certan functons to the atter
Department and offca.
y Transfer Order 6, dated anuary 9, 19 8 (13 F. R. 218), effectve
as of 12 m. (noon) anuary 1 , 19 8, the Secretary of Defense, actng
under the Natona Securty ct of 19 7, ordered, among other thngs,
the transfer to the Secretay of the r Force and the Department
of the r Force of certan of the functons, powers, and dutes vested
n the Secretary of the rmy and the Department of the rmy by
secton 1 of the ct of pr 1 3,1939.
Secton 30 (a) of the Natona Securty ct of 19 7 provdes:
Sec. 30 . (a) aws, orders, reguatons, and other actons appcabe wth
respect to any functon, actvty, personne, property, records, or other thng
transferred under ths ct, or wth respect to any offcer, department, or agency,
from whch such transfer s made, sha, e cept to the e tent rescnded, modfed,
superseded, termnated, or made nappcabe by or under authorty of aw, uve
the same effect as f such transfer had not been made; but, after any such transfer,
any such aw, order, reguaton, or other acton whch vested functons n or
(261)
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262
otherwse reated to any offcer, department, or agency from whch such transfer
was made sha, nsofar as appcabe wth respect to the functon, actvty,
personne, property, records or other tng transferred and to the e tent Dot
nconsstent wth other provsons of ths ct, be deemed to have vested such
functon n or reate to the offcer, department, or agency to whch the transfer
was made.
In vew of the foregong, the provsons of Treasury Decson 909
are, wth respect to contracts and subcontracts comng wthn the
scope of secton 1 of the ct of pr 3, 19: 9, appcabe to contracts
and subcontracts wthn the |ursdcton of the Secretary of the r
Force.
ccordngy, n the case of such contracts and subcontracts fang,
pursuant to Transfer Order 6, wthn the |ursdcton of the Secretary
of the r Force, the references n Treasury Decson 909 to the
Secretary of War and the rmy are to be construed, respectvey,
as references to the Secretary of the r Force and the r Force.
Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: IM.
Geo. . Scoeneman,
Commssoner.
S CTION 3 OF T INSON CT ( 8 ST T. 03, 0 ), S
M ND D Y T CT OF UN 2 , 1936 ( 9 ST T. 1926),
ND Y T CT OF PRIL 3,1939 ( 3 ST T. , 60)
19 9-8-1306 )
I.T. 39 7
ffect of the renegotaton of Government contracts or subcon-
tracts upon the determnaton of e cess proft under the proft-m-
tng provsons of the nson ct ( 8 Stat. 03, 0 ), as amended.
Consderaton has been gven as to the effect, for the purposes of the
proft-mtng provsons of the nson ct ( 8 Stat. 03, 0 ), as
amended, of the renegotaton, under the Renegotaton ct of 19 8
(62 Stat. 2 9; C. . 19 8-1, 238), of contracts or subcontracts for con-
structon of arcraft and reated procurement where the contractor
or subcontractor s requred to pay or repay e cessve profts to the
Unted States wth respect to contracts or subcontracts whch are aso
sub|ect to the proft-mtng provsons of the nson ct, supra, as
amended (herenafter referred to as the nson ct).
For Federa ta purposes, secton 3806(a) of the Interna Revenue
Code requres that a payment or repayment wthn a ta abe year end-
ng after December 31, 19 1, of e cessve profts pursuant to renego-
taton sha be treated as a reducton of the prce of the contracts
or subcontracts for the ta abe year for whch such prce was receved
or accrued, and secton 3806(b) of the Code requres that the decrease
n Federa ncome ta es resutng from such contract prce reductons
be credted aganst the amount of e cessve profts pad or repad.
(See I. T. 3611, C. . 19 3, 978.)
In case a renegotaton s made under the Renegotaton ct of 19 8
and e cessve profts pad or repad by a contractor or subcontractor
n respect of contracts or subcontracts whch are aso sub|ect to the
proft-mtng provsons of the nson ct, and f the contractor or
subcontractor s requred to pay e cess proft under such ct, wth
respect to such contracts or subcontracts, the contractor or subcon-
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tractor woud be n the poston of beng requred to pay both the
e cessve profts under the Renegotaton ct of 10 8 and the e cess
proft under the proft-mtng provsons of the nson ct wth re-
spect to the same amount of profts uness an ad|ustment s made to
emnate such doube payments.
Secton 3806(b) of the Interna Revenue Code provdes for the
aowance of a credt aganst e cessve profts of certan Federa
ta es specfed n such secton, but does not provde for a credt of the
e cess proft under the proft-mtng provsons of the nson ct.
owever, under a genera rue of aw, a person who has a ega or
equtabe cam aganst the Unted States s entted to credt or offset
such cam aganst hs abty to the Unted States, whether such
cam arses out of the partcuar transacton n whch he ncurred
hs abty to the Unted States or out of a dstnct and separate
transacton whch woud consttute a ega or equtabe offset. (See
ouse of Representatves Report No. 2 8G, Seventy-seventh Congress,
second sesson, amendment No. 9, C. . 19 2-2, 701, 728-729, and
I. T. 3 77, C. . 19 2-2,163.)
In vew of the foregong, t s hed that f pursuant to a renegota-
ton under the provsons of the Renegotaton ct of 19 8, the con-
tractor s requred to pay or repay to the Unted States e cessve prof-
ts, the amount so pad or repad sha not be treated as a part of the
cost of performng the contract or subcontract. owever, the contract
or subcontract prce for the purposes of the proft-mtng provsons
of the nson ct sha be reduced by the amount of the e cessve
profts so pad or repad. In such cases, the amount by whch the
contract or subcontract prce s to be reduced sha be the porton of
the tota e cessve profts for the ncome-ta abe year whch s prop-
ery appcabe to the partcuar contract or subcontract. Ths rue
s aso appcabe for the purposes of the nson ct n cases n whch
the contract or subcontract s performed n two or more ncome-ta -
abe years, rrespectve of whether under such ct the contract or
subcontract s to be consdered as competed wthn the ncome-ta -
abe year of the contractor or subcontractor covered by the renego-
taton.
In cases of renegotaton wth respect to contracts or subcontracts
for whch an annua report for the purposes of the nson ct has not
been fed under secton 17.16 of Treasury Decson 906 (C. . 1939-2,
0 , 19) or secton 16.1 of Treasury Decson 909 (C. . 1939-2,
22, 3 ), the reducton n the contract or subcontract prce as requred
by secton 3806(a) of the Code wth respect to such contracts or sub-
contracts sha be made and taken nto account n fng such report
and n determnng the abty for the e cess proft to be shown by
such report.
In cases n whch renegotaton wth respect to contracts or subcon-
tracts occurs after an annua report for the purposes of the nson ct
has been made wth respect to such contracts or subcontracts, f the
e cessve profts to be emnated upon renegotaton are determned
wthout makng an aowance or deducton for the e cess proft pay-
abe under the nson ct wth respect to such contracts or subcon-
tracts, any overpayment of e cess proft UDder the nson ct resut-
ng from the reducton of the contract or subcontract prces of such
contracts or subcontracts, to gve effect to the renegotaton, may be
made the sub|ect of a cam for refund whch may be fed on Form
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8 3 wthn the appcabe perod of mtaton provded under secton
322 of the Interna Revenue Code. In eu of such cam, the amount
of the overassessment resutng from such ad|ustment may be apped
as a credt aganst the e cessve profts determned upon the renegota-
ton, provded the credt s so made pursuant to procedures satsfac-
tory to the ureau of Interna Revenue and the renegotatng agency.
If t s ater determned that the credt aowed aganst the e cessve
profts determned upon renegotaton e ceeds the amount aowabe,
the dfference may be determned, assessed, and coected as a defcency
under the nson ct. (See atmore Foundry and Machne Corp.
v. Commssoner, 7 T. C. 998.) No credt aganst e cessve profts
determned upon renegotaton sha be aowed or made of any porton
of the e cess proft pad or assessed under the nson ct whch upon
renegotaton s aowed as a cost or other deducton n determnng
the e cessve profts to be emnated upon renegotaton. Lkewse,
no credt, refund, or abatement sha be aowed or made of such por-
ton, and no credt, refund, or abatement sha be aowed or made
of any amount whch s apped as a credt aganst the e cessve profts
determned upon renegotaton.
S CTION 67 OF T N RUPTCY CT, S M ND D
19 9- -13033
Ct. D. 1713
F D R L T S INT RN L R NU COD N RUPTCY CT, 8
M ND D D CISION OF SUPR M COURT
L ankruptcy Prorty of Ta Cam of Unted States pp-
caton of Secton 07c, ankruptcy ct, as mended.
Where, at the tme of the nsttuton of a bankruptcy proceedng,
the coector of nterna revenue has actua possesson of a bank-
rupt s persona property prevousy sezed to effect coecton of Fed-
era ta es whch are secured by a perfected ta en, there has been
compance wt the provsons of secton 67c of the ankruptcy ct,
as amended, and the coector s subsequent vountary renqushment
of such persona property to permt ts sae by the trustee of the
bankrupt s estate does not subordnate the payment of the afore-
mentoned Federa ta es out of the proceeds of the trustee s sae to
the payment of wage cams.
Secton 67c of the ankruptcy ct, as amended, deas wth the
stuaton e stng at the tme of the fng of the petton n bank-
ruptcy. The vadty of the en for ta es as aganst wages beng
estabshed, the coector s possesson of the persona property of the
bankrupt at the tme of the fng of the petton n bankruptcy pre-
cuded the appcaton of the provsons of secton 67c of the ank-
ruptcy ct, as amended, whch otherwse woud have requred the
payment of the ta cams to be postponed to the payment of cams
for the e penses of admnstraton and wages specfed n subsectons
(1) and (2) of secton 6 a of the ankruptcy ct, as amended.
Nether the provsons of secton 67c of the ankruptcy ct, as
amended, nor ts egsatve hstory ndcate an abandonment of the
genera purpose of Congress to safeguard nterests under ens per-
fected before bankruptcy.
2. Decson Reversed.
Decson of the Unted States Court of ppeas, Nnth Crcut (16
Fed. (2d) 1 ), reversed.
Supreme Court of the Unted States
George T. Ooggn, Trustee n ankruptcy of the state of esseo ngneerng
Corp., pettoner, v. Dvson of Labor Law nforcement, State of Caforna,
Statutory ssgnee of Certan Pror Wage Camants
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On wrt of certorar to the Unted States Court of ppeas for the Nnth Crcut
anuary 31, 19 9
OPINION
Mr. ustce urton devered the opnon of the Court.
Ths case deas wth the queston whether secton 67c of the ankruptcy ct,1
n determnng prortes n the payment of cams, speaks as of the tme of fng
the petton n bankruptcy. The precse ssue presented s whether a ta cam of
the Unted States, secured by a en perfected before the bankruptcy of the ta -
payer and accompaned, at the tme of the fng of the petton n bankruptcy, by
the coector of nterna revenue s actua possesson of the bankrupt s persona
property, s requred by secton ( 7c of the ankruptcy ct to be postponed n
payment to debts owed by the bankrupt for wages to camants specfed n cause
(2) of secton ( a of that ct,1 because the coector ater renqushed possesson
of such property to the trustee of the bankrupt s estate for sae by hm. We hod
that the en was vad and entted to prorty of payment as aganst the wage
1 s secton 67b s referred to n secton 67c and s matera to b nterpretaton, both
subdvsons of secton 67 are quoted beow :
Sec. 67. Lens and Frauduent Transfers.
b. The provsons of secton 60 of ths ct to the contrary notwthstandng, statutory
ens n favor of empoyees, contractors, mechancs, andords, or other casses of persons,
and statutory en for ta es and debts owng to the Unted States or any State or subd-
vson thereof, created or recognzed by the aws of the Unted States or of any State,
may be vad aganst the trustee, even though arsng or perfected whe the debtor s
nsovent and wthn four mouths pror to the fng of the petton n bankruptcy or of
the orgna petton under chapter , I, II, or III of ths ct, by or aganst hm.
Where by such aws such ens are requred to be perfected and arse but are not perfected
tefore bankruptcy, they may nevertheess be vad, f perfected wthn the tme permtted
t y and n accordance wth the requrements of such aws, e cept that f such aws requre
the ens to be perfected by the sezure of property, they sha nstead be perfected by
Ong notce thereof wth the court.
c. Where not enforced by sae before the fng of a petton n bankruptcy or of an
orgna petton under chapter , I. II, or III of ths ct, though vad under subdv-
son b of ths secton, tttatutory ens, ncudng ens for ta es or debts owng to the
nted States or to any State or subdvson thereof, on persona property not accompaned
by possesson of such property, and Ieus whether statutory or not, of dstress for rent
sha be postponed n payment to the debts specfed n causes (/) and (2) of subdv-
son a of secton f of ths ct, and, e cept as aganst other ens, such ens for wages
or for rent sha be restrcted In the amount of ther payment to the same e tent as
provded for wages and rent respectvey n subdvson a of secton 6 of ths ct.
Itacs supped.

ankruptcy ct of 1898, c. 1, 30 Stat. , r , as amended bv the Chander ct of
une 22, 1938, c. 7 , 2 Stat. 8 0. 87 -877, 11 U. S. C. secton 107 (b) and (c).
2 Not ony the portons of secton 6 a specfyng the wages here n controversy but
those otherwse reated to the ssues of ths case are quoted beow :
Sec. 6 . Debts Whch ave Proett. a. The debts to have prorty, n advance
of the payment of dvdends to credtors, and to be pad In fu out of bankrupt estates,
and the order of payment, sha be (1) the actua and necessary costs and e penses of
preservng the estate subsequent to fng the petton: the fees for the referees saary
fund and for the referees e pense fund; the fng fees pad by credtors n nvountary
cases ; where property of the bankrupt, transferred or conceaed by hm ether before or
after the fng of the petton, sha have been recovered for the beneft of the estate of
the bankrupt by the efforts and at the cost and e pense of one or more credtors, the
reasonabe costs and e penses of such recovery: the costs and e penses of admnstraton,
ncudng the trustee s e penses n opposng the bankrupt s dscharge, the fees and me-
age payabe to wtnesses as now or hereafter provded by the aws of the Unted States,
and one reasonabe attorney s fee, for the professona servces actuay rendered, rre-
spectve of the number of attorneys empoyed, to the pettonng credtors n nvountary
cases and to the bankrupt n vountary and nvountary cases, as the court may aow ;
(2) wages not to e ceed 600 to each camant, whch have been earned wthn three
months before the date of the commencement of the proceedng, due to workmen, servants,
cerks, or traveng or cty saesmen on saary or commsson bass, whoe or part tme,
whether or not seng e cusvey for the bankrupt; ( ) ta es egay due and
owng by the bankrupt to the Unted States or any State or any subdvson thereof :
Provded, That no order sha be made for the payment of a ta assessed aganst any
property of the bankrupt n e cess of the vaue of the nterest of the bankrupt estate
theren as determned by the court ; nd provded further. That, n case any queston
arses as to the amount or egaty of any ta es, such queston sha be heard and deter-
mned by the court: and ( ) debts owng to any person, ncudng the Unted States, who
by the aws of the Unted States n s entted to prorty, and rent owng to a andord
who s entted to prorty by appcabe State aw : Provded, however, That such prorty
for rent to a andord sha be restrcted to the rent whch s egay due and owng for
the actua use and occupancy of The premses affected, and whch accrued wthn three
months before the date of bankruptcy. Itacs supped.

ankruptcy ct of 1898. c. 1, 30 Stat. , 63, as amended by the Chander ct of
une 22, 1938, c. 7 . 2 Stat. 8 0, 87 , and 60 Stat. 323, 330, 11 U. S. C. secton 10 (a).
8 16 9 18
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266
cams at the date of bankruptcy and that the coector s renqushment of posses-
son of the bankrupt s property dd not change the resut.
The facts are undsputed. efore March 26, 19 6, a coector of nterna
revenue of the Unted States perfected a statutory en upon the persona prop-
erty of the essco ngneerng Corp., a Caforna corporaton, and took actua
possesson of such property pursuant to that en. e attempted to se such
assets and receved bds for them but dd not compete the sae because the
prce obtanabe was unsatsfactory to hm. e nsttuted a second sae but
abandoned t when he renqushed possesson of the property to the trustee
of the bankrupt s estate. On March 26, 19 6, the corporaton ted ts voun-
tary petton n bankruptcy n the Unted States Dstrct Court for the Southern
Dstrct of Caforna, was ad|udcated a bankrupt and George T. Goggn (who
ater became the trustee of the bankrupt s estate and s the pettoner heren)
was apponted recever. avng quafed as recever on March 28. 19 6, he
communcated wth counse for the coector as to the coector s turnng over
to hm the bankrupt s persona property. In ths connecton, the referee In
bankruptcy ater made a fndng of fact whch was adopted by the dstrct court
and s as foows :
the persona property of the bankrupt n the hands of the coector
of nterna revenue, was turned over to the sad George T. Goggn,
who accepted the terms and condtons of a teegram from . P. Weuche, Chef
Counse of the ureau of Interna Revenue, readng as foows:
Reference to teephone conversaton today wth Mr. Webb member of the
Los ngees offce of nterna revenue reatve to essco ngneerng Corp.,
bankrupt, no ob|ecton by ths offce to coector renqushng persona property
to trustee for sae. Government s en to attach to proceeds from sae sub|ect
to trustee s e penses ncudng costs of sae.
. P. Wenche, Chef Counse.
Goggn, n hs fna capacty as trustee for the bankrupt, caused these assets
to be sod at pubc aucton, pursuant to order of court. avng qudated a
assets whch had come nto hs possesson, he had on hand, on December 12,
19 6, about 31,206.20, whch the referee certfed was nsuffcent to pay n fu
the e penses of admnstraton, the en cams, the pror abor cams and pror
ta cams n the case. The gross amount of the amended cam of the coec-
tor for ta es, penates and nterest was 78,86 .03. The pror wage cams
totaed 3, 2 .87. The Department of mpoyment of the State of Caforna
sso fed a ta cam for 1 ,13 , whch was recorded as a en on or about
December 2 , 19 . Nether the vadty nor the amount of any of these cams
s n ssue here.
The present proceedng orgnated n a petton fed wth the referee n
bankruptcy by the trustee, seekng an order to show cause why the order of
prorty of the payment of the ta and pror wage cams and the e penses of
admnstraton shoud not he determned by the dstrct court. The referee made
fndngs of fact and reached concusons of aw upon the bass of whch he
ordered that, from the mones n the possesson of the trustee, there frst be pad
the e penses of admnstraton and that the baance of such funds then n the
hands of the trustee be pad to the coector of nterna revenue In parta pay-
ment of the Government s ta cams and the nterest thereon as prescrbed by
aw. The dstrct court adopted the fndngs of fact and concusons of aw
of the referee and entered |udgment thereon. The Court of ppeas for the
Nnth Crcut reversed that |udgment and hed that, by vrtue of the coector s
renqushment of hs possesson of the persona property of the bankrupt, the
ta es due to the Unted States must be postponed, n payment, to the debts of
the bankrupt for certan wage cams, pursuant to secton 67c of the ankruptcy
1 There s no ssue here as to the amount of penates or nterest ncuded n the coector s
cam for ta es or as to the date to whch Interest on such cam sha be computed. There
s no ssue here as to any dfference between statutory ens whch were perfected more
than four months before the fng of the petton n bankruptcy or those perfected wthn
ess than that tme. s the en camed by the Unted Staes e ceeds the funds avaabe.
It has fed ts bref n ths Court as the soe rea party n nterest and n opposton to
the wage cams. The respondent Dvson of Labor Law nforcement of te State of
Caforna, appears on behaf of a of the abor camants. There aso s no ssue here
as to the amount to be pad for the e penses of admnstraton or the tems whch such
e penses may ncude n addton to the costs of the sae made by the trustee.
Provson, not matera here, was made that, f addtona money came nto the possesson
of the trustee, the court, upon notce to a necessary an proper partes, shoud determne
the respectve ens or prortes, f any there be. of the coector of nterna revenue, the
pror abor camants, the Department of mpoyment of the State of Caforna and other
ta camants entted to be heard.
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267
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ct. (1C Fed. (2d) 1 .) ecause of the mportance of the ssue n the
admnstraton of the ankruptcy ct. we granted certorar. (333 U. S. 860.)
The bankrupt fed ts petton and was ad|udcated a bankrupt on March 26,
19- 6. The persona property of the bankrupt was then sub|ect to the perfected
statutory en of the Unted States for ta es and that en was accompaned by
the actua physca possesson of the property by a coector of nterna revenue
on behaf of the Unted States. Those facts competey satsfy secton 67c of
the ankruptcy ct. Subsequent events, such as the renqushment of hs pos-
sesson by the coector n favor of the trustee of the bankrupt s estate for the
purpose of factatng a sae of the property by the trustee, are not matera
to the determnaton of the ssue before us. The terms under whch the coec-
tor s possesson was renqushed are consstent wth and support ths resut
but the Government s rght to payment ahead of the wage cams was determned
at the tme of bankruptcy and dd not arse out of the arrangement under whch
possesson was renqushed to the trustee.
Ths genera pont of vew n nterpretng the ankruptcy ct Is one of
ong standng. Iu verett v. ud on (228 U. S. 7 , 79) ths Court sad:
We thnk that the purpose of the aw was to f the ne of ceavage wth
reference to the condton of the bankrupt estate as of the tme at whch the
petton was fed and that the property whch vests n the trustee at the tme
of ad|udcaton s that whch the bankrupt owned at the tme of the fng of the
petton.
See aso, Mers v. Matey (318 U. S. 622, 626) ; Unted States v. Mar en (307
U. S. 200, 207-208) ; cme arvester Co. v. eekman Lumber Co. (222 U. S.
300,307).
Whe secton 67c was added to the ankruptcy ct by the Chander ct n
1938, we fnd nothng n t or n ts egsatve hstory to suggest an abandonment
of the underyng yont of vew as to the tme as of whch t speaks and the
genera purpose of Confess to contnue to safeguard nterests under ens per-
fected before bankruptcv. (Cty of Rchmond v. rd, 2 ) U. S. 17 ; In re no -
Powe-Stockton Co., 100 Fed. (2d) 079; In re an Wnke, 9 Fed. Supp. 711.)
c Sep note 1, supra.
Nee Davs . Cty of Nru York (119 Fed. (2(1) 9). In that case the pty perfectpd Its
en for reta saes ta es by sezure of assets of fp ta paypr, May 16, 1939. n nvo-
untnry petton n bankruptcy was fed, une 7, 1939, aganst the ta payer and It was
ad|udcated a bankrupt, une 17. 1939. The assets were thereafter sod n e ecuton of
the warrant Issued by the cty treasurer. The evy was hed to be a vad statutory evy
as asm Inst the trustee of the bankrupt s estate and the cty was nnwed to retan the
proceeds of the sae, under sectons f 7b nnd 67c of the ankruptcv ct, as amended n
1938. For a converse stuaton see dtp of New York v. a (139 Fed. (2d) 93.r ). In
that case the cty perfected ts en on persona property of the ta payer, arsng out of
ong denquent busness and saes ta es, by the devery of warrants on anuary 1 , 19 3,
at 10: 1 a. m., to the cty s warrant agent for e ecuton nnd evy on e property. The
actua evy on. and nventory of. the property and the postng of notpp of sae were not
effected unt shorty after :30 p. m. In the meantme, at :22 p. m., an nvountary
petton n bankruptcy was fed aganst the ta payer and upon ths he was ad|udcated a
bankrupt. Pursuant to an order of the bankruptcy court, a recever sod the property
and the court decned to order the net proceeds to be turned over to the cty. The cty
was the hoder of a statutory en but, at the tme of the fng of the petton n bankruptcy,
thp en was not accompaned by actua possesson of the persona property to whch t
attached. It, therefore, was subordnated, under secton 67c of the ankruptcy ct, to the
admnstraton e penses and wages covered by causes (1) and (2) of secton 6 a. Not-
wthstandng the admonton of secton 67. sub. c. the cty chose to sumber on ts rghts.
Congress ntended to penaze such somnoence. (Id. at p. 930.)
Secton 1. Mkanng or Words an Puasks. The words and phrases used n ths
ct and n proceedngs pursuant hereto sha, uness the same be nconsstent wth the
conte t, be construed as foows :

(13) Pate of bankruptcy,1 tme of bankruptcy, commencement of proceedngs, or
bankruptcv. wth reference to tme, sha menu the date when the petton was fed ;
(30 Stat. , as amended by 2 Stat. 8 0-8 1.)
the rghts of credtors av f ed by the ankruptcy ct as of the fng of the
petton n bankruptcy. Ths Is true both as te the bankrupt and among themseves. The
assets at that tme are segregated for the beneft of credtors. The transfer of the assets
to someone for appcaton to the debts of the nsovent, as the rghts and prortes of
credtors may be made to appear ctng Rramtre v. . ft. Fdety d Guaranty Co., 269
U. S. 83, 90 , takes pace as of that tme. (Unted States . Mar en, 307 U. S. 200,
207-208.)
The genera rue In bankruptcy s that the fng of the petton freezes the rghts of
a partes nterested n the bnnkrupt estate. ceptons ony emphasze the rue. What-
ever dsagreement n opnon there may have been on the matter pror to the ct of 19.38,
t s now cear that statutory ens may be vad f they arse before bankruptcy athough
they are perfected after bankruptcy, If the perfecton s wthn the tme permtted by and
n accordance wth the requrements of appcabe aw. ( Coer on ankruptcy 228-
229 (1 th ed. 19 2).)
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268
Whe secton 6 , as amended, somewhat read|usts prortes among unsecured
cams, secton 67 contnues to recognze the vadty of ens perfected before
bankruptcy as aganst unsecured cams. Secton 67b has carfed the vadty
of statutory ens, ncudng those for ta es, even though arsng or perfected
whe the debtor s nsovent and wthn months of the fng of the petton n
bankruptcy. It e pressy recognzes that the vadty of ens e stng at the
tme of fng a petton n bankruptcy may be perfected under some crcumstances
after bankruptcy. Secton 67e, as amended n 1938, does, however, Introduce a
new postponement n the payment of certan cams secured by ens to the pay-
ment of other cams specfed n causes (1) (for certan admnstratve e -
penses, etc.) and (2) (for certan wages) of secton 6 a. Ths subordnaton
s, however, sharpy mted. For e ampe, t does not appy to statutory ens
on rea property, or to those actuay enforced by sae before bankruptcy, or, n
genera, to ens on persona property when accompaned by actua possesson of
such property. The background of secton 67e suggests a conscous purpose to
gve a narrowy mted prorty to admnstratve e penses and to certan wape
cams, at enst n nstances dscosng accumuatons of unpad ta es the prorty
of whch wage earners had no good reason to suspect, and whch mght absorb
the entre estate of the bankrupt uness postponed by these provsons.8 The
These provsons apparenty orgnated n amendments proposed by the Natona ank-
ruptcy Conference whch were before Congress n a Commttee Report nayss of . R.
12889 (7 th Cong., 2d sess. (1930)). Ths report states nt the b was ntroduced
by Mr. Chander, May 2S. 1936. contanng amendments proposed by the Natona ank-
ruptcy Conference, and the severa sectons are accompaned by e panatory notes. Sec-
ton 67c. as there proposed, resembes substantay the secton as fnay enacted. The
note e panatory of t s attrbuted to acob I. Wensten, a member of the Conference,
Incudes the foowng statement:
Secton 6 of the ankruptcy ct before amendment by the Chander ct s decara-
tory of a pocy that the costs and e penses In connecton wth a bankruptcy proceedng
and ts admnstraton sha be frst pad n dstrbuton. It s a sound pocy and s
n accordance wth the genera prncpes we estabshed n qudaton proceedngs.
ut secton 67 of the ct does not appy the same mtaton wth respect to vad ens.
The Supreme Court, n the case of Cty of Rchmond v. rd ( 3 . . R. 260 (1919)).
resoved the confct n the ower court decsons by hodng that the prorty provsons
of secton 6 do not appy to ens vad under secton 67.
It s sgnfcant that n recent years State egsatures have been enactng speca
egsaton n favor of ta cams, pubc debts, and a varety of prvate cams. Statstcs
In the bankruptcy cases show that the effectve admnstraton of the bankruptcy aw
has serousy suffered therefrom. Such cams, partcuary ta ens, often consume the
entre estate, eavng nothng for the payment of the costs and e penses of admnstra-
ton ncurred n reducng the assets to cash. In many such cases the ta ens represent
an accumuaton of denquent tems coverng a ong perod of tme, wthout any attempt
on the part of ta coectors to enforce payment pror to the bankruptcy proceedng.
There s therefore need for a provson to protect the admnstraton costs and e penses :
and smar consderatons appy to wage cams. ccordngy we have seected, from
among the prortes f ed by secton 6 (as revsed), these partcuar tems for protecton.
owever, by reason of the hstorca deveopment and the nherent dfferences e stng n
the Incdents attachng to rea and persona property, t woud seem advsabe to restrct
the remedy thus provded to ens on persona property, where such ens have not been
enforced by sae pror to bankruptcy. Itacs supped. (Id. at p. 212 n. 1.)
t that tme the b dd not aso e cept from subordnaton statutory ta ens on
persona property accompaned by possesson of such property. The addton of that
cause gves t speca emphass and suggests ts approprate effect as a warnng to other
camants that the property, so possessed, w not be avaabe n the frst nstance for
the admnstratve e penses and wage cams specfed n causes (1) and (2) of secton 6 a.
The report fed by Mr. Chander for the Commttee on the udcary, uy 29, 1937.
to accompany the b then known as . R. 80 6 merey stated : In subdvsons b and c
statutory ens are protected and permtted to he perfected f the tme aowed by aw
for perfectng them has not e pred. ( . R. Rep. No. 1 09. 7 th Cong., 1st sess. 3
(1937), and see references to sectons 6 and 67c on pp. 9, 1 16.)
See aso, Wensten, The ankruptcy Law of 1938 (1938) :
Ths subdvson s new and s desgned to correct an nequtabe condton whch
e sted under the od ct, partcuary wth respect to ta ens aowed, through the
nacton of ta authortes, to be accumuated over a ong perod of tme. Frequenty, such
ens consumed the entre estate, even to the e cuson of the costs and e penses ncurred
In the proceedng. Whe subdvson a of secton 6 provdes for prorty of payment of
such costs and e penses, such payment s pror ony to the other unsecured debts and
does not affect or Impar vad ens, whether statutory or otherwse. ut ta cams
may take the form of unsecured debts due to the soveregn, and thus payabe by way
of prorty n the order as provded n secton 6 , or the form of ens created by oca
statutes. s ndcated, f the ta cam takes the form of a en, or s reduced to the
form of a en, t s not affected by the provsons of secton 6 . In vew of the nequtabe
condton above referred to. there was need for a provson to protect the admnstraton
costs and e penses, and ke consderatons of pubc pocy requred a smar protecton
for wage camants. owever, the hstorca deveopment, and the nherent dfferences
n the ncdents attachng to rea and persona property, made It advsabe to restrct
the remedy provded by ths paragraph to ens on persona property, but, n respect even
to persona property, the provsons are appcabe ony where the property has not been
reduced to possesson or where the ens have not been enforced by sae pror to bank-
ruptcy. Itacs supped n the second nstance. 1 ( t pp. 1 1 .)
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269
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purpose of secton 67 n requrng a pubc warnng of the e stence of an en-
forceabe statutory en for ta es was served n the nstant case not ony by the
steps taken to perfect the Government s en but by the coector s sezure and
actua possesson of the persona property of the ta payer before the fng of
the ta payer s petton n bankruptcy.
The vadty of the en for ta es as aganst the wage camants was thus
estabshed at the tme of the fng of the petton n bankruptcy and the co-
ector s possesson of the persona property of the bankrupt e cuded the ap-
pcaton of secton 67c whch otherwse woud have postponed the payment of
the ta cams to the payment of the cams for admnstratve e penses and
wages specfed n causes (1) and (2) of secton 6 a. I y hs subsequent ar-
rangement wth the trustee for the sae of the bankrupt s property, the co-
ector dd not ose the rght to prorty of payment accorded to the perfected
ta ens, at the tme of bankruptcy, as aganst the wage cams.
The arrangement between the coector and the trustee was a natura and
proper one. Whe the amended cam for ta es, penates and nterest, dated
ugust 28, 19 G, amounted to 78,86 .03, the orgna cam, fed wth the no-
tces of en pror to March 20, 19 0, amounted to ony 0,921.9 (even n-
cudng the nterest and costs ater computed to ugust 21, 19 0). Of ths
sum the ta es themseves amounted ony to 3 ,S S.0 . To meet ths, the trus-
tee of the bankrupt s estate, on December 12, 19 6, had on hand 31,200.20,
evdenty derved from the sae of the property orgnay hed by the coec-
tor. These fgures, accordngy, suggest the possbty that, n March, 19 0,
t reasonaby may have been supposed that a surpus above the amount of the
Government s ta cam mght be reazed from the sae of the assets then n the
possesson of the coector. In that event, t woud have been the obvousy
approprate procedure for the trustee to se that property free and cear of
ens and encumbrances and then dstrbute the proceeds to the rghtfu eam-
ants. ven though there was tte or no prospect of reazng such a surpus,
t was reasonabe and approprate for the trustee, wth the consent of the en
hoder, thus to se the property and dstrbute ts proceeds. See an uffe v.
arkerode (28 U. S. 22 ); 0 Remngton on ankruptcy, sectons 2 77-2 78
( th ed. 1937). The proprety of the present concuson s emphaszed by
the fact, urged by the trustee, that the opposte concuson woud, n many
other cases, operate to the detrment both of unsecured credtors and of the
statutory en hoders. It woud compe a en hoder to retan hs actua pos-
sesson of the property n order to be sure of hs fu prorty n the payment
of hs ta cam. e woud be compeed to do ths, even though by dong so
the bankrupt s property probaby woud yed a smaer saes prce than f sod
by the trustee. Furthermore, the en hoder woud be brought nto sharp
confct wth the trustee whenever there was reason to suppose that the pro-
ceeds of the sae mght equa or e ceed the tu cams secured by the en. Un-
der such crcumstances the bankruptcy court generay may order the sae of
the bankrupt s property by the trustee, free and cear of ens and encumbrances.
See Coer on ankruptcy, sectons 70.97, 70.99 (1 th ed. 19 2) ; 0 Remngton
on ankruptcy, secton 2 83 ( th ed. 1937). ccordngy, we fnd no substan-
ta support for the argument that the en hoder s vountary renqushment
of hs possesson of the bankrupt s property, n favor of the bankrupt s trustee
for the purpose of permttng the trustee to se the property n ths case, must
carry wth t, as a matter of aw, a postponement of the payment of the en
hoder s ta cam to that of the cams for wages here presented.
For these reasons the |udgment of the court of appeas s
Reversed.
The ony queston then arsng woud be as to the e tent to whch the trustee mght
deduct from those proceeds Mr genera e penses of admnstraton, as we as the costs of
the sae tsef. Ths queston was touched uwn n the agreement wth the trustee but no
Issue s presented here as to t.
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270
M RC NT S IP S L S CT OF 19 6
19 9-6-130 9
Mn. 6366
d|ustments under secton 9 of the Merchant Shp Saes ct
of 19 6.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton , D. C, February 18,19 9.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
1. Reference s made to the Merchant Shp Saes ct of 19 6 (60
Stat. 1), herenafter referred to as the ct, enacted to provde for
the sae of surpus war-but vesses and for other purposes.
2. Secton 9 of the ct (C. . 19 7-2, 3 0, 3 2), entted d|ust-
ment for pror saes to ctzens, provdes that upon proper appcaton
to the Unted States Martme Commsson (herenafter referred to
as the Commsson), a ctzen of the Unted States who, on March 8,
19 6 (date of enactment of the ct), (1) owns a vesse whch he pur-
chased from the Commsson pror to such date, and whch was de-
vered 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-dfferenta subsdy was pad, or
agreed to be pad, by the Commsson under secton 0 of the Mer-
chant 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 constructon for hm of a vesse, whch has not vet
been devered to hm, and on account of whch a constructon-dffer-
enta subsdy was agreed, pror to such date, to be pad by the Com-
msson under secton 0 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
The term ctzen of the Unted States, as defned n secton 3(g) of
the ct, ncudes a corporaton, partnershp, 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.
3. Secton 9(b) (8) of the ct provdes as foows:
(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 appca-
ton 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 Commsson, 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 Com-
msson e ceeds the sum of the credts n favor of the appcant, such e cess sha
be pad by the appcant to the Commsson. Upon such payment by the Com-
msson or the appcant, such overpayments sha be treated as havng been
refunded and such defcences as havng been pad.
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271
Msc.
. Secton 9(c) of the ct provdes n part as foows:
(c) n ad|ustment sha be made under ths secton ony f the appcant en-
ters 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) () ) sha be treated for Federa ta pur-
poses as not havng been receved or accrued as ncome; amounts credted
to the appcant under subsecton (b) ( ) 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 enactment 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 any charter party sha not e ceed 1
per centum per annum of the statutory saes prce of the vesse as of such
date of enactment: 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 per centum per annum ;
. The determnaton of the appcabty of the ct to a specfc
vesse, the amount of the ad|ustment, and the responsbty for en-
terng nto the agreement wth the appcant as to the appcaton of
secton 9(c) (1) of the ct are matters wthn the |ursdcton of the
Commsson. The ct confers no authorty to functon n these mat-
ters upon the ureau of Interna Revenue. owever, upon the request
of the Commsson, accompaned by a statement of the amounts cred-
ted to the appcant and the Commsson under secton 9(b) ( ) and
(6) of the ct, the ureau w furnsh the Commsson wth advce as
to the overpayments of, or defcences n, Federa ta es resutng
from the appcaton of subsecton (c) (1).
6. request by the Commsson for advce as to the amount of the
defcency or overpayment resutng from the appcaton of secton
9(c) (1) of the ct shoud be addressed to the nterna revenue agent
n charge havng |ursdcton of the appcant s ncome and e cess
profts ta returns and shoud set forth for each vesse nvoved (1)
the amounts credted to the Commsson under secton 9(b)(6) of
the ct and the amounts of charter hre, f any, accrued to March 8,
19 6, whch are unpad and canceed under secton 9(b)(0) of the
ct; (2) the amounts credted to the appcant under secton 9(b) ( )
and (6) of the ct, and the amounts of nterest on the orgna mort-
gage ndebtedness, f any, accrued to March 8, 19 6, whch are unpad
and canceed under secton 9(b)( ) of the ct; (3) the statutory
saes prce as of March 8, 19 6; and ( ) a copy of the appcant s
appcaton for an ad|ustment under secton 9 of the ct. The
amounts credted to the Commsson under secton 9(b)(6) of the
ct shoud be shown by the Commsson by years (ncome-ta ta abe
years of the appcant). The request for advce shoud ncude a
vesses wth respect to whch the appcant has made appcaton for
ad|ustment under secton 9 of the ct. dvce as to the amounts
of overpayments and defcences resutng from the appcaton of
secton 9(c) (1) of the ct w be furnshed by the nterna revenue
agent n charge.
7. fter an ad|ustment n the prce of a vesse has been effected by
the Commsson under secton 9 of the ct, the changes n the tem s
of ncome and e pense as requred under subsecton (c)(1) w be
refected n the ta abe ncome of the appcant, for Federa ta pur-
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Msc.
272
poses. Snce a overpayments and defcences resutng therefrom
are requred, under the provsons of secton 9(b) (8) of the ct, to
be absorbed n the ad|ustment determned by the Commsson, and
the amounts then are requred to be treated as havhg been refunded or
pad, as the case may be, upon payment by the Commsson or the
appcant of an ad|ustment under the provsons of secton 9 of the
ct, the ureau w, n any further consderaton of the appcant s
Federa ta abty, treat any such overpayment as havng been re-
funded and any such defcency as havng been pad. No nterest
w be pad or credted on any such overpayment, and no nterest
w be coected or charged on any such defcency.
8. For Federa ta purposes, on and after March 8, 19 6, the bass
(unad|usted) under secton 113(a) of the Interna Revenue Code, of
a vesse on whch an ad|ustment under secton 9 of the ct has been
made s the statutory saes prce as determned by the Commsson
under the ct.
9. Correspondence regardng the contents of ths mmeograph shoud
refer to ts number and to the symbos ndcated: Coectors of n-
terna revenue, C: Co; nterna revenue agents n charge, IT:F;
heads of fed dvsons of the Technca Staff, TS: RM.
Dante . och,
ctng Commsfsoner.
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273 Regs. 6, 188.99a.
DISTILL D SPIRITS
INT RN L R NU COD
Reguatons 6, Secton 188.99a: Record, 19 9-13-1311
Form 96. T. D. 702
TITL 1 6 INT RN L R NU . C PT R I, SU C PT R C, P RT 188.
OTTLING OF DISTILL D SPIRITS IN OND
mendng Reguatons (
Treasury Department,
Offc e of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. On March 8, 19 9, notce of proposed rue makng, regardng the
reportng of botted-n-bond stamps, was pubshed n the Federa
Regster (1 F. R. 1039).
2. No ob|ectons to the proposed reguatons havng been receved,
secton 188.99a s hereby added to Reguatons 6 (26 CFR, Part 188),
approved September 19,19 0, as foows:
Sec. 188.90n. Record, Fokm )( . Where the botted-n-bond stamps are returned
to the propretor for tng a cam for e change or redempton, the propretor sha
account for such stamps on Form .M, Monthy Record and Report of Red Strp
Stamps Purchased and Used by Importers and by Others ssgned Custody of
Stamps, unt the e change or redempton as t een effected. pproprate mod-
fcaton of the form to specfy botted-n-bond stamps sha be made. The form
w be prepared an dsposed of n accordance wth the appcabe nstructons
thereon reatng to Other persons assgued custody of stamps. (Sees. 2903 and
3176, I. R. C.)
3. The purpose of ths Treasury Decson s to requre the accountng
by propretors of bottng-n-bond departments of nterna revenue
bonded warehouses for a botted-n-bond strp stamps, whch are re-
eased to them for e change or redempton, unt such dsposton has
been effected.
. Ths Treasury Decson sha be effectve on the thrty-frst day
foowng the date of ts pubcaton n the Federa Regster.
. Ths Treasury Decson s ssued under the authorty contaned n
sectons 2903 and 1317(3, Interna Revenue Code (26 U. S. C. 2903 and
3176).
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved une 2, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 7. 1f) 9)
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Regs. 1 , 190.13, etc.
27
Reguatons 11, Secton 189.111a: Record, 19 9-13-1311
Form 96. T. D. 70
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 189.
OTTLING OF T -P ID DISTILL D SPIRITS
mendng Reguatons 11
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. On March 8, 19 9, notce of proposed rue makng, regardng the
reportng of red strp stamps, was pubshed n the Federa Regster
(1 F.R. 1(139).
2. No ob|ectons to the proposed reguatons havng been receved,
secton 189. a s hereby added to Reguatons 11 (26 CFR, Part 189),
approved May 20,19 0, as foows:
Sec. 189.111a. Record, Form 96. Where the red strp stamps are returned to
the propretor for fng a cam for e change or redempton, the propretor sha
account for such stamps on Form 96. Monthy Record and Report of Red Strp
Stamps Purchased and Used by Importers and hy Others ssgned Custody of
Stamps, unt the e change or redempton has been effected. The form w be
prepared and dsposed of n accordance wth the appcabe nstructons thereon
reatng to Other persons assgned custody of stamps. (Sees. 2803 and 3176,
I. R. C.)
3. The purpose of ths Treasury Decson s to requre propretors
of ta -pad bottng pants to account for red strp stamps whch are
reeased to them for e change or redempton, unt such dsposton has
been effected.
. Ths Treasury Decson sha be effectve on the thrty-frst day
foowng the date of ts pubcaton n the Federa Regster.
. Ths Treasury Decson s ssued under the authorty contaned
n sectons 2803 and 3176, Interna Revenue Code (26 U. S. C. 2803
and 3176).
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved une 2,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 7, 19 9)
Reguatons 1 , Sectons 190.13, tc. 19 9-2-13012
T. D. 681
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 190.
R CTIFIC TION OF SPIRITS ND WIN S
mendng Reguatons 1
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. On September 22. 19 8, notce of proposed rue makng, regard-
ng the rectfcaton of sprts and wnes, was pubshed n the Federa
Regster (13 F. R. 07).
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27
Regs. 1 , 190.13, etc.
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, the foowng amend-
ments of sectons 190.13, 190.1 , 190.17, 190.19, 190.31, 190.39, 190. 9,
190.9 , 190.9 , 190.98, 190.99, 190.10 , 190.106, 190.11 , 190.118(c),
190.119,190.132,190.138,190.177,190.262,190.263,190.332,190.33 , and
190.392 of Reguatons 1 , reatng to the rectfcaton of dsted
sprts and wnes, are hereby adopted; sectons 190. 1a and 190. 71a are
added to such reguatons; and sectons 190.1 , 190.16, 190.110(a) (2),
and 190.137 of such reguatons are revoked.
3. These amendments are desgned to smpfy certan requrements
reatng to constructon and equpment, and the preparaton, fng,
and approva of documents n connecton wth the estabshment and
operaton of rectfyng pants. It s not the. purpose of the amend-
ments to requre the fng of new pats and pans, or changes n prem-
ses or equpment, where the e stng documents and equpment
conform essentay to the requrements of the reguatons pror to
these amendments. Where substanta changes are made n construc-
ton, equpment, and premses, the new requrements shoud be
Sec. 190.13. Wthn 600 Fket of Dstery. The dstrct supervsor may
permt the carryng on of the busness of rectfyng sprts or wnes at a dstance
of ess than 000 feet n a drect ne from a dstery, when he s of the opnon
that the revenue w not be endangered thereby. (Sees. 2819, 2832, 3170, 3170,
I. R. C.)
Sec. 190.1 . Speca ppcaton. person desrng to estabsh a rectfyng
pant wthn 600 feet of a dstery sha fe a speca appcaton, n trpcate,
for such prvege wth the dstrct supervsor. The appcaton sha state the
ocaton of the rectfyng pant and the dstery, the dstance between the
premses, the name of the dster, a descrpton of any connectng ppe nes,
the reason for ocatng the rectfyng pant wthn OI ) feet of the dstery, and
any addtona nformaton whch the dstrct supervsor may requre. The
dstrct supervsor w take acton on such speca appcaton n accordance wth
the procedure prescrbed n secton 190.119. (Sees. 2819, 2832, 3170, 3176, 1. R. C.)
Sec 190.17. Changes Rkqrno pprova. Where there s to be a change
In the dstance between a rectfyng pant and a dstery ocated wthn 600
feet of each other as a resut of the e tenson or curtament of ether premses,
a new speca appcaton, n trpcate, must he fed wt the dstrct supervsor
by the propretor of the premses whch are to be e tended or curtaed. Where
a change occurs n the propretorshp of a rectfyng pant or dstery ocated
wthn 000 feet of each other, the new propretor sha fe wth the dstrct
supervsor a new speca appcaton, n trpcate. Uness the rectfyng pant
premses are e tended or curtaed as the resut of such change, the change
may be refected n the ne t amended notce, form 27- , and pat fed by the
rectfer. Such new speca appcaton sha be consdered and dsposed of n
accordance wth secton 190.119. (Sees. 2819, 2832, 3170, 3170, I. R. C.)
Sec. 190.19. udng or Rooms. The rectfyng pant must be so constructed
and equpped as to be sutabe for the rectfcaton of sprts by the process, or
processes, of rectfcaton whch the rectfer proposes to use. The room or
budng must be securey constructed of brck, stone, wood, concrete, or other
substanta matera, and must be competey separated from contguous bud-
ngs or rooms by sod, unbroken parttons, or foors of substanta constructon,
e cept as herenafter provded. Such parttons sha e tend from the ground
to the roof, or from the toor to the ceng f a room s used, and f the rectfyng
pant s under the same roof or n the same budng n whch s ocated an
nterna revenue bonded warehouse or a ta -pad bottng house, the two
premses must not have means of communcaton wth each other wthn the
budng, e cept by approved ppe nes as heren authorzed: Provded, That
where a rectfyng pant has heretofore been estabshed under the same roof,
or n the same budng, wth an nterna revenue bonded warehouse or a ta -pad
bottng house wth nteror communcaton between the two premses, t may
contnue to operate n such ocaton f the revenue w not be |eopardzed thereby.
Where dsted water or ta -pad sprts are to he transferred by ppe ne to, or
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Regs. 1 , 190.13, etc.
276
from, the rectfyng pnnt n accordance wth these reguatons, necessary open-
ngs for the passage of the requred ppe nes may be permtted n the was or
parttons, and necessary openngs for passage of approved water, steam, sewer,
or smnr nes may kewse be permtted n the was or parttons. Where
contguous whoesae quor deaer premses are used n eu of a fnshed product
room, the necessary doors or openngs may be permtted n the was or parttons
for the transfer of fed cases. (Sees. 2801(e), 3176, I. R. C.)
Skc. 190.31. Weghng tanks. Where weghng tanks are used for gaugng
sprts, such tanks sha be constructed of meta, and sha be statonary and
of unform dmensons from top to bottom. ach such tank sha be equpped
wth a sutabe measurng devce whereby the contents w be correcty nd-
cated. If the weghng tanks are to be used for gaugng rectfed sprts for
determnng the amount of ta , or gaugng ta -e empt products pror to transfer
of the sprts to a bottng tank, such weghng tanks must aso conform to the re-
qurements of secton 190.39. The gaugng of sprts n a weghng tank connected
wth a bottng tank sha be deemed to meet the requrements of these regua-
tons for gaugng the sprts n a bottng tank mounted on scaes: Provded,
That after gaugng, the sprts may be transferred to the bottng tank for
mmedate ta payment f sub|ect to the rectfcaton ta . ach weghng tank
sha be mounted on accurate scaes and sha have pany and egby panted
thereon the words Weghng tank,- foowed by ts sera number and capacty
n wne gaons. The beams or das of the scaes must ndcate weght n -pound
graduatons for scaes up to, and ncudng, 2 tons capacty, n 10-pound gradua-
tons for scaes e ceedng 2 tons capacty but not e ceedng 60 tons capacty,
and n 20-pound graduatons for scaes havng a capacty of more than 60 tons.
(Sees. 2801(e), 2S29. 3176, I. R. C.)
Sec. 190.39. ottno Tanks. Where sprts are botted at the rectfyng
pant, the rectfer sha provde In the rectfyng room, or bottng room f one
s provded, one or more bottng tanks securey constructed of meta, and such
tanks sha be of unform dmensons from top to bottom. ach bottng tank
sha be mounted on scaes, or equpped wth a sutabe measurng devce whereby
the contents w be accuratey and precsey ndcated, and sha have pany
and egby panted thereon the words ottng tank, foowed by ts sera
number and capacty n wne gaons. sutabe board sha be provded on
each bottng tank for the attachment of Forms 237 and 230, as herenafter
provded. ach bottng tank must be cosed, and any necessary openngs theren
affordng access to the nteror, or to the contents, must be provded wth a
cover, whch w be secured by a Government ock. Stopcocks must be provded
and so arranged as to competey contro the fow of sprts both nto and out of
the bottng tank, and so constructed that they may be ocked wth a Government
ock. The ppe connectons contanng such stopcocks or vaves must be brazed,
weded, or otherwse secured to the tank n such a manner that they cannot be
detached or atered wthout showng evdence of tamperng, and the outet ppe
connecton sha be equpped wth a check vave. The ppe ne connectng the
bottng tanks wth the bottng machne must conform to the requrements of
secton 190. . ottng tanks may be permanenty connected wth ppe nes
for the conveyance thereto of ar and dsted water, but the dsted water ppe
ne must be aff ed to the top of the tank. Such pne nes must be equpped
wth a contro vave whch may be ocked wth a Government ock. Ppe nes
used for the conveyance of ar must aso be equpped wth a check vave ocated
near the pont of entry to the tank In order to effectvey prevent any abstracton
of sprts from the tank. Other ppe nes, e cept those used for the conveyance
of sprts, may not be permanenty connected wth such tanks. ottng tanks
sha be accuratey and precsey cabrated. (Sees. 2801(e) (1), 2829, and 3176,
I. R. C.)
Sec. 190. 1a. ccumuaton Tanks. Where the rectfer removes dsted
sprts from the bottng ne whch contan sedment or foregn matter, or whch
otherwse requre refterng or rebottng. he may nsta sutabe accumuaton
tanks n the bottng room for the accumuaton of such sprts. ach such tank
sha have pany and egby panted thereon the words ccumuaton tank,
foowed by ts sera number and capacty n wne gaons. If the sprts accumu-
ated n each tank are of the same cass and type, they may be returned to the
bottng tank system for refterng and bottng wth the same batch of sprts.
The return of the sprts to the bottng tank system must be under the supervson
of the storekeeper-ganger. Uness the sprts are reftered and botted wth the
same ot of sprts from whch they were orgnay botted, they must be returned
for rerectfcaton under an approved formua, or, n the case of sprts not
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277
Regs. 1 , 190.13, etc.
sub|ected to ta abe rectfcaton, returned to the dumpng and reducng tank
for commngng wth sprts wthout rectfcaton wthn the mtaton of secton
190.3 1. In such case, approprate notaton w be made on the Form 230 or
Form 237 reatve to the return of the sprts. (Sees. 2801 (e), 317G, I. It. C.)
Sue. 190. 9. Dstanck From D.stu.euy oe negar Pant. If the rectfyng
pant premses are stuated more than 800 feet n a drect ne from any premses
authorzed to be used for dstng sprts, or from a vnegar factory usng the
vaporzng process, such fact sha be stated on Form 27- . If the dstance
between the rectfyng pant premses and the premses of a dstery s ess
than 600 feet n a drect ne, there must be stated n the notce, Form 27- ,
the name of the propretor of the dstery, the e act dstance n feet and
nches between the rectfyng pant and dstery, and whether the ocaton of
the rectfyng pant wthn such dstance of the dstery has been approved
by the dstrct supervsor. If such ocaton of the rectfyng pant has been
approved by the dstrct supervsor, the date of such approva sha be gven.
If the dstance between the rectfyng pant premses and a vnegar factory
usng the vaporzng process s ess than ( ) feet n a drect ne, such fact
sha be stated on the form, and aso whether or not the vnegar factory was
estabshed and operated as such pror to March 1, 1879. (Sees. 2801(e), 2812,
2819, 283 , 283 , 3170, 317( ,1. R. C.)
Sec. 190.9 . Preparaton. very pat and pan sha be drawn to scae, and
each sheet thereof sha bear a dstnctve tte, enabng ready dentfcaton.
The cardna ponts of the compass must appear on each sheet e cept the
eevatona pans. The mnmum scae of any pat w not be ess than one-
ffteth nch per foot. ach sheet of the orgna pat nnd pans sha be num-
bered, the frst sheet beng desgnated number 1, and the other sheets numbered
n consecutve order. Pats and pans sha be submtted on sheets of tracng
coth, opaque coth, or senstzed nen. The dmensons of pats and pans
sha be 1 by 20 nches, outsde measurement, wth a cear margn of at east
1 nch on each sde of the drawng, etterng, and wrtng. Pats and pans may
be orgna drawngs, or reproductons made by the dtto process, or by
bue- or brown-ne thoprnt f such reproductons are cear and dstnct. (Sees.
2801(e), 3170, I. R. C.)
Sec. 190.9 . Depcton of Rectfyng Pant Premses. Pats must show the
outer boundares of the rectfyng pant premses, n feet and nches, n a coor con-
trustng wth those used for other drawngs on the pat, and must contan an
accurate depcton of the budng, or budngs, comprsng the premses, and
any drveway, pubc hghway, or raroad rght-of-way ad|acent thereto or
connectng therewth. The depcton of the premses sha agree wth the descrp-
ton n the notce, Form 27- . If the premses are separated by a pubc hghway
or raroad rght-of-way, and the tracts of and comprsng the premses, or parts
thereof, abut on such hghway or rght-of-way opposte each other, the dfferent
tracts w be depcted separatey, n feet and nches. If two or more budngs
are to be used, the desgnated name of each sha be ndcated, and a ppe nes
or o her connectons, f any, between the same depcted. Where two or more
budngs are used for the same purpose, the name of each such budng sha
ncude an aphabetca desgnaton, begnnng wth , and they sha be so
shown on the pat. frst foor e teror doors of each budng on the premses
w be shown on the pat. If the rectfyng pant conssts of a room or a foor
of a budng, an entre outne of the budng, the precse ocaton and dmenson ;
of the room or foor, and the means of ngress and egress to a pubc street or yard
sha be shown. cept as provded n secton 190.10 , a ppe nes endng to
or from the premses, the pun se for whch used, and the ponts of orgn and
termnaton w be ndcated on the pat. (Sees. 2801(e), 3176, I. R. O.)
Sec. 190.98. Foor Pans. The pans sha ncude a foor pan of each budng,
showng the genera dmensons of the ro n-.s and foors, and the ocaton of a
doors, wndows, and other openngs, and how such openngs are protected. If a
porton of a budng s used, such as a room or foor, the foor pans w ncude
ony that porton, and sha aso show the means of ngress and egress to the
street. apparatus and equpment, e cept ppe nes, must be shown n ther
e act ocaton on the foor pans and ther desgnated use ndcated. Ppe nes
may aso be shown, f desred. In the case of sts, tanks, and smar equp-
ment, the sera number and capactv sha aso be shown. (Sees. 2801 (e), 3176,
I. R. C.)
Sec. 190.99. evatona Fow Dagrams. evatona fow dagrams (pans)
sha be submtted whch sha depct a equpment n ts appro mate operatng
sequence and eevaton by foors, wth a connectng ppe nes, vaves, fanges,
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Regs. 1 , 190.13, etc.
278
measurng devces, nnd attachments for Government ocks. The eevaton by
foors on the dagrams may be ndcated by horzonta nes representng foor
eves. ma|or equpment, such as sts and tanks, must be dentfed on the
pans as to number and use. The eevatona fow dagram must be so drawn
that a f ed ppe nes, e cept those ndcated by secton 190.10 , may be ready
traced from begnnng to end. Other types of drawngs that ceary depct
the nformaton requred heren mav be submtted n compance wth ths sec-
ton. (Sees. 2801(e), 3170, I. It. C.)
Sec. 190.10 . Certfcate or ccuracy. The pat and -pans sha bear a
certfcate of accuracy n the ower rght-hand corner of each sheet, sgned by
the rectfer, the draftsman, and the dstrct supervsor, substantay n the
foowng form:
(Name of propretor)
( ddress)
pproved .
(Date)
ccuracy certfed by:
(Dstrct supervsor)
(Name and capacty for the propretor)
(Draftsman)
Rectfyng Pant No. 19 , Sheet No.
(Date)
(Sees. 2801(e), 3176, I. R. C.)
Sec. 190.106. Revsed Pats and Pans. The sheets of revsed pats and
pans sha bear the same number as the sheets superseded, but w be gven
a new date. ny addtona pats and pans sha be gven a new number n
consecutve order, or w he otherwse numbered and ettered n such manner
as w permt the fng of the pats and pans n proper sequence. (Sees. 2801(e),
3176, I. R. C.)
Sec. 190.11 . Changes n Premses. Where the rectfyng pant premses are
to be e tended or curtaed, the rectfer must fe wth the dstrct supervsor
an amended notce, Form 27- , and an amended pat of the premses as e -
tended or curtaed. If the pans are affected by the e tenson or curtament,
they must aso be amended. If the rectfyng pant s wthn 600 feet of a
dstery, the rectfer must aso fe a speca appcaton n accordance wth
secton 190.1 or 1S0.17, f the changes are of such nature or e tent as to requre
a speca appcaton. The addtona premses covered by an e tenson may nut
be used for rectfyng purposes, and the porton of the premses to be e cuded
by a curtament may not be used for other than rectfyng purposes, pror to
approva of the notce, Form 27- . (Sees. 2801(e), 3170, 3176, I. R. C.)
Sec. 190.118. uafcaton.

(c) Regstry of sts. Regster the sts on Form 2(, n trpcate, n accord-
ance wth secton 190. 71a, f not prevousy regstered.

Sec. 190.119. Speca ppcaton. Where a speca appcaton for permsson
to operate a rectfyng pant wthn 600 feet of a dstery s submtted by the
rectfer, and such speca appcaton conforms to the requrements of these
reguatons, the dstrct supervsor w cause an nspecton to be made to de-
termne whether the proposed operaton of the rectfyng pant wthn 600 feet
of the dstery may be permtted wthout |eopardy to the revenue. The n-
spector w ascertan whether the appcaton accuratey descrbes the reatve
ocaton of the two premses and a ppe nes and other connectons, f any, be-
tween such premses. The nspector w aso observe the surroundngs, ncud-
ng a streets, roads, and drveways connectng the two premses, and any
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279
Regs. 1 , 190.13, etc.
condton whch mght endanger the revenue, and w descrbe the same n
hs report. If the dstrct supervsor fnds, upon consderaton of the nspecton
report, that the rectfyng pant may be operated at the desgnated ocaton
wthout danger to the revenue, he w note hs approva on a copes of the
speca appcaton. e w then return one copy of the approved appcaton
to the appcant, retan the orgna for hs fes, and forward the remanng
copy, together wth a copy of the nspecton report, to the Commssoner. p-
prova of the speca appcaton pertans to the ocaton of the rectfyng pant
ony, and does not authorze the operaton thereof. The rectfyng pant may
not be operated unt the rectfer s bond and other quafyng documents re-
qured by aw and these reguatons have been fed and approved by the Com-
mssoner. If the speca appcaton s dsapproved, the dstrct supervsor
w note hs dsapprova thereon and w return a copes of such appcaton
to the appcant, wth advce as to the reasons for dsapprova. (Sees. 2819,
2832, 3170,3170, I. R. C.)
Sec. 190.132. Dsposton of uafyng Documents. Where the rectfer s
bond, Fonn 3 , and notce, Form 27- , are approved by the Commssoner, the
dstrct supervsor w, upon recept of the approved copes of such documents
from the Commssoner, as provded n secton 190.138, forward one copy of
the bond, notce, pat, pans, and other quafyng documents to the rectfer,
and w retan one copy of such documents for the fe. If the rectfer s bond
s dsapproved, the dstrct supervsor w, upon recept from the Commssoner
of the dsapproved copes of such bond and other quafyng documents sub-
mtted therewth, return a copes of the quafyng documents to the propretor,
wth advce as to the reasons for such dsapprova. (Sees. 2801(e)(1), 3176,
I. R. C.)
Sec. 190.138. uafyng Documents. The Commssoner w revew the
notce, pat, pans, rectfer s bond. Form 3 , and other quafyng documents,
upon ther recept from the dstrct supervsor. If the Commssoner approves
the rectfyng pant constructon and equpment, and the pat, pans, bond, and
notce, and other quafyng documents, he w assgn a regstry number to the
rectfyng pant n accordance wth secton 1 .139, note hs approva on a
copes of the bond and notce, retan one copy of the bond and notce, and a
copes of the other quafyng documents, and w return two copes of the
approved bond and notce to the dstrct supervsor wth advce as to hs acton
on the quafyng documents. If the Commssoner dsapproves the bond, he
w note hs dsapprova thereon, and w return a copes thereof to the
dstrct supervsor, accompaned by the other quafyng documents submtted
therewth and a statement of the reasons for dsapprova of the bond. (Sees.
281 (c) (d), 3176, I. R. C.)
Sec. 190.177. ppcaton, Form 122. When the rectfer desres to dump
sprts for rectfcaton, he w carefuy gauge each package and prepare Form
122, n dupcate, gvng a compete descrpton of the packages and makng
appcaton for permsson to dump the sprts, e cept that where sprts are
transferred to the rectfyng pant drecty upon ta payment from a contguous
dstery or nterna revenue bonded warehouse or a dstery or nterna
revenue bonded warehouse ocated n the mmedate vcnty of the rectfyng
pant and owned by the propretor of the rectfyng pant or a subsdary and
dumped for rectfcaton wthn 30 days after recept, the wthdrawa gauge
w be consdered as satsfyng the requrement that the sprts sha be gauged
when dumped for rectfcaton. The supervsor w determne from a the cr-
cumstances n each case whether the dstery or warehouse and the rectfyng
pant are n the mmedate vcnty. Where the sprts are so dumped on the
wthdrawa gauge, detas of such gauge w be coped on Form 122 and n add-
ton thereto, f the rectfyng pant s equpped wth processng tanks mounted
on scaes, the sprts may be dumped and gauged by weght n such processng
tanks. In such case, the composte proof and proof gaons determned by
such gauge sha aso be reported on Form 122. The dfference In proof gaons
between the wthdrawa (ta payment regauge) and such tank gauge sha aso
be reported on Form 122. If the sprts are to be drawn from the storage tank,
the rectfer w kewse e ecute Form 122 gvng t the Informaton appcabe.
ach Form 122 w 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. (Sees. 2801(e) (1), 2813, 3176, I. R. C.)
Sec. 190.262. ppcaton Requred for tenson. Where the rectfer
desres to empoy a process of rectfcaton whch w e tend over more than
10 days, thus necesstatng the hodng of the sprts In the rectfyng room for
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Regs. 1 , 190.13, etc.
2S0
such onger perod, appcaton, In quadrupcate, for approva of such e tended
process must be ncorporated n the Form 27- Suppementa, and ted wth the
dstrct supervsor as provded n secton 190.1 2. The rectfer must set forth
fuy on such form, foowng the statement of process, the reason why the perod
of tme specfed for competon of the process Is necessary. (Sees. 2801(e),
3176, I. R. C.)
Sec. 190.263. Inqury by Dstrct Supervsor. Upon recept of a Form 27-
Suppementa requestng approva of n process requrng more than 10 days for
competon, the dstrct supervsor w make such nqury as he may deem
proper to determne the necessty for the e tended perod, and whether approva
thereof w |eopardze the revenue. e w then forward a copes of the
Form 27- Suppementa to the Commssoner aong wth hs fndngs and
recommendaton. The Form 27- Suppementa w be dsposed of n the man-
ner prescrbed by secton 1110.1 6. (Sees. 2801(e), 3170,1. R. C.)
Sec. 190.332. Dstrct SupkRvbor May t|thorzk. The dstrct supervsor
may, n hs dscreton, authorze the nstaaton of a ppe ne for the transfer
of rectfed sprts from the bottng tanks n the rectfyng pant to bottng
tanks n a contguous ta -pad bottng house or rectfyng pant for bottng.
(Sees. 2S01 (e) (1), 3176, I. R. C.)
Sec. 190.33 . cton on ppcaton. Upon recept of the appcaton, the
dstrct supervsor w make such nqury as he may deem necessary to determne
the proprety of grantng the permsson sought. e w then ndcate hs
approva or dsapprova on a copes of the appcaton, and w return one
copy to the appcant. Where the appcaton s approved, the rectfer w, upon
nstaaton of the ppe ne, te amended rectfer s notce on Form 27- , and
pans, as provded n secton 190.117 n the case of ma|or changes n equpment
and an amended pat. These documents, together wth a copy of the appcaton
to nsta the ppe ne and a copy of the report of Inspecton reatng thereto,
w be forwarded to the Commssoner for approprate acton pror to use of
the ppe ne. If the appcaton s dsapproved, the dstrct supervsor w
return a copes of the appcaton to the appcant wth advce as to the reasons
for dsapprova. (Sees. 2801(e) (1), 3176, I. R C.)
Sec. 190.392. Shpment of Stamps. Where the stamps are to be shpped, the
coector w forward the stamps to the Government offcer by regstered ma
or e press. The e pense of forwardng the stamps by regstered ma or e press
w be borne by the propretor. The coector may furnsh the stamps drecty to
the propretor for mmedate devery to the Government offcer n accordance
wth secton 190.391. (Sees. 2801(e), 3176, I. R. C.)
Skc. 190. 71a. Regstry o Form 26. very person havng n hs possesson
or custody or under hs contro any st or dstng apparatus that s set up must
regster tte same on Form 26, n trpcate, wth the dstrct supervsor for the
dstrct n whch t Is set up. Sts to be used for the rectfcaton of any type
of dsted sprts may be regstered for Rectfcaton of dsted sprts, and
the specfc type need not be shown. Thereafter, when another type of dsted
sprts s to be rectfed, the st need not be reregstered. The temporary sts-
penson of a rectfyng pant wr not necesstate reregstraton of the sts.
Furthermore, the operaton of a rectfyng pant by aternatng propretors,
where no actua change n ownershp occurs, w not requre reregstraton of
the sts by the propretors. Where there s a change n ocaton or use, or an
actua change n ownershp of a st, the st must be regstered to refect the
change. The dstrct supervsor w, upon approvng the regstraton of a st
on Form 26, retan one copy of the form, forward one copy to the Commssoner,
and return the remanng copy to the rectfer. (Sees. 2801(e), 2810, 3170, 3176,
I. R.C.)
. Ths Treasury Decson sha he effectve on the thrty-frst day
after ts pubcaton n the Federa Regster.
. Ths Treasury Decson s ssued under the authorty contaned
n sectons 2801(e), 2810, 2812, 2819, 2829, 2832, 283 , 283 , 3170, and
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281 Regs. 1 , 190. 03a.
3176, Interna Revenue Code (26 U. S. C. 2801(e), 2810, 2812, 2819,
2829,2832,283 , 283 , 3170, and 3176).
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved December 28,19 8.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster December 31,19 8)
Reguatons 1 , Secton 190. 03a: Record, 19 9-13-13116
Form 96. T. D. 703
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 190.
R CTIFIC TION OF SPIRITS ND WIN S
mendng Reguatons 1
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. On March 8, 19 9, notce of proposed rue makng, regardng
the reportng of red strp stamps, was pubshed n the Federa Reg-
ster (1 F. R. 10 0).
2. No ob|ectons to the proposed reguatons havng been receved,
secton 190. 03a s hereby added to Reguatons 1 (26 CFR, Part
190), approved May 20,19 0, as foows:
Sec. 190. 03a. Record, Form 96. Where the red strp stamps are returned to
the propretor for fng a cum for e change or redempton, the propretor
sha account for such stamps on Form 96, Monthy Record and Report of Red
Strp Stamps Purchased and Used by Importers and Others ssgned Custody of
Stamps, unt the e change or redempton has been effected. The form w
be prepared and dsposed of In accordance wth the appcabe Instructons
thereon reatng to Other persons assgned custody of stamps. (Sees. 2803
and 3176,I. R. C.)
3. The purpose of ths Treasury Decson s to requre the account-
ng by rectfers for a red strp stamps whch are reeased to them
for e change or redempton, unt such dsposton has been effected.
. Ths Treasury Decson sha be effectve on the thrty-frst day
foowng the date of ts pubcaton n the Federa Regster.
. Ths Treasury Decson s ssued under the authorty contaned n
sectons 2803 and 3176, Interna Revenue Code (26 U. S. C. 2803 and
3176).
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved une 2,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 7, 19 9)
8 16 9: 19
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Regs. 18, 192.7.
282
Reguatons 18, Secton 192.7: rewery 19 9-12-1310
budngs. T. D. 700
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 UOR
mendng Reguatons 18
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. O.
To Dstrct Supervsors and Others Concerned:
1. Secton 192.7 of Reguatons 18 (26 CFR, Part 192), approved
May 20, 19 0, reatng to fermented mat quor, s hereby amended
as foows:
Sec. 192.7. beweby udngs. rewery budngs must be securey con-
structed of substanta sod materas. If there are budngs, or parts of
budngs, used n the conduct of another busness (e cept as authorzed by
secton 192. ) ad|onng or consttutng a part of the budng on the brewery
premses, such other budngs, or parts thereof, must be entrey separated
from the brewery budngs by substanta, sod, and unbroken was and foors.
smar separaton sha be made n respect to bottng house budngs, where
another busness s conducted (e cept as authorzed by secton 192.6). If beer
Is conveyed from the brewery to the bottng house by ppe ne, the brewery
premses must be ad|acent or contguous to the bottng house premses. If
the brewery and the bottng house are ad|onng, there sha be no nteror
communcaton between the two premses, and such premses must be separated
by sod and unbroken was and foors, e cept for authorzed conduts, tunnes,
and ppe nes. such budngs sha be so arranged and constructed as to
afford adequate protecton to the revenue and factate approprate super-
vson by Government offcers. (Sees. 31 7, 3176, I. R. C.)
2. It s found that compance wth the notce, pubc rue-makng
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct ( U. S. C. 1001 et seq.) s unnecessary n connecton wth
the ssuance of these reguatons for the reason that the changes made
are of a berazng character.
3. The purpose of the amendment of secton 192.7 s to beraze
the requrements for the separaton of brewery budngs from bud-
ngs used for other purposes to the e tent of deetng the provson
for separaton from the ground to the roof n a drect, vertca ne.
Ths amendment prescrbes entre separaton n such cases by sub-
stanta, sod, and unbroken was and foors.
. Ths Treasury Decson sha be effectve mmedatey.
. Ths Treasury Decson s ssued under the authorty contaned
n sectons 31 7, 3176, Interna Revenue Code (U. S. C, tte 26, 31 7
and 3176).
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved May 2 , 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 31, 19 9, 8 : 2 a. m.)
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283
Regs. 20, 19 .12(6), etc.
Reguatons 20, Sectons 19 .12 (Z ), tc. 19 9-8-13066
T. D. 693
TITL 26 INT RN L R NU . C TT R I, SU C PT R C, P RT 19 .
W OL S L ND R T IL D L RS IN LI UORS
mendng Reguatons 20
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. G.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. On October 1, 19 8, notce of proposed rue makng regardng
whoesae and reta deaers n quors was pubshed n the Federa
Regster (13 F. R. 681).
2. No ob|ectons to the rues havng been receved, amendments of
subsecton 19 .12(6) and sectons 19 .26, 19 . 1, and 19 . 3 of Regua-
tons 20, approved une 6, 19 0 (26 CFR, Part 19 ), are hereby
adopted.
3. These amendments are desgned to refect changes n procedure
and nterpretatons of the reguatons.
Sec. 19 .12. Lawfu Saes by Reta Deaer n Lquors.
(6) Whoesae gaes. Where a reta deaer n quors accepts an order for
wne gaons or more of dsted sprts or wnes, a transacton has been made n
whoesae quantty, notwthstandng the order s fed and devery s made n
parces of ess than wne gaons and on dfferent dates. cept as provded
n secton 10 .02, abty to speca ta as a whoesae quor deaer s n-
curred where two or more orders for wne gaons or more are accepted under
such condtons durng a fsca year, or where crcumstances surroundng accept-
ance of a snge order show the person s engaged n busness as a whoesae
quor deaer. Smary, abty to speca ta as a whoesae deaer n mat
quors s ncurred by a reta deaer n quors when he accepts orders for wne
gaons or more of mat quors. (Sees. 32 and 3791, I. R. C.)
Sec. 19 .26. Saes at Natona Mtary stabshments. (a) empt from
speca ta .- Post e changes, shp s stores, shp s servce stores and comms-
sares estabshed and conducted under reguatons of a department of the
Natona Mtary stabshment, and under the compete contro of such depart-
ment, are not sub|ect to speca ta for the sae of quors, provded saes are
not made to the genera pubc but are restrcted to members of the mtary
estabshment and ther guests.
(6) Sub|ect to speca ta . Speca ta must be pad for the sae of quors
at canteens, cubs, messes, and smar paces whether or not ocated on premses
of the Natona Mtary stnbshment. (Sees. 32 and 3791, I. R. C.)
Sec. 19 . 1. Mssng Stamps. (a) Lost or destroyed. If a speca ta stamp
has been ost or destroyed, the ta payer shoud mmedatey notfy the coector
of nterna revenue. Certfcate n Leu of Lost or Destroyed Speca Ta
Stamp w be ssued to the ta payer who submts an affdavt showng to the sat-
sfacton of the coector that the stamp was ost or destroyed. The certfcate
must be posted n pace of the stamp; otherwse, abty for faure to post the
stamp w be ncurred.
(6) Sezed by tate antthortes. Where a stamp desgnated Reta Deaer
In Lquors s sezed by State authortes because t does not conform to the
deaer s oca cense or permt (wne, or wne and beer), the coector w,
upon request, ssue a Certfcate n Leu of Lost or Destroyed Speca Ta Stamp
to show that the deaer has pad speca ta as a Reta Deaer n Wne or
Reta Deaer n Wnes and Mat Lquors, as the case may requre. owever,
where a speca ta stamp has been sezed by State authortes because the deaer
has operated n voaton of oca aw, a Certfcate n Leu of Lost or Destroyed
Speca Ta Stamp w not be ssued by the coector. (Sec. 3791, I. R. C.)
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Regs. 21, 191.8, 191.9.
28
Sec. 19 . 3. Correctons of rrors on Speca Ta Stamps Dscovered on In-
specton. When an nspector ascertans that an error appears on the speca
ta stamp as to the name, ownershp, address, etc., he w requre the ta payer to
prepare a new Form 11, desgnated mended Return, showng the proper name,
address, or other correcton. Where a speca ta stamp s ssued n the name of
an ndvdua and the busness s owned and conducted by a partnershp from the
begnnng of the perod of abty covered by the stamp, the names and addresses
of a partners w be shown on the amended Form 11. The body of the amended
Form 11 must show the reasons for requestng the correcton of the speca ta
stamp. The nspector shoud aso obtan the speca ta stamp from the ta -
payer, gvng hm a recept therefor on Form 1670 (whch recept sha be kept
on the deaer s premses), and forward the amended Form 11, the speca ta
stamp, the dupcate copy of the Form 1670, and the nspecton report to the ds-
trct supervsor. Upon recept of the amended Form 11, the speca ta stamp,
etc., the dstrct supervsor w e amne the amended Form 11 to determne
whether correcton of the stamp s n order and a necessary data appear on the
amended Form 11. If the dstrct supervsor s satsfed that the papers are n
order, he w wrte or stamp the word approved foowed by hs sgnature, n
any avaabe space on the face of the amended Form 11 and on the nspecton
report and forward the amended form wth the speca ta stamp to the proper
coector of nterna revenue. Upon recept of these documents, the coector w
make the proper correcton on the speca ta stamp, amend hs Record 10 ac-
cordngy, attach the amended Form 11 to the orgna Form 11, and return the
speca ta stamp to the ta payer. (Sec. 3791, I. R. C.)
. Ths Treasury Decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Sectons 32 and 3791 of the Interna Revenue Code (26 U. S. C.
32 and 3791).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 2 , 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster March 30, 19 9)
Reguatons 21, Sectons 191.8 and 191.9. 19 9-8-13067
T. D. 69
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 191.
IMPORT TION OP DISTILL D SPIRITS ND WIN S
mendng Reguatons 21
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2- , D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, Coectors
of Customs, and Others Concerned:
1. On October 29,19 8, notce of proposed rue makng regardng the
rates of ta appcabe to queurs, cordas, and smar compounds:
favored wnes; and other compounds and preparatons, was pubshed
n the Federa Regster (13 F. R. 63 6).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, sectons 191.8 and 191.9
of Reguatons 21 (26 CFR, 191.8 and 191.9) are amended to read as
foows:
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28
Regs. 21, 191.8, 191.9.
Sec. 191.8. Lqueurs, Cordas, and Smar Compounds. Lqueurs, cordas,
and smar compounds, contanng dsted sprts, n customs bonded ware-
house or mported nto the Unted States are sub|ect to an nterna revenue ta ,
when wthdrawn, at the rate of 9 per proof gaon, or wne gaon when beow
proof, and a proportonate ta at a ke rate on a fractona parts of such proof
or wne gaon. Fortfed or unfortfed wnes, contanng not over 2 per centum
of acoho by voume, to whch sweetenng or favorng materas, but no dsted
sprts, have been added are not cassfed as queurs, cordas, or smar com-
pounds, but are consdered to be favored wnes ony and are sub|ect to nterna
revenue ta at the rates appcabe to wnes. (Sees. 2800 as amended, 3030 as
amended, 3176, L R. C.)
Sec. 191.9. Rate of Ta on Other Compounds and Preparatons. Compounds
and preparatons, other than those specfed n secton 191.8, contanng dsted
sprts, whch are ft for beverage purposes, n customs bonded warehouse or
mported nto the Unted States are sub|ect to nterna revenue ta at the rate
of 9 per proof gaon, or wne gaon when beow proof, and a proportonate
ta at a ke rate on a fractona parts of such proof or wne gaon. Com-
pounds and preparatons, contanng fortfed or unfortfed wne, but no dsted
sprts, whch are ft for beverage purposes and whch are sod as wne, are sub-
|ect to nterna revenue ta at the rates appcabe to wnes. (Sees. 2800 as
amended, 3030 as amended, 3176, L R. C.)
3. These amendments are desgned to correct the reguatons to
conform to the ntendment of secton 3030(a) (2) of the Interna
Revenue Code (26 U. S. C. 3030(a) (2)). The effect of the amend-
ments s that on and after the effectve date thereof, nterna revenue
ta w be coected on mported queurs, cordas, favored wnes,
compounds, and preparatons (1) at the basc rate appcabe to ds-
ted sprts (namey, 9 per proof gaon, or wne gaon when beow
proof), f the products contan dsted sprts (as defned n secton
191.3 of Reguatons 21), or (2) at the basc rates appcabe to wnes
(namey, 1 cents per wne gaon when contanng not more than 1
per centum of acoho by voume, 60 cents per wne gaon when con-
tanng more than 1 per centum and not e ceedng 21 per centum of
acoho, 2 per wne gaon when contanng more than 21 per centum
and not e ceedng 2 per centum of acoho, and 9 per wne gaon,
or proof gaon f over 100 proof, when contanng more than 2 per
centum of acoho) f the products contan fortfed or mfort|ed
wne, but no dsted sprts, and are sod as wne.
. Ths Treasury Decson sha be effectve on May 1,19 9, or on the
thrty-frst day after the date of ts pubcaton n the Federa Regs-
ter, whchever date s ater.
(Ths Treasury Decson s ssued pursuant to sectons 2800 as
amended, 3030 as amended, and 3176 of the Interna Revenue Code
(26 U. S. C. 2800, 3030, and 3176).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
Frank Dow,
ctng Commssoner of Customs.
pproved March 28, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster pr 1, 19 9)
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Regs. 28, 176.16, etc.
286
Reguatons 28, Sectons 176.16, tc. 19 9-6-130 0
T. D. 691
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 S
mendng Reguatons 28
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. Sectons 176.16(e), 176.17(e), 176.7o, 176.21(6), 176.22, and
176. 7 of Reguatons 28, approved ugust 29, 19 0 (26 CFR, Part
176), are hereby amended.
2. The purpose of these amendments s to emnate the requrement
for the preparaton of Form 1600, Certfcate of Dstrct Supervsor
of coho Ta Unt of Ta -Pad Sprts or Wnes otted specay
for port.
3. It s found that compance wth the notce, pubc rue-makng
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct, approved une 11,19 6, s unnecessary n connecton wth
the ssuance of these reguatons for the reason the changes made are of
an admnstratve nature ony.
Sec. 176.16. ottng of Dsted Sprts or Wnes Wthout Rectfcaton
by Rectfers and Propretors of Ta -Pad ottng ouses.
(e) cton by dstrct supervsor. The dstrct supervsor sha forward Form
230 to the Commssoner for use n connecton wth the e amnaton of the cam
for drawback on such sprts or wnes.
Sec. 176.17. ottng of Wnes by Wnemakers or Propretors of onded
Storerooms.
(e) cton by dstrct supervsor. The dstrct supervsor sha forward Form
230 to the Commssoner for use n connecton wth the e amnaton of the cam
for drawback on such wnes.
Sec. 176.17o. cton by Dstrct Supervsor. The dstrct supervsor sha for-
ward Form 168 to the Commssoner for use n connecton wth the e amnaton
of the cam for drawback on such sprts or wnes.
Sec. 176.21. ppcaton, Form 237.
(6) cton by dstrct supervsor. The dstrct supervsor sha forward to
the Commssoner a copy each of Forms 122 and 237 and Form 1 83, f any, for
use n connecton wth the e amnaton of the cam for drawback on such sprts
or wnes.
Sec. 176.22. Rectfcaton by Person Other Than the otter Where ds-
ted sprts or wnes ntended to be botted especay for e port wth beneft of
drawback are to be rectfed by a person other than the botter, the rectfer
sha nsert n each copy of Form 122, after the descrpton of the packages to be
dumped, a notce of ntenton as foows:
The above-descrbed sprts (or wnes) w, after rectfcaton, be pack-
aged and shpped to , for bottng
(Name and address of botter)
especay for e port.
When the sprts have been rectfed and packaged, the rectfer sha nsert n
each copy of Form 237, before forwardng the same to the dstrct supervsor,
a notce of ntenton as foows:
The above-descrbed sprts (or wnes) rectfed pursuant to Form 122,
Sera No. , dated , 19 , are to be shpped to
for bottng especay for e port.
(Name and address of botter)
fter the packages have been propery stamped, the rectfer sha stenc or
mark thereon, n addton to the other requred marks or brands, the words for
bottng especay for e port. Such packages sha then be deposted n the
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287
Msc.
e port storage room pendng reease by the Government offcer for shpment to
the bottng pant, uness they are to be shpped mmedatey. The rectfer and
the storekeeper-gauger, or desgnated offcer, w proceed otherwse n accordance
wth the provsons of sectons 176.18 to 176.21, ncusve, and n addton the
rectfer w furnsh the botter wth a copy of the Form 237. The dstrct super-
vsor sha forward to the Commssoner a copy each of Forms 122 and 237 and
Form 1 83, f any, for use n connecton wth the e amnaton of the cam for
drawback on such sprts or wnes. If the sprts or wnes so rectfed are to be
transferred by ppe ne to a contguous ta -pad bottng house, the rectfer
sha proceed n accordance wth the provsons of ths secton, e cept that he
sha nsert n each copy of Form 237, before forwardng one copy to the botter
and two copes to the dstrct supervsor, In eu of the notce of Intenton above
requred, a notce of ntenton as foows:
The above-descrbed sprts (or wnes) rectfed pursuant to Form 122,
Sera No. , dated , 19 , are to be transferred by
ppe ne to for bottng especay for
(Name and address of botter)
e port.
Sec. 176. 7. cton on Cam. The Commssoner w, upon recept of the
cam, Form 1 82 or Form 1 82- , from the dstrct supervsor, e amne the
cam and the records of hs offce, Forms 122, 230, 237, 1 83, and 168 prevousy
furnshed hm as provded by sectons 176.16 to 176.23, ncusve, to determne
whether the sprts or wnes descrbed n the cam have been fuy ta -pad.
If the Commssoner fnds that such sprts or wnes have been fuy ta -pad he
w approve the cam and schedue t for payment. If the cam s dsaowed,
the Commssoner w so notfy the camant and state the reasons therefor.
. Ths Treasury Decson sha be effectve on the date of ts pub-
caton n the Federa Regster.
. Ths Treasury Decson s ssued under the authorty contaned
n secton 3179(b), Interna Revenue Code (U. S. C, tte 26, secton
3179(b)) and sectons 309 (a), (b), (c), (d) and 313() of the Tarff
ct of 1930, as amended (19 U. S. C, 1309 (a), (b), (c), (d) and
1313()).
Dane . och,
ctng Commssoner of Interna Revenue.
pproved March 3,19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster March 9,19 9)
Gaugng Manua, Sectons 186. 8, tc. 19 9-12-13107
T. D. 701
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 186.
G UGING M NU L
mendng the Gaugng Manua
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. .
To Dstrct Supervsors and Others Concerned:
1. On February 1, 19 9, notce of proposed rue makng regardng
amendment of the Gaugng Manua (26 CFR, Part 186), approved
November 21, 1938, was pubshed n the Federa Regster
(1 F.R. 2).
2. fter consderaton of a such reevant matter as was presented
by nterested persons regardng the proposa, secton 186.61 of the
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288
Gaugng Manua (26 CFR, Part 186), approved November 21, 1938,
s hereby revoked and the foowng amendments of sectons 186. 8,
186.62, 186.7 (c), 186.77, 186.80, 186.82, and 186.1 3 of such Gaugng
Manua are hereby adopted.
3. These amendments are for the purpose of nsurng mproved
markng of packages of dsted sprts n order that they w be
propery dentfabe for ta purposes; and emnatng the requre-
ment for markng on the Government head of each package the word
Inspected, and the name and tte of the storekeeper-gauger, whch
data are consdered unnecessary for proper dentfcaton of the sprts.
The e stng optona method of appyng prescrbed marks by means
of stencng s contnued.
Sec. 186.77. Wthdrawa for ottng n ond. When dsted sprts are
wthdrawn for bottng In bond before or after ta payment, or for bottng n
bond for e port, there w be stenced on the head of each package wthdrawn
for bottng the words Wthdrawn for bottng, foowed by the date of
remova to the bottng house. No other marks w be requred. Where the
ta has been pad, the ta -pad stamp w be securey aff ed to the package
and canceed n accordance wth the appcabe provsons of sectons 186.119
to 186.129, ncusve. (Sees. 2808, 3176, I. R. C.)
Sec. 186.1 3. Marks and rands on Wooden Packages of Dsted Sprts.
The marks and brands requred to he paced on wooden packages of dsted
sprts by sectons 186.20, 186. 8, 186. 6, 186. 7. 186. 8. 186.60, 186.7 , 186.79,
186.82, and 186.1 sha, notwthstandng the partcuar methods specfed
theren, be pany and duraby burned, cut, mprnted, or stenced on each
package. Where the marks are apped by means of stencng, the nk used
sha be of a sutabe quaty to effect durabty and egbty of the marks. The
heads of the packages sha be suffcenty smooth and free from defects to permt
the marks to be ceary and dstnctvey apped. The regstry number and
the State may be combned and abbrevated as Caf-708. (Sees. 2808,
3176, I. . C.)
. Sectons 186. 8,186.62,186.7 (c), 186.80, and 186.82 are modfed
by emnatng from the ustratons theren the word Inspected,
and name and tte of the storekeeper-gauger.
. Ths Treasury Decson sha be effectve on the thrty-frst day
after ts pubcaton n the Federa Regster.
6. Ths Treasury Decson s ssued under the authorty contaned n
sectons 2808 and 3176, Interna Revenue Code (26 U. S. C. 2808
and 3176).
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved May 27, 19 9.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 3, 19 9)
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OL OM RG RIN
19 9-1-13006
MS. 330
Schedue of oeomargarne produced and materas used durng the month of
November, 19 8, as compared wth November, 19 7
November,
19 8
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta-pad...
Ingredent schedue of uncoored oeomargarne:
utter favor.-
Coconut o
Com o
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
1 ard
| o
3Ieo stearne
Oeo stock
Peanut o
Sat
Soda (ben oate of)
Sodum supho acetate.
Soya bean fakes-
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
o.-I.--------
Cottonseed fakes
Cottonseed o
Dervatve of gycerne.
Dacety
Lecthn
Mk.
Mono
Neutra 1
Oeo o
Oeo stock
Peanut o
Sat -----
Soda (benoate of)....
Soya bean fakes
Soya bean o
bean stearne
ate.
Tota...
Pounds
62, 112, 30
63, 97,666
2,076
7,6
1, 10
,321,060
92,203
331
96, 1
, 13. 3 2
7,221
29 , 320
2 7. 780
271,0 0
29,290
281, 0
,919, 122
3,019
, 183
30
, 821, 626
9,632
63,013, 830
10,20 , 607
9, 399, 9
2 8
1,88
6, 30
28
, 6 , 903
1 ,6 0
6
16,026
1,7 7, 97
,2
31,071
17,187
300
11,828
318, 3
,868
00
2, 86,02
1,3 6
10, 21, 0
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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19 9- -13027
MS. 331
Schedue of oeomargarne produced and materas used durng the month of
December, 19 8, as compared wth December, 19 7

December,
19 8
December,
19 7
Pounds
Pounds
63, 972, 729
72.368,11
Ingredent schedue of uncoored oeomargarne:
60, 693, 060
69,09 ,2 8
2,080
298
7 0
26,269
178
33, 19,677
0,18 ,133
27
Mk
98, 08
261
98,90
10,720.6 3
67,6 8
3 0,372
286,230
260.99
30, 26
1 ,033
1,933,010
3.9 6
,7 9
30
117,811
28
96,6
12,290,886
76,369
01, 37
3 0.61
289, 39
71.100
1
Sat -
2, 227, 10
,7 2
6,002
Soya bean fakes
16, 61 , 98
11. 6
17, 7,319
1 ,76
63.972.729
73.621,2 8
10,33 , 661
6,6 2, 878
Ingredent schedue of coored oeomargarne:
9, 32 , 90
3. 96.230
281
2 1
1, 38.
, 69
1 7
2,182.69
9, 8
60
,91
1, 13 , 1
3,387
22.9 2
1 ,3 6
2, 00
1.100
21 ,2 0
3,322
Coor
8,896
2093
,1 9,73
13,910

1 ,116
1,910.93
6, 82
,826
6, 00
72
1 , 072
313, 16
6,066
Dacety
Lecthn
Mk
Oeo o
Sat
3,061,613
1,3
1,691,38
823
Tota
10, 16,8 0
6,731,99
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19 9-6-130 1
MS. 332
Schedue of oeomargarne produced and materas used durng the month of
anuary, 9 , as compared wth anuary, 19 8
anuary,
19 9
anuary,
19 8
Pounds
69, 6 . 7
Pound
80,082, 790
Ingredent schedue of uncoored oeomargarne:
69, 7 0,870
82,880, 733
2,121
313
98,020
1,730
32,899
37,6 1,8 2
6 6.83
Dacety.
9 ,710
6
128, 31
7,230
112, 3
13, 632, 009
9 ,39
8,673
16, 810
296.986
71,8 0
389,376
2, 37,200
60.038
,877
Mk
123,187
11, 609, 762
6 , 07
33,03
317,8 9
2 2, 77
30,200
8,211
2,133,309
8,1 8
, 6
368
Oeo stock
Sat
17,782, 67
6.8 1
19.21 ,198
12,128
70.683,666
81, 08, 0
11.99S.971
7,8 3, 276
Ingredent schedue of coored oeomargarne:
10, 686, 1
,02 ,877
703
29,900
16,629
11.6 8
6, 22. 971
17,3 9
9
81
2,13 , 32
,10
23
Cottonseed o
21,167
2,03 , 7 3
7,6 6
30,3 7
23,973
1,600
8, 6
37 .000
7,8 8
112
2.671, 170
7,988
131
10,329
1,3 3. 32
, 170
33,3 3
28.77
, 00
1 ,9 9
262,287
3,9 7
Sat
Soya bean fakes
3,302,703
1,80
1, 18, 3
986
Tota
12,31 , 9
7,937,30
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#
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d
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g
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e
Msc.
292
19 9-8-13068
MS. 333
Schedue of oeomargarne produced and materas used durng the month of
February, 19. 9. as compared wth February, 19/,8
February.
19 9
February,
19 8
Tota producton of uneoored oeomargarne
Tota wthdrawn ta -pad
Ingredent schedue of uneoored oeomargarne:
utter favor -
Coconut o
Corn o
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
Dacety.
Lecthn - -
Mk -
Monostcarne
Neutra ard
Oeo o -
Oeo stearne - -
Oeo stock --- --
Peanut o ---
Sat -
Soda (benoate of) - --
Sodum supho acetate
Soya bean fakes
Soya bean o
tamn concentrate
Totn
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard -
Oeo o
Oeo stock - ---
Peanut o - -
Sat
Soda (benoate of)
Soya bean fakes
Soya bean o
tamn concentrate
Pounds
f3.22f.829
Pounds
73. 770,02
3, f77. 2
70.382.717
9 ,867
1,632,1 9
86, 7
176
109, 838
, 97, 8 2
0. 79
38 . 0
321,916
91 ,9 3
30, 30
1,08
,930.32
6,6 8
.3
0
, 7 , 6
10, 110
30
22 .11
3.306
39,980.077
36
126. 69
382
109,729
12.280.277
71,286
13.3 2
311,217
221.79
27, 6
2 .899
2,2 1.710
6,020
,679
18, 0 , 2
12,877
6 , 267.89
12.813,607
7 ,91 ,607
6,6 3,169
11,628,202
,68 .220
110
f,6 8
1 ,8 1
6.003,321
16, 96
67
22,799
2, 200, 19
8.011
12,7 0
17, 00
3, 7 0
1,236
396,309
8,103
130
.231,933
1,920
9
1,0 ,26
6,17
28
.7 .r,: f
8,296
20
8,627
1.17 ,372
2,1 7
19,101
13,9 9
2,000
16,203
210, 7
3,99
1. 7,7
827
Tota 12,9 6,960
6,778,902
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#
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293
Msc.
19 9-10-13090
MS. 33
Schedue of oeomargarne produced and materas used durng the month of
March, 19 9, as compared wth March, 19 8
March, 19 9
March, 19 8
Tota producton ofuncoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter favor
Coconut o. _ _
Corn o
Cottonseed o
rvatve of gycerne
Lert
Mk
Monostearne
Neutra ard ---
Oeo o
Oeo stearne...
Oeo stock -
Peanut o
Sat --
Soda (benoate of)
Sodum supho acetate
Soya bean fakes
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 o.
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat
Soda (bentoate of)
Soya bean fakes
Sova bean o
tamn concentrate
Tota.
Pounds
67, 36,3 9
67, 090, 617
3,210
a,
277,23
729, 67
92,
169
161, 732
319, 362
8,98
388, 1 9
3 8, 0 7
287,967
2,3 0
0, 769
032, 08
6,399
,313
38
89 , 32
10,3 7
68, 7 9, 7
12,7 9, 11
11,873,29
1,197
6,033
60,29
6,089,0 8
1 ,8 1
33
2 ,209
2,131,067
8,88
9, 2 0
1 .800
1,8 0
1, 6
01,672
7,103
1 0
. 269,3 9
1,982
13,0 ,218
Pounds
6 ,81 ,37
68, 673.002
16,16 , 918
10,208
66, 887,063
6,020,032
. 0,2
37
23 ,220
,1 9
, 39
3,2 1,9 6
10, 98
11
7,0 6
1,016,626
2, 92
18,280
10,79
300
3.30
182, 09
3,612
1,289,677
6, 080, 709
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#
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Msc.
29
19 9-12-13108
MS. 33
Schedue of oeomargarne produced and materas used durng the month of
pr, 19/f9, as compared wth pr, 19 8
pr, 19 9
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter favor .
Coconut o _
Com o
Cottonseed o
Dervatve of gycerne
Dacety .
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stcarne
Oeo stock
Peanut o
at --
Soda (benoateof)
Sodum supho acetate-
Soya bean fakes
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 o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat
Soda (bentoate of)
Soya bean o
tamn concentrate
Tota
Pounds
,678,
.309. 399
8,83
27, 76
27, 0,368
8 ,33
92
99.139
9,089. 99
7,000
371.336
272.1
2 2.3
0,970
876
1,680,789
37.109
,117
80
16,171,018
8, 37
.637,662
11.07 ,977
10. 09,19
,18
0,069
6,076
2
6,320, 83
13.868
12
20.383
1,892, 896
7, 9
9,92
1 ,7 0
2,37
1,721
3 8.629
6,168
3,663. 87
1.67
11,3 ,919
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29 Msc.
TO CCO0
19 9-3-13020
T. 227
Statement of manufactured tobacco produced, by casses, durng the month of
November, 19 8, as compared wth November, 19 7
November,
19 8
November.
19 7
Pug _.
Pounds
3,871,678
76,200
288,3 3
3, 769, 686
8, 721,187
3,3 3,7 1
Pounds
3,868, 11
13,689
297,6 7
3, 6 ,318
7,887. 76
2,883,10
Twst
Fne-cut chewng. -
Snuf- _
Tota.
20, 60,838
18, 816, 8
19 9- -1303
T. 229
Statement of manufactured tobacco produced, by casses, durng the month of
December, 19 8, as compared wth December, 19 7
December,
19 8
December,
19 7
Pounds
3,131,289
, 7 1
2 1,789
3,32 , 00
6,830.029
3, 3 ,631
Pounds
Twst
3,220,933
03,733
329,669
3,200,221
6,998. 33
3,130,2 1
Scrap chewng
Tota
17,616,889
17,283,230
19 9-7-130 8
T.231
Statement of manufactured tobacco produced, by casses, durng the month of
anuary, 19 9, as compared wth anuary, 19 8
anuary, 19 9
anuary, 19 8
Pug
Pounds
3,107,86
7 ,696
227,891
3, 06,11
7,38 .82
3, 27, 86
Pounds
3,616,378
6 ,117
363,36
3,383,002
8,016, 03
3, 88,97
Twst
Fne-cut chewng
Scrap chewng
Snuf
Tota
18,030,877
19,232,328
fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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#
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o
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Msc. 296
19 9-10-13088
T.233
Statement of manufactured tobacco produced, by casses, durng the month of
February, 19 9, as compared wth February, 19 8
February,
19 9
February,
19 8
Pug
Pounds
3,009, 3
,286
206,8( 8
3,097,003
7, 8,300
3, 260,161
Pounds
3,621,797
3,913
33 ,306
3,183.326
7,791,083
3, 26 ,989
Twst
Sna
TotaL
17, 76,062
18, 9, 13
19 9-11-13099
T.23
Statement of manufactured tobacco produced, by casses, durng the month of
March, 19 9, as compared wth March, 19 8
March, 19 9
March, 19 8
Pounds
Pounds
PUR
3,729,133
3 ,368
213,076
3.1 1, 23
9,167,237
3,69 ,19
3,910,307
73,297
322.188
3, 60,1 0
8,910. 08
3,878,937
Tota
20,880, 32
21,0 6,287
19 9-13-13118
T.237
Statement of manufactured tobacco produced, by casses, durng the month of
pr, 19 9, as compared wth pr, 19 8
pr, 19 9
pr, 19 8
Pounds
Pounds
,199, 37
61, 87
220,18
3,376,808
9,692. 91
3,389, 62
Pug -
3,36 ,920
7, 8
201,689
2,91 .108
8, 3 ,807
3,2 3, 6
Twst
Scrap chewng
Smokng.
Snuf ---
Tota
18,728,66
21,3 0,269
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w
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#
p
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o
o
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e
297
Msc.
CIG R TT S
19 9- -13028
T. 228
Premnary statement of sma cgarettes removed for consumpton durng the
month of December, 19 8, as compared wth removas for the same month of
Removas
December, 19 8
December, 19 7
Ta -pad
Number
2 , 897, 3 0, O
3,18 , 7 7, 693
Number
2 , 9 , 712, 201
2, 997, 209, 786
Ta -free
Tota
2 ,082,107,603
27, 8 2, 921,987
19 9- -13036
T. 230
Premnary statement of sma cgarettes removed for consumpton durng the
month of anuary, 19 9, as compared wth removas for the same month of
19 8
Removas
anuary, 19 9
anuary, 19 8
Number
27,967,1 9,23
2, 207, 6 ,607
Number
71,273,180,8 1
3,212, 77,887
Tota
30,17 , 713,8 2
30, 8 , 7 8, 718
19 9-7-130 9
T. 232
Premnary statement of sma cgarettes removed for consumpton durng the
month of February, 19 9, as compared wth removas for the same month of
19 8
Removas
February, 19 9
February, 19 8
Ta -pad
Number
2 ,02 , 281,200
2, 70, 16. 70
Number
23, 72, 8 ,8 1
3, 77.822, 0
Tota
27,69 ,697,670
27,0 0,307,2
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
8 16 9 20
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_
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#
p
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-
g
o
o
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e
Msc.
298
19 9-10-13089
T. 23
Premnary statement of sma cgarettes removed for consumpton durng the
month of March, 19 9, as compared wth removas for the same month of
19 8
Removas
March, 19 9
March, 19 8
Number
31, 7,908,600
3,168,313,697
Number
29, 2 2,186, 770
3,196,672,680
Tota
3 ,616,222,297
32, 8,8 9, 0
19 9-11-13100
T.236
Premnary statement of sma cgarettes removed for consumpton durng the
month of pr, 19 9, as compared wth removas for the same month of 19 8
Removas
pr, 19 9
pr. 19 8
Number
27,307,0 6.21
3, 67, 880.110
Number
31.617.679,2
2, 22,121,631
Tota
30,87 ,936,32
3 ,039,800,876
19 9-13-13119
T. 238
Premnary statement of sma cgarettes removed for consumpton durng the
month of May, 19 9, as compared wth removas for the same month of 19 8
Removas
May, 19 9
May, 19 8
Number
30,690. ,811
3,172, 0 ,3 7
Number
29,091,662,97
2,363. 2,668
TotaL
33,862,9 9,1 8
31, ,10 ,9 3
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L GISL TION
19 9-9-13081
. R. 2313. PU LIC L W 33, IG TY-FIRST CONGR SS
C PT R , FIRST S SSION
n ct To suspend certan mport ta es on copper
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the mport ta
mposed under secton 3 2 of the Interna Revenue Code sha not
appy wth respect to artces (other than copper sufate and other
than composton meta provded for n paragraph 16 7 of the Tarff
ct of 1930, as amended, whch s sutabe both n ts composton and
shape, wthout further refnng or aoyng, for processng nto cast-
ngs, not ncudng as castngs ngots or smar cast forms) entered for
consumpton or wthdrawn from warehouse for consumpton durng
the perod begnnng pr 1, 19 9, and endng wth the cose of
une 30, 19 0.
pproved March 31, 19 9.
19 9-9-13082
. . R S. 203. PU LIC L W 3 , IG TY-FIRST CONGR SS
C PT R 6, FIRST S SSION
ont Resouton To mantan the status quo wth respect to the
e empton, from the ta on transportaton of persons, of foregn
trave va Newfoundand.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 3 69(a) of
the Interna evenue Code (reatng to the ta on transportaton of
persons) s hereby amended by nsertng after the second sentence
thereof a new sentence to read as foows: port or staton wthn
Newfoundand sha not, for the purposes of the precedng sentence,
be consdered as a port or staton wthn Canada.
Sec. 2. The amendment made by ths |ont resouton sha appy
to amounts pad for transportaton on or after pr 1,19 9.
pproved March 31, 19 9.
19 9-12-13106
. . R S. 186. PU LIC L W 0, IG TY-FIRST CONGR SS
C PT R 82, FIRST S SSION
ont Resouton To e tend the tme for use of constructon re-
serve funds estabshed under secton 11 of the Merchant Marne
ct, 1936, as amended.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton of an ct
(299)
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300
approved ugust 8, 19 7 (Pubc Law 38 , ghteth Congress),
reatng to merchant marne constructon reserve funds estabshed
under secton 11 of the Merchant Marne ct, 1936, as amended, s
hereby amended by strkng out March 31, 19 8 and nsertng n
eu thereof March 31,19 1
pproved pr 20,19 9.
19 9-13-13117
. R. 3762. PU LIC L W 72, IG TY-FIRST CONGR SS
C PT R 139, FIRST S SSION
n ct To amend tte 18, entted, Crmes and Crmna Proce-
dure, and tte 28, entted, udcary and udca Procedure, of the
Unted States Code, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 80. (a) Subdvson (1) of subsecton (a) of secton 13 6 of tte
28, Unted States Code, s amended by strkng out the semcoon
mmedatey foowng the words nterna-revenue aws , and by
nsertng n eu thereof a comma and mmedatey foowng such
comma the words and characters as foows: () f the cam does not
e ceed 10,000 or () .

Sec. 120. Secton 2 11 of tte 28, Unted States Code, s amended to
read as foows:
2 11. Interest
(a) In any |udgment of any court rendered (whether aganst the Unted
States, a coector or deputy coector of nterna revenue, a former coector
or deputy coector, or the persona representatve n case of death) for any
overpayment n respect of any nterna-revenue ta , Interest sha be aowed at
the rate of 6 per centum per annum upon the amount of the overpayment, from
the date of the payment or coecton thereof to a date precedng the date of the
refund check by not more than thrty days, such date to be determned by the
Commssoner of Interna Revenue. The Commssoner s authorzed to tender
by check payment of any such |udgment, wth nterest as heren provded, at any
tme after such |udgment becomes fna, whether or not a cam for such payment
has been duy fed, and such tender sha stop the runnng of nterest, whether
or not such refund check Is accepted by the |udgment credtor.
(b) cept as otherwse provded n subsecton (a) of ths secton, on a fna
|udgments rendered aganst the Unted States n actons nsttuted under secton
13 6 of ths tte, nterest sha be computed at the rate of per centum per
annum from the date of the |udgment up to, but not e ceedng, thrty days after
the date of approva of any appropraton ct provdng for payment of the
|udgment.

Sec. 128. Subsecton (a) of secton 11 1 of the Interna Revenue
Code (26 U. S. C, sec. 11 1(a)), as amended, s amended by strkng
out the words crcut courts of appeas and the Unted States Court
of ppeas for the Dstrct of Coumba , appearng n such subsec-
ton, and substtutng n eu thereof courts of appeas .

pproved May 2 ,19 9.
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IND

ccountng methods:
anks
ad debt reserves, nonretroactve appcaton of I. T.
3936
Reserve for bad debts
Farmers, change to nventory bass, Reguatons 111
amended
dmssons, dues, and ntaton fees, Reguatons 3 (19 1)
amended
dmssons ta . (See Msceaneous e cse ta es.)
ffated corporatons:
ecton to fe separate returns for 19 9 fsca years
Ta abty of ncome to subsdares utzed as operatng
companes
abama:
Gross recepts (saes) ta , by whom deductbe
Use ta , by whom deductbe
aska, ta es on gross saes, e ports, and/or remuneraton for
servces .
en, nonresdent, empoyee of foregn branch of domestc cor-
poraton, saary receved whe n Unted States attendng
saes conventon and meetngs
mony:
Payments mted to duraton of nterocutory dvorce
decree n Caforna
Perodc payments by estate of deceased dvorced husband
to former wfe
Perodc payments made under Caforna nterocutory
dvorce decree
mendments:
Gaugng Manua, sectons 186. 8, 186.61 (revoked), 186.62,
186.7 (c), 186.77, 186.80, 186.82, 186.1 3
Reguatons 116, sectons 0 .201, 0 .202, 0 .203, 0 .20 ,
0 .206, 0 .207, 0 .209-..
Reguatons 112, sectons 3 .710- , 3 .729-2
Reguatons 111
Secton 29.11-1, etc ...
Sectons 29.22(b) (2)-, 29.22(b) (2)-2
Secton 29.22(c)-6
Secton 29.162-1.
Secton 29.322-3...
Reguatons 108, sectons 86.2(a), 86.2(c), 86.3a (added),
86.7, 86.9, 86.16a (added), 86.16b (added), 86.16c
(added), 86.16d (added), 86.20, 86.21, 86.23, 86.3
Reguatons 10 , sectons 81.2, 81.8, 81.11, 81.1 , 81.22,
81.23, 81.2 (6)(1), 81.26, 81.27, 81. 1, 81. 7a (added),
81. 7b (added), 81. 7(c), 81. 7d (added), 81. 7e (added),
81. 3, 81.79(6)
Reguatons 71 (19 1), secton 113.127
Reguatons 6 (19 0)
Secton 316.63
Secton 316.70(6).
Reguatons 3 (19 1), sectons 101. (6), 101.1 (6)
Rung No,
Page
13072
13010
13009
13011
13111
1307
1301
1301
13017
130 0
13000
1309
130 3
13107
13018
13001
13030
1301
13009
13032
1300
1310
13103
13078
13079
13080
13011
6
6
2
2
89
16
7
7
60

116
6
287
1 6
132
9
0
2
11
126
226
181
2 2
2 1
2
2
(301)
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302
RunR No.
mendments Contnued
Reguatons 28, sectons 176.16, 176.17, 176.21, 176.22,
176. 7
Reguatons 21, sectons 191.8 and 191.9
Reguatons 20, sectons 19 .12(6), 19 .26, 19 . 1, 19 . 3..
Reguatons 18, secton 192.7
Reguatons 1
Sectons 190.13, 190.1 , 190.1 (revoked), 190.16
(revoked), 190.17, 190.19, 190.31, 190.39, 190. 1a
(added), 190. 9, 190.9 , 190.9 , 190.98, 190.99,
190.10 , 190.106, 190.110(a)(2) (revoked), 190.11 ,
190.118(c), 190.119, 190.132, 190.137 (revoked),
190.138, 190.177, 190.262, 190.263, 190.332, 190.33 ,
190.392, 190. 71a (added)
Secton 190. 03a (added)
Reguatons 11, secton 189.111a (added)
Reguatons 6, secton 188.99a (added)
nnutes:
mounts receved under annuty or endowment contract,
Reguatons 111 amended
Payments receved by survvors of former cv servce
empoyees
ssessment, deferred e cess profts ta , e tenson of tme
ssgnments, donatve, short-ved n-o payment rghts
ssocatons, carfcaton of I. T. 3930 and I. T. 3933 reatng
to o and gas |ont operatng agreements

ad debts:
anks
Reserve method of accountng
Reserve method of accountng, nonretroactve app-
caton of I. T. 3936 .
Reserves, deaers n persona property reportng saes n-
come on nstament bass
ankruptcy:
Interest on ta cams
Prorty of perfected ta en over wage cams
Returns of ndvdua and the estate
anks:
Reserve method of accountng for bad debts
Reserve method of accountng for bad debts, nonretro-
actve appcaton of I. T. 3936
onds:
Deductbty of Federa stamp ta es pad on ssuance
Issued by ndvdua and purchased by hm at a dscount- -
uetn on Secton 722, revson of Part II
130 0
13067
13066
1310
13012
13116
1311
1311
1301
13071
13001
13008
13069
13010
13072
13110
13062
13033
13112
13010
13072
13038
13022
13002
Caforna:
mony payments mted to duraton of nterocutory
dvorce decree
mony payments made under nterocutory dvorce
decree
Marta status of partes named n a Caforna nterocutory
dvorce decree
Canceaton of ndebtedness, gan reazed by ndvdua from
purchase of hs bonds at a dscount
Capta gans and osses; hodng perod of commodty receved
under futures purchase contract, appcaton of I. T. 3919
Cgarette ta , New ersey, by whom deductbe
13000
130 3
13039
13022
13093
1308
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303
Rung No.
Cgarettes:
Statement of remova of, for consumpton
December, 19 8 and 19 7
anuary, 19 9 and 19 8
February, 19 9 and 19 8
March, 19 9 and 19 8
pr, 19 9 and 19 8
May, 19 9 and 19 8
Cv servce empoyees, former, annuty payments re-
ceved by survvors
Cams, bankruptcy, nterest on ta
Cams for refund, Reguatons 111 amended
Coecton of ncome, estate, and gft ta es, reguatons govern-
ng acceptance of Treasury notes .
Compensaton, nonresdent aen empoyee of foregnt branch
of domestc corporaton, saary receved whe n Unted States
attendng saes conventon and meetngs
Contracts:
r Force, appcabty of nson ct reguatons
nnuty or endowment, amounts receved under, Regua-
tons 111 amended
Corporatons:
ffated
ecton to fe separate returns for 19 9 fsca years
Ta abty of ncome to subsdares utzed as operat-
ng companes .
Nonresdent foregn, nterest receved from domestc corpora-
ton, wthhodng of ncome ta at source
Court decsons:
bercrombe Co.; Commssoner v
r Reducton Saes Co. v. Commssoner
adwnson and ecker v. Unted Staes
Carter; State of New York v
Carter; Unted States v
Church, estate of; Commssoner v
Cty of New York v. Saper
Commssoner v. bercrombe Co
Commssoner; r Reducton Saes Co. v
Commssoner v. Church, estate of
Commssoner; Fe O Co. v
Commssoner v. Fe O Co
Commssoner v. acobson
Commssoner; Natona Carbde Corp. v
Commssoner v. Phpps
Commssoner; Pure Carbonc, Inc., v
Commssoner; Spege, estate of, v
Commssoner v. Whtney
Commssoner; Whtney v
Dvson of Labor Law nforcement, State of Caforna;
Goggn v
Fe O Co.; Commssoner v
Fe O Co. v. Commssoner --
Goggn v. Dvson of Labor Law nforcement, State of Ca-
forna
ensee, Coector, v. Unon Panters Natona ank
Trust Co ....
acobson; Commssoner v
Natona Carbde Corp. v. Commssoner
Phpps; Commssoner v
Pure Carbonc, Inc., v. Commssoner
Saper; Cty of New York v
Spege, estate of, v. Commssoner
State of New York v. Carter
13028
297
13036
297
130 9
297
13089
98
13100
298
13119
298
13071
1
13062
120
1300
126
1302
1 9
130 0
83
13003
261
1301
0
13111
89
1307
16
13023
113
1308
37
1307
16
13063
2 7
13062
120
13062
120
1302
212
13062
120
1308
37
1307
16
1302
212
13086
67
13086
67
13022
0
1307
16
1307
172
1307
16
13026
220
13087
70
13087
70
13033
26
13086
67
13086
67
13033
26
13019
223
13022
0
1307
16
1307
172
1307
16
13062
120
13026
220
13062
120
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30
Rung No.
Court decsons Contnued
Unon Panters Natona ank Trust Co.; ensee,
Coector, v
Unted States; adwnson and ecker v
Unted Sates v. Carter
Unted Staes; Wsconsn ectrc Power Co. v
Whtney; Commssoner v
Whtney v. Commssoner
Wsconsn ectrc Power Co. v. Unted Staes .
Credts aganst net ncome, partes named n Caforna nter-
ocutory dvorce decree
Credts aganst ta :
Maayan ncome ta accounted for by dvdend-payng cor-
poraton
Me can mnng ta es
13019
13063
13062
130 6
13087
13087
130 6
13039
13031
130
Deductons:
states, tme and manner of fng statement and waver
under secton 162(e), I. R. C
acaton pay of raway empoyees, tme of accrua
Denmark, ncome ta conventon, wthhodng reguatons
Department stores empoyng the reta nventory and eectve
nventory methods, prce ndces for anuary, 19 9
Depeton, percentage, nterest n net pro-fts from operaton
of o and gas propertes
Dscount, bonds ssued by ndvdua and purchased by hm
Dsted sprts:
ottng, n bond, Reguatons 6 amended
ottng of ta -pad, Reguatons 11 amended
Gaugng Manua, sectons 186. 8, etc., amended
Rectfcaton of sprts and wnes, Reguatons 1 amended..
Sprts and wnes
Drawback, Reguatons 28 amended
Importaton, Reguatons 21 amended
Rectfcaton, Reguatons 1 amended
Dvdends, ta -free qudaton of subsdares by parent corpora-
ton, effect of net defct of qudated subsdares upon parent s
earnngs and profts
Dues and ntaton fees. (See Msceaneous e cse ta es.)

arnngs, norma, recognton of decne n determnaton

ectrca energy for commerca consumpton, dares
mpoyees trusts, requrements for compance wth secton
16 (a)(2), I. R. C
mpoyment ta es:
Interna Revenue Code
mpoyees
Drectors of banks as commttee members
Soca Securty ct
mpoyees
Drectors of banks as commttee members
state ta :
Chartabe bequest n remander
Marta deducton, Reguatons 10 amended
Transfer n trust, ntended to take effect n possesson or
en|oyment at or after death
states:
Perodc payments to former wfe of deceased dvorced
husband
Tme and manner of fng statement and waver under sec-
ton 162(e), I. R. C
13032
13102
130
13092
13086
13022
1311
1311
13107
13116
130 0
13067
13012
1307
13097
130 6
13113
13076
13076
13019
13103
1302
13026
1309
13032
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cess profts ta , deferred, e tenson of tme for assessment-.
cess Profts Ta Counc:
dvertsng agency, ustratve case under secton
722(c)(2)
Constructve average perod net ncome, appcabty
Genera procedure for processng appcatons for reef
Invested capta of ta payer whch uses and and budngs
wthout cost, ustratve case under secton 722(c)(3)
Norma earnngs, recognton of decne n determnaton.-
Reconstructon, date upon whch based
Restaurant usng estabshed name, ustratve case under
secton 722(c)(1)
Revson of Part II of the uetn on Secton 722
portaton, sae of artces to aen whch are devered drecty
to purser of foregn-bound carrer
tenson of tme, assessment of deferred e cess profts ta
tenson of tme for fng returns, appcabty to tmey |ont
return where husband s traveng abroad and wfe prevousy
fed separate return
F
Farmers, change to nventory method of accountng, Regua-
tons 111 amended
Fducares, trustee n bankruptcy, returns and refunds
Foregn ta es:
Maayan ncome ta accounted for by dvdend-payng
corporaton, credt aganst Federa ncome ta
Me can mnng, credt aganst Federa ncome ta
G
Gan or oss, bass, vesse wth respect to whch an ad|ustment
has been made under the Merchant Shp Saes ct of 19 6.
Gaugng Manua, sectons 186. 8, etc., amended
Gft ta , marta deducton and gft of husband or wfe to thrd
party, Reguatons 108 amended
Gross ncome:
Incusons
Gan reazed by ndvdua from purchase of hs bonds
at a dscount
Subsdares utzed by parent corporaton as operatng
companes
Reserved carred workng nterest n o and gas proper-
tes, to whom ta abe
Gross recepts (saes) ta , abama, by whom deductbe

usband and wfe:

mony payments mted to duraton of nterocutory
dvorce decree n Caforna
mony payments made under Caforna nterocutory
dvorce decree
tenson of tme for fng returns, appcabty to tmey
|ont return where husband s traveng abroad and wfe
prevousy fed separate return
Marta status after Caforna nterocutory dvorce decree
Perodc payments by estate of deceased dvorced husband
to former wfe
Rung No.
13001
130
13096
130 6
130
13097
1309
130 3
13002
1300
13001
13061
13009
13112
13031
130
130 9
13107
1310
13022
1307
1308
1301
13000
130 3
13061
13039
1309
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306
Income from sources wthn Unted States:
Interest pad by domestc corporaton to nonresdent
foregn corporaton on oan negotated abroad
Nonresdent aen empoyee of foregn branch of domestc
corporaton, saary receved whe n Unted States at-
tendng saes conventon and meetngs
Instament saes, deaers n persona property, bad debt
reserves
Insurance companes, fe, fgure to be used n computng reserve
and other pocy abty credt
Interest:
Pad by domestc corporaton on oan from nonresdent
foregn corporaton, wthhodng of ncome ta at source-
Rate, |udgments coverng overpayments of nterna reve-
nue ta es
Ta cams n bankruptcy cases
Inventores:
ectve method, nterm aowance n respect of overpay-
ment arsng from repacement of merchandse nvoun-
tary qudated
Farmers, change of method of accountng, Reguatons
111 amended
Under eectve method, prce ndces for anuary 19 9,
for use by department stores
Legsaton:
ghty-frst Congress
Pubc Law No. 33
Pubc Law No. 3
Pubc Law No. 0
Pubc Law No. 72
Len for ta es, prorty over wage cams n bankruptcy pro-
ceedng
Lfe nsurance companes, fgure to be used n computng re-
serve and other pocy abty credt
Lqudatons, ta -free, subsdares by parent corporaton, effect
of net defct of subsdares upon parent s earnngs and
profts
Lquor, fermented mat, Reguatons 18 amended
Lquors, whoesae and reta deaers n, Reguatons 20 amended.
Losses, sae of partnershp assets to controed corporaton
M
Maaya, ncome ta accounted for by dvdend-payng corpo-
raton, credt aganst Federa ncome ta
Manufacturers e cse ta es:
ectrca energy for commerca consumpton, dares
Musca nstruments sod for use for regous or educa-
tona purposes
Refrgerator, househod type, defnton modfed
Merchant Shp Saes ct of 19 6, ad|ustments under secton 9..
Me co, mnng ta es, credt aganst Federa ncome ta
Msceaneous e cse ta es:
dmssons, dues, and ntaton fees, Reguatons 3 (19 1)
amended
Cabaret, musc and dancng prveges, nterpretaton of
statute
Rung No.
13023
130 0
13110
1303
13023
13117
13062
130 2
13009
13092
13081
13082
13106
13117
13033
1303
1307
1310
13066
13087
13031
130 6
13079
13080
130 9
130
13011
13063
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307
Msceaneous e cse ta es Contnued
Stamp ta
empton of certan securtes and conveyances of
carrers
Labty on orgna ssue of stock, when ta attaches..
Payng cards removed from stomped packages and
reassembed nto trck decks
Stock, sae and transfer, appcaton of ta
Transfer of stock from one nomnee of a broker to
another nomnee of same broker, ta abty
Transportaton of persons, e empton from ta of foregn
trave va Newfoundand (P. L. 3 , ghty-frst Con-
gress)
Transportaton of property, appcaton of ta for towng
of vesses and for tugboat servces
Musca nstruments sod for use for regous or educatona
purposes
N
Net operatng oss, State ncome ta pad by ta payer other
than a corporaton
Netherands, ncome ta conventon, wthhodng reguatons...
New ersey, cgarette ta , by whom deductbe
Nonresdent aen, empoyee of foregn branch of domestc
corporaton, saary receved whe n Unted States attendng
saes conventon and meetngs
Nonresdent foregn corporatons, nterest receved from
domestc corporaton, wthhodng of ncome ta at source...
Notes, Treasury, reguatons governng acceptance n payment
of ncome, estate, and gft ta es
O
use and storage ta , by whom deductbe
and gas propertes:
Carfcaton of I. T. 3930 and I. T. 3933 reatng to |ont
operatng agreements
Donatve assgnments of short-ved n-o payment rghts..
Gross ncome from reserved carred workng nterest, to
whom ta abe
Percentage depeton, nterest n net profts from operaton.
Oeomargarne:
Statstcs of producton and materas used
November, 19 8 and 19 7
December, 19 8 and 19 7
anuary, 19 9 and 19 8
February, 19 9 and 19 8
March, 19 9 and 19 8
pr, 19 9 and 19 8
P
:
aton of I. T. 3930 and I. T. 3933 reatng to o and
gas |ont operatng agreements
Sae of assets to controed corporaton
Payment of ncome, estate, and gft ta es, reguatons govern-
ng acceptance of Treasury notes
Payng cards removed from stamped packages and reassembed
nto trck decks
Prorty of Federa ta es, bankruptcy, perfected ta en over
wage cams
Rung No.
13078
13077
130 7
130 8
1306
13082
130 7
13079
13073
130 1
1308
130 0
13023
1302
13016
13069
13008
1308
13086
13006
13027
130 1
13068
13090
13108
13069
13087
1302
130 7
13033
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308
Pubc aws:
ghty-frst Congress
No. 33, suspendng certan mport ta es on copper...
No. 3 , mantanng the status quo wth respect to the
e empton, from ta on transportaton of persons,
of foregn trave va Newfoundand
No. 0, e tendng tme for use of constructon reserve
funds estabshed under secton 11 of the Merchant
Marne ct, 1936, as amended
No. 72, amendng ttes 18 and 28 of the Unted States
Code, etc
R
Raroads, accrua and deducton of vacaton pay
Refrgerator, defnton of househod type modfed
Refunds:
Cams, Reguatons 111 amended
Ta pad by ndvdua pror to bankruptcy
Refunds and credts, nterm aowance, eectve nventory
method, repacement of merchandse nvountary qudated.
Reguatons. (See aso mendments: Reguatons.)
nson ct, appcabty to r Force contracts
Wthhodng
Unted States-Denmark ncome ta conventon
Unted States-Netherands ncome ta conventon
Renegotaton under Renegotaton ct of 19 8:
ppcabe prncpes
ffect upon e cess proft determnaton under nson ct
Reserves, method of accountng for bad debts, banks
Retaers e cse ta , sae of artces to aen whch are devered
drecty to purser of foregn-bound carrer
Returns:
ffated corporatons, eecton to fe separate returns for
19 9 fsca years
ankrupt ndvdua and estate
tenson of tme for fng, appcabty to tmey |ont
return where husband s traveng abroad and wfe
prevousy fed separate return
ont, partes named n Caforna nterocutory dvorce
decree
S
Sprts and wnes
Drawback, Reguatons 28 amended
Importaton, Reguatons 21 amended
Rectfcaton, Reguatons 1 amended
Stamp ta . (See aso Msceaneous e cse ta es.)
Federa, pad by corporaton on ssuance of ts bonds,
deductbty
Standard deducton, partes named n Caforna nterocutory
dvorce decree
Stock, sae and transfer, appcaton of ta
T
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences
Ta es:
Federa stamp, pad by corporaton on ssuance of ts bonds,
deductbty
State ncome, deductbty n determnng net operatng
oss by ta payer other than a corporaton
Rung No.
13081
13082
13106
13117
13102
13080
1300
13112
130 2
13003
130
130 1
13098
1306
13010
1300
13111
13112
13061
13039
130 0
13067
13012
13038
13039
130 8
13109
13038
13073
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309
Rung No.
Page
Tobacco:
tatement of manufactured, produced by casses
November, 19 8 and 19 7
December, 19 8 and 19 7
anuary, 19 9 and 19 8
February, 19 9 and 19 8
March, 19 9 and 19 8
pr, 19 9 and 19 8
Transportaton of persons, e empton from ta of foregn trave
va Newfoundand (P. L. 3 , ghty-frst Congress)
Transportaton of property, appcaton of ta for towng of
vesses and for tugboat servces
Treasury notes, reguatons governng acceptance n payment
of ncome, estate, and gft ta es
Trusts, empoyees , requrements for compance wth secton
16 (a)(2), I. R. C
U
Use and storage ta , Oho, by whom deductbe
Use ta , abama, by whom deductbe

acaton pay, raway empoyees, accrua and deducton

nson ct:
ppcabty of reguatons to r Force contracts
ffect of renegotaton under Renegotaton ct of 19 8
upon e cess proft determnaton
W
Wages, coecton of ncome ta at source, Reguatons 116
amended
Wthhodng of ta at source:
Interest pad by domestc corporaton on oan from non-
resdent foregn corporaton
Reguatons under Unted States-Denmark ncome ta
conventon
Reguatons under Unted States-Netherands ncome ta
conventon
Wages, Reguatons 116 amended
13020
1303
130 8
13088
13099
13118
13082
130 7
1302
13113
13016
1301
13102
13003
1306
13018
13023
130
130 1
13018
29
29
29
296
296
296
299
260
1 9
118
9
7
78
261
1 6
118
10
92
1 6
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