Treasury Decisions Under Internal Revenu

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TREASURY DECISIONS
UNDER INTERNAL-REVENUE LAWS

OF THE UNITED STATES
VOL. 18
JANUARY- DECEMBER, 1916
W. G. MCADOO
Secretary of the Treasury
OFFICE OF
TH
E S RETARY
SEC
WASHINGTON
GOVERNMENT PRINTING OFFICE
1917
Econ 5468.98
.5
COLLEGE
HARVARD
MEC 17 1925
LIDHARY
How . Henry I. Thayer,
Washingt ,
on
INTRODUCTION .
TREASURY Department,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE ,
Washington, D. C. , December 31 , 1916.
To officers of internal revenue and others:
The within decisions of the Commissioner of Internal Revenue,
rendered during the calendar year 1916 , upon the construction to be
given to the various acts of Congress relating to the internal revenue ,
are published for the information and guidance of officers of the
internal revenue and others concerned.
This volume contains Treasury Decisions numbered 2277 to 2428 ,
inclusive, and embraces all regulations and rulings of the Treasury
Department made during the calendar year ended December 31 , 1916 ,
under the act of September 8 , 1916 , changing the rate of taxation on
incomes, placing a tax on estates , manufacture of certain munitions ,
capital stock of corporations, wines , beers , etc .; the cotton-futures act
of August 18, 1914, the emergency-revenue act of October 22 , 1914 ,
and the Harrison antinarcotic act of December 17 , 1914 , together
with all regulations and rulings made during the calendar year 1916
on the subject of the income tax imposed by the act of October 3 ,
1913.
W. H. OSBORN,
Commissioner of Internal Revenue.
III
INTERNAL REVENUE.
ļ
(T. D. 2277. )
Emergency revenue law- Bonds.
A bond executed by a corporation for the payment of a specific sum of money

! is taxable at the rate of 5 cents for each $100 of face value or fraction
thereof.-A bond executed by a corporation for a penal amount and contain
ing certain penal conditions is taxable at the rate of 50 cents, unless such
bond is executed with a surety transacting the business of fidelity insur
ance, etc.
TREASURY DEPARTMENT,
Washington, D. C., January 7, 1916.
GENTLEMEN : In response to your communication of the 24th
ultimo, you are advised that a bond executed by a corporation for
the payment of a specific sum of money, such as a bond given in con
nection with a mortgage on real property, is taxable under the first
paragraph of Schedule A at the rate of 5 cents for each $ 100 of
face value or fraction thereof.
A bond, however, executed by a corporation in a penal sum, such
as double the amount of indebtedness, and given in connection with
a mortgage as security for a loan , or an indemnity bond given by
a corporation to secure payment of interest, insurance, and tax
assessments, or for the performance of some duty, as that of re
ceiver, is taxable under the seventh paragraph of schedule A at the
rate of 50 cents, unless such bond is executed with " a person ,
association, company, or corporation transacting the business of
fidelity, employer's liability , or other branch of insur
ance " as surety, in which case it is taxable under the sixteenth para
graph of Schedule A at the rate of one-half of 1 cent on each $1 or
fractional part thereof upon the amount of the premium charged.
Respectfully,
G. E. FLETCHER,
Acting Commissioner of Internal Revenue .
Messrs.
24433°-VOL 18—16– -1
2
(T. D. 2278. )
Emergency revenue law -Conveyances.
Stock in a corporation is a valuable consideration for the transfer of real

property.
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
SIR : In response to your communication of the 30th ultimo , you
are advised that stock in a corporation is a valuable consideration
for the transfer of real property, and a deed conveying real estate to
a corporation for such consideration is taxable under the act of
October 22, 1914.
The tax should be computed on the value of the interest in the
property conveyed , as outlined in T. D. 2115 and T. D. 2123.
Respectfully,
G. E. FLETCHER,
Acting Commissioner of Internal Revenue.
COLLECTOR INTERNAL REVENUE, San Francisco, Cal.
(T. D. 2279. )
Emergency revenue law-Conveyances.
Deeds executed and delivered on or after December 1, 1914, conveying property

in pursuance of a contract made prior to that time are taxable.
SIR : In response to your communication of the 1st instant, you
are advised that a deed executed and delivered on or after December
1, 1914, conveying property in pursuance of a contract made prior
to that time, the consideration for which was paid in installments, is
taxable under the act of October 22, 1914 , and the tax should be com
puted upon the actual consideration given or the value of the interest
in the property conveyed , as stated in T. D. 2115 and T. D. 2123.
The tax is imposed upon the deed and not upon the contract of sale.
Respectfully,
G. E. FLETCHER,
Mr.
8
(T. D. 2280. )
Narcotic law-Decision of court.
Upon appeal from the decision of the District Court wherein the defendant
was convicted and sentenced for violation of section 8 of the act of Decem
ber 17, 1914, the Circuit Court of Appeals held that the provisions of
section 8, making it unlawful for any person to have possession of narcotic
drugs covered by this act, applies to all persons whether required to reg
ister or not eligible for registration, and whose possession of narcotic drugs
does not come within the exemptions in the provisos of said section.
The appended decision of the Circuit Court of Appeals , Second
Circuit, in the case of Tom Wilson , plaintiff in error, v. United
States, defendant in error , is published for the information of
internal- revenue officers and others concerned.
W. H. OSBORN,
Commissioner of Internal Revenue .
UNITED STATES CIRCUIT COURT OF APPEALS , SECOND CIRCUIT.
Tom Wilson, plaintiff in error, v. United States, defendant in error.
Before LACOMBE, WARD, and ROGERS, Circuit Judges.
This cause comes here upon writ of error to review a judgment of the
District Court, Southern District of New York, convicting defendant of a
violation of section 8 of the act of December 17, 1914, familiarly known as the
Harrison law.
LACOMBE, Circuit Judge : There is no dispute about the facts. There was found
in defendant's possession a substantial quantity of opium ; he admitted that he
kept it solely for the purpose of smoking it ; that whenever he desired to smoke
66
he would take some of the opium found in his possession, Icook it," and
smoke it. He did not produce opium, nor import nor manufacture, nor com
pound nor deal in it. Nor did he dispense it, nor sell, distribute, nor give it
away. He was employed as a jewelry salesman ; no physician had ever pre
scribed opium for him ; he was was not a nurse nor a Federal, State, or
municipal official such as the statute enumerates, nor was he the employee of
a person registered under the statute, nor was he a warehouseman or common
carrier.
Section 1 of the act provides as follows :
That on and after the first day of March, nineteen hundred and fifteen,
every person who produces, imports, manufactures, compounds, deals in, sells,
distributes, or gives away opium or coca leaves or any compound, manufac
ture, salt, derivative, or preparation thereof, shall register with the collector
of internal revenue of the district his name or style, place of business, and
place or places where such business is to be carried on : Provided, That the
office, or if none, then the residence of any person shall be considered for the
purpose of this act to be his place of business. At the time of such registry
4
and on or before the first day of July, annually thereafter, every person who
produces, imports, manufactures, compounds, deals in, dispenses, sells, dis
tributes, or gives away any of the aforesaid drugs shall pay to the said collector
a special tax at the rate of $1 per annum : Provided , That no employee of any
person who produces, imports, manufactures, compounds, deals in, dispenses,
sells, distributes, or gives away any of the aforesaid drugs, acting within the
scope of his employment, shall be required to register or to pay the special
tax provided by this section : Provided further, That the person who employs
him shall have registered and paid the special tax as required by this section :
Provided further, That officers of the United States Government who are law
fully engaged in making purchases of the above-named drugs for the various
departments of the Army and Navy, the Public Health Service, and for Gov
ernment hospitals and prisons, and officers of any State government, or of any
county or municipality therein, who are lawfully engaged in making purchases
of the above-named drugs for State, county, or municipal hospitals or prisons,
and officials of any Territory or insular possession or the District of Columbia
or of the United States who are lawfully engaged in making purchases of the
above-named drugs for hospitals or prisons therein shall not be required to
register and pay the special tax as herein required.
It shall be unlawful for any person required to register under the terms of
this act to produce, import, manufacture, compound, deal in, dispense, sell,
distribute, or give away any of the aforesaid drugs without having registered
and paid the special tax provided for in this section.
That the word " person 99 as used in this act shall be construed to mean and
include a partnership, association, company, or corporation, as well as a
natural person ; and all provisions of existing law relating to special taxes,
so far as applicable, including the provisions of section thirty-two hundred and
forty of the Revised Statutes of the United States are hereby extended to
the special tax herein imposed.
Section 8 provides as follows :
That is shall be unlawful for any person not registered under the provisions
of this act, and who has not paid the special tax provided for by this act, to
have in his possession or under his control any of the aforesaid drugs ; and such
possession or control shall be presumptive evidence of a violation of this section,
and also of a violation of the provisions of section one of this act : Provided,
That this section shall not apply to any employee of a registered person, or to a
nurse under the supervision of a physician, dentist, or veterinary surgeon reg
istered under this act, having such possession or control by virtue of his employ
ment or occupation and not on his own account ; or to the possession of any of
the aforesaid drugs which has or have been prescribed in good faith by a phy
sician, dentist, or veterinary surgeon registered under this act ; or to any
United States, State, county, municipal, District, Territorial, or insular officer
or official who has possession of any said drugs, by reason of his official duties,
or to a warehouseman holding possession for a person registered and who has
paid the taxes under this act ; or to common carriers engaged in transporting
such drugs : Provided further, That it shall not be necessary to negative any
of the aforesaid exemptions in any complaint, information, indictment, or other
writ or proceeding laid or brought under this act ; and the burden of proof of
any such exemption shall be upon the defendant.
The contention of defendant is that he is not covered by the provisions of
99
section 8, because the words " any person as used therein are to be construed
as referring only to persons of the classes referred to in section 1 as being
obliged to register and to pay a tax. We do not find this contention persuasive.
The words 66 any person "" are comprehensive ; they are broad enough to cover
not only the " producers, dealers, distributors, givers-away, etc.," who, by sec
tion 1, are allowed to register, but also all other persons. That Congress used
the words with this comprehensive meaning seems to us manifest from the
exceptions which it includes in the proviso that immediately follows. A nurse
may have some opium in her possession, and yet not be herself " a dealer, dis
tributor, etc.," nor entitled to take out a license. So, too, a person subject to
sharp spasms of pain may have some in his possession, and yet not be himself
" a dealer, distributor, etc.," nor entitled to take out a license. Both these
persons would be covered by the first clause of section 8 and their possession
5
would be unlawful. Therefore, Congress saved them in the proviso by relieving

from the application of the first clause-the nurse, if her possession was by
virtue of her employment, and the invalid, if the drug had been prescribed for
him by a physician. Grammatically there is nothing in the section which would
so restrict the comprehensive meaning of the words 66 any person 99 as to make
them include only those who might take out license but have neglected to do so.
There is nothing to indicate that Congress intended its proscription to be less
comprehensive than the language it used requires. It has legislated quite dras
tically about opium in the act of February 9, 1909 ( 35 Stat. L., 614 ) , prohibiting
its importation for any but medicinal purposes and making anyone who im
ports for other purposes or who uses the drug, knowing that it has been so
fraudulently imported, subject to prosecution. The eighth section of the act of
1914 is legislation of the same sort. It prohibits anyone, other than those who
register and pay tax and a few other persons, nurses, invalids, common car
riers, etc., from having any opium in their possession, and imposes a penalty
for their doing so.
*
}
+
The judgment is affirmed. I
I
}
(T. D. 2281. ) 8
Emergency revenue law- Policies of insurance.
Additional tax due on payment of second or subsequent premium on continuing

policies of insurance, indemnity bonds, etc., during the life of the act of
October 22, 1914. Bonds, powers of attorney, etc., to be properly stamped
before being accepted by Government officers.
To collectors of internal revenue and others concerned :
The life of the act of October 22, 1914, having been extended to
December 31 , 1916, an additional tax will be due upon the payment
of a second premium on all continuing policies of insurance, bonds,
and other documents taxable under the fourteenth and fifteenth para
graphs of Schedule A, relating to fire, marine, and indemnity insur
ance, the policies covering which were tax paid on issuance on the
basis of the first annual payment. Canceled stamps covering the tax
due should be forwarded by the insurance companies to the holders of
such continuing policies , to be affixed to the policy or bond of in
demnity, as the case may be.
In this connection attention is called to the fact that it is the duty
of all Government officers with whom bonds, powers of attorney, and
other papers taxable under the act of October 22, 1914, are filed to see
that all such papers are properly stamped before being accepted , and ,
in the event of a refusal to affix the proper stamps on demand, to re
port the facts to this office.
G. E. FLETCHER,
(T. D. 2282. )
Emergency revenue law-Policies of insurance.
Exempting provision of the proviso in Schedule A of the emergency revenue

law of October 22, 1914, relating to mutual fire insurance companies.
SIR: In further reply to your letter of November 12, 1915 , in
which you inclosed blank form of policy used by the Fire In
surance Co. , of ; also certain correspondence connected with
the same, and a folder issued by the company for circulation among
its patrons and to the public generally, the question being whether
the policies issued by this company are subject to the revenue- stamp
tax or whether they are exempt under the provision exempting purely
mutual companies, you are informed that after a careful considera
tion of the matter by the Commissioner of Internal Revenue it has
been decided that as the act of October 22 , 1914 , is in all essential
respects similar to the act of 1898 , and the department's rulings un
der the former act clearly held that cooperative associations which
derived any income from investments of reserves were not associa
tions carried on not for profit, Congress in enacting the subsequent
legislation must be considered as having approved that ruling of
the department and made it a part of the new legislation.
You are therefore advised that this office declines to modify its
previous rulings on the subject, and you will be governed thereby in
this and other like cases. See T. D. 2195.
Steps should be taken to collect all taxes due.
Respectfully , DAVID A. GATES ,
COLLECTOR OF INTERNAL REVENUE, Omaha, Nebr.
(T. D. 2283. )
Emergency revenue law - Conveyances.
Deeds executed by a State, county, town, or other municipal corporation are not
taxable.
TREASURY DEpartment,
Washington, D. C. , January 19, 1916.
SIR : In response to your communication of the 14th instant, you
are advised that a deed executed by the State of Washington for the
conveyance of real property to your company would not be taxable
7
under the act of October 22 , 1914. It is the duty of the grantor to

affix revenue stamps required upon a deed or other instrument con
veying real property, and it was not the intention of Congress in
enacting this law to impose a tax upon any State, county, town, or
other municipal corporation.
Respectfully,
DAVID A. GATES,
Mr.
(T. D. 2284. )
Tobacco-Record cards , Form 685.
Instructions relative to preparation and presenting of record cards, Form 685,

in triplicate, for each bond of a manufacturer of tobacco, manufacturer
of cigars, and peddler of tobacco, executed by corporate surety, in duplicate,
submitted to the collector for the district.
To collectors of internal revenue :
1. Hereafter, bonds, Forms 40, 71 , and 111, of manufacturers of
tobacco, manufacturers of cigars, and peddlers of tobacco, respec
tively, executed by corporate sureties, in duplicate, under instructions
in paragraph 3 of circular 711 ( T. D. 1279 ) , when presented to the
collector of internal revenue for the district, shall be accompanied
by record cards (white paper) , Form 685 , prepared in triplicate
(manifolded ) by typewriter. A supply of Form 685 has been fur
nished each collector. Surety company agents executing bonds above
described, and who will be required to fill in Form 685 , should
apply to the nearest collector of internal revenue to be furnished with
a reasonable supply of such cards. Collectors will distribute these
cards economically .
2. In the preparation of Form 685, in triplicate, the following
instructions should be observed :
(a) The surname of principal should be written first, then the
given name and initial. Where there are two or more principals
each name should be written in the order above given, one under the
other, so far as practicable. The firm or partnership name or trade
name or style should be filled in under " Trade name," where names
similar to " The John Doe Cigar Co. " or " R. J. Roe & Co. ( Inc. ) "
should be written, for indexing purposes, as " Doe Cigar Co. , John,
The," and " Roe, R. J. , & Co. (Inc. ) . "
( b ) The name of a corporation principal should appear under
name of principal, the names of the officers being omitted.
8
(c) The location of factory, or, in case of a peddler, his residence,

must be definitely stated, giving the street and number in addition
to the city or town and State.
(d) The penal sum and date of bond must be reported .
(e) The bond form number should be indicated by crossing out,
of the three numbers given, all but the proper number.
(f) The name of the surety company and the city and State in
which its principal office is located should be reported under the
heads of " Sureties " and " Residences of sureties," respectively ; if
desired, same may be filled in with rubber stamp.
3. The balance of Form 685 is to be filled in in the office of the
collector, to whom further instructions in regard to what is to be done
with them will be given in a mimeograph letter.
G. E. FLETCHER,
( T. D. 2285. )
Special excise tax-Suit for collection of additional tax-Memo

randum of court.
1. An action of debt may be brought against a corporation to recover back

taxes.
2. Suit is maintainable notwithstanding no assessment can be made.
3. Suit not barred by the 3-year limitation in section 38, act of August 5,
1909.
The appended memorandum attached to the order for judgment
in the case of the United States v. Minneapolis Threshing Machine
Co. is published for the information of internal - revenue officers and
others concerned.
G. E. FLETCHER,
MEMORANDUM.
It is contended by the defendant that an action such as the present, which

may be considered an action of indebitatus assumpsit, will not lie under the
facts in this case, and that inasmuch as no assessment had been formally made
by the collector of internal revenue, no action will lie ; and, finally, that no
assessment can be made nor action maintained , because it is barred by the
3-year limitation clause contained in the fifth paragraph of section 38, chapter
6, 36 Statutes at Large, said section containing the provision under which the
excise tax involved in this controversy was authorized.
9
The eighth paragraph of said section 38 contains the following clause :

All laws relating to the collection, remission, and refund of internal-revenue
taxes, so far as applicable to and not inconsistent with the provisions of this
section, are hereby extended and made applicable to the taxes imposed by
this section.
In United States v. Chamberlin (219 U. S. , 250 ) , which was a case arising
under the war-revenue act of June 13, 1898, the court construed section 31,
which makes applicable " all administrative, special, or stamp provisions of
law, including the laws in relation to the assessment of taxes not heretofore
specifically repealed," as authorizing an action of debt under authority con
ferred by section 3213, Revised Statutes, for the recovery of the amount of the
stamp tax payable but not paid under said war-revenue act.
The court in its opinion said :
Whether an action of debt is maintainable depends not upon the question
who is the plaintiff or in what manner the obligation was incurred, but it lies
whenever there is due a sum either certain or readily reduced to certainty.
The language contained in paragraph 8 of the act under consideration in
the present case is much clearer and broader than the language considered in
the case of United States v. Chamberlin, supra, and clearly authorizes the
present action. To the same effect see King v. United States ( 99 U. S., 229) ,
Dollar Savings Bank v. United States (19 Wall., 227 ) , and United States v.
Little Miami Railroad Co. ( 1 Fed. , 700 ) . This last case was reversed in the
Supreme Court ( 108 U. S. , 277 ) , but on another point.
That no formal assessment is necessary, see Dollar Savings Bank v. United
States (19 Wall., 227 ) , King v. United States ( 99 U. S., 229) , and United States
v. Little Miami Railroad Co. ( 1 Fed., 700 ) .
That neither the limitation of time upon the action of the Commissioner
of Internal Revenue contained in paragraph 5 of said section 38, above re
ferred to, nor any other statute of limitation is binding upon the United States
in bringing an action like the one at bar. See United States v. Thompson ( 98
U. S., 486 ) , United States v. Insley ( 130 U. S. , 263 ) , United States v. Norris
( 222 Fed., 14, C. C. A., 8) , and United States v. Little Miami Railroad Co.
(1 Fed., 700 ).
(T. D. 2286. )
Emergency revenue law -Insurance policies.
Policies of insurance issued in England on property in the United States

taxable under the act of October 22, 1914.
SIR : This office is in receipt of your letter of the 19th instant,
stating that you represent a number of brokerage houses that receive
policies issued by Lloyds, of London , England , on property in
America, and there is a difference of opinion as to whether these
policies should bear a stamp under the act of October 22 , 1914 .
In reply you are informed that this office holds that a stamp tax
is required under the said act of October 22 , 1914, on a policy of
10
fire insurance issued by Lloyds, of London, and delivered in the

United States on property in this country.
Respectfully,
G. E. FLETCHER,
Mr.
(T. D. 2287. )
Emergency revenue law-Continuing policies of insurance, bonds,

etc.
The increased tax due by reason of the payment of a subsequent premium on

a continuing bond or policy of insurance issued subsequent to December 1,
1914, should be represented by stamps affixed to the premium receipt given,
but where this has not been done the stamp should be forwarded to be
affixed to the policy itself.
SIR : This office is in receipt of your letter of the 24th instant, call
ing attention to the apparent discrepancy between T. D. 2281 , ad
vising that canceled stamps covering tax due on continuing policies
of insurance, bonds, and other documents taxable under the four
teenth and fifteenth paragraphs of Schedule A should be forwarded
by the insurance companies to holders of such policies to be affixed
to the policy or bond of indemnity , and the last paragraph of T. D.
2106, covering schedule insurance, in which it is held that any addi
tional charges increasing the total premium will be stamped upon
the total premium receipt.
In reply, you are advised that at the time T. D. 2281 was pre
pared this office had in mind a number of instances which had been
called to its attention where the bonds or insurance policies having
been issued during the months of December , 1914 , and January,
1915, the second premium had already fallen due and the premium
receipt had been issued without affixing thereto the stamp . It is
deemed preferable that upon payment of a subsequent premium on a
continuing bond or policy of insurance issued subsequent to Decem
ber 1 , 1914, the increased tax due by reason of such payment should
be represented by stamps affixed to the premium receipt given , but
where, in any instance , this has not been done, the stamp should be
forwarded to be affixed to the policy itself, as provided by T. D. 2281 .
Respectfully,
DAVID A. GATES,
Icting Commissioner of Internal Revenue.
Mr.
11
(T. D. 2288. )
Special tax.
A retail liquor dealer incurs liability as wholesale liquor dealer on account of

the sale, to the same party at the same time, of 4 gallons of whisky, 4
gallons of gin, 4 gallons of brandy, and 4 gallons of wine.
GENTLEMEN : This office is in receipt of your letter of the 5th
instant, in which you state that you desire to be advised if certain of
your clients, qualified retail liquor dealers under the internal- revenue
laws, incur special -tax liability as wholesale liquor dealers on account
of selling to the same party at the same time 3 gallons of whisky and
3 gallons of gin.
Replying, you are informed that this office has long followed the
decision in the case of the United States v . James, handed down by
the United States Court for the Eastern District of Michigan, Janu
ary 14, 1884 ( 30 Int. Rev. Rec., 24) , to the effect that a retail liquor
dealer did not incur liability as a wholesale liquor dealer on account
of selling to the same party at the same time 4 gallons of whisky, 4
gallons of gin, 4 gallons of brandy, and 4 gallons of wine. However,
upon fully considering this matter, this office finds itself unable to
further subscribe to the ruling above cited. In the opinion of this
office the decision handed down in the case of the United States v.
Shouse in the United States Court, Northern District of Alabama (31
Int. Rev. Rec., 120) , correctly interprets the law involved . In the
above case the court held that a retail liquor dealer incurred liability
as a wholesale liquor dealer on account of selling and delivering to
one person at the same time two or more packages of distilled spirits ,
each containing 4 gallons, each package, however, containing a
different brand of spirits.
Therefore this office now holds that a retail liquor dealer incurs
special-tax liability as a wholesale liquor dealer on account of selling
to the same person at the same time foreign or domestic distilled
spirits in a quantity of not less than 5 wine gallons , regardless of the
fact that the distilled spirits so sold may be comprised of lots of
whisky, gin, and brandy. Following the same reasoning and subject
to the exemption granted vintners in section 3246, Revised Statutes,
as amended, liability as a wholesale liquor dealer is incurred by a
retail liquor dealer selling to the same person at the same time wines
in a total quantity of not less than 5 wine gallons. However, a retail
liquor dealer does not incur special tax as a wholesale liquor dealer
on account of selling 4 gallons of whisky or brandy and 4 gallons of
wine or malt liquor to the same party at the same time.
12
The converse of the above ruling is to the effect that a wholesale

liquor dealer does not incur special tax liability as a retail liquor
dealer on account of selling 4 gallons of whisky and 4 gallons of
brandy to the same person at the same time.
All rulings conflicting with the foregoing are hereby revoked.
Respectfully, W. H. OSBORN ,
Messrs.
(T. D. 2289. )
Income tax.
Amendment of T. D. 2231 of July 26, 1915, requiring return and payment of

tax by fiduciaries under trust estates.
T. D. 2231 is hereby amended to provide that fiduciaries having
control of any portion of income accruing during the year to known
beneficiaries other than trust estates, as provided in T. D. 2231, but
not distributed or paid to the beneficiaries during the year , shall , in
rendering their annual return (Form 1041 ) , give the name and ad
dress of each of said beneficiaries having a distributive interest in
said income, and shall furnish all the information called for in such
returns. In all such cases the fiduciary shall withhold and pay to
the collector, as provided by law, the normal tax of 1 per cent upon
the distributive interest of each of said beneficiaries when such in
terest is in excess of $3,000 , the same as if said income were actually
distributed and paid to the beneficiary. Exemption under paragraph
C, however, may be claimed by the beneficiary or his legal represent
ative by filing his claim for exemption with the fiduciary agent.
When the normal tax on undivided annual net income has been so
withheld , such tax shall not be again withheld when such portion
of the income is actually distributed and paid to said beneficiary, but
the beneficiary will account for such income in his return of income
for the year in which the same is actually received by him, entering
in column "A" the amount of income on which the normal tax has
heretofore been paid.
G. E. FLETCHER,
Approved :
W. G. McADOO,
Secretary of the Treasury.
13
(T. D. 2290.)
"
Income tax act of October 3, 1913 -Decision of the Supreme Court.
1. CONSTITUTIONALITY OF THE LAW.

The income tax provisions of the tariff act of October 3, 1913, are held to be con
stitutional.
2. POWER OF CONGRESS TO TAX.
The authority conferred upon Congress by the Constitution to lay and collect
taxes, duties, imposts, and excises is exhaustive and embraces every conceivable
power of taxation.
3. LIMITATION ON POWER OF CONGRESS TO TAX.
The Constitution lays down two rules by which imposition of taxes must be
governed , viz, the rule of apportionment as to direct taxes, and the rule of uni
formity as to duties, imposts, and excises.
4. INCOME TAX ACTS OF CIVIL WAR PERIOD.
These taxing laws were classed under the head of excises, duties, and imposts.
Although being a tax burden on income of every kind , including that derived from
property real or personal, they were not taxes directly on property because of its
ownership .
5. THE INCOME TAX ACT OF 1894.
The income tax act of 1894 was held unconstitutional as being direct in the con
stitutional sense and therefore void for want of apportionment .
6. THE SIXTEENTH AMENDMENT TO THE CONSTITUTION .
This amendment was enacted for the purpose of doing away with the principle
on which the decision in Pollock v. Farmers' Loan & Trust Co. was decided .
7. CONTENTION ON ACCOUNT OF RETROACTIVITY.
The contention on account of its limited retroactivity is not sound, in view of
the decision in Stockdale v . Insurance Companies (20 Wall . , 323) .
8. CONTENTION ON ACCOUNT OF THE PROGRESSIVE FEATURE OF THE LAW.
The want of foundation of this contention was pointed out in Knowlton v. Moore
(178 U. S. , 41) , and the right to urge it was foreclosed by that decision .
9. CONTENTIONS ON OTHER GROUNDS NOT VALID .
The numerous contentions against the validity of the act based upon an assumed
violation of the uniformity clause of the Constitution are without legal merit, as
that clause exacts only geographical uniformity. There is no basis for the conten
tion based on the due process clause of the Constitution, as that clause is not a limi
tation upon the taxing power conferred upon Congress by the Constitution.
Washington, D. C. , January 31 , 1916.
The appended decision of the Supreme Court of the United States
in the case of Frank R. Brushaber v. Union Pacific Railroad Co. is
published for the information of internal-revenue officers and others
concerned .
DAVID A. GATES ,
14
SUPREME COURT OF THE UNITED STATES. No. 140. OCTOBER TERM, 1915.
Frank R. Brushaber, appellant, v. Union Pacific Railroad Co.

APPEAL from the District Court of the United States for the Southern District ofNew York.
[January 24, 1916. ]
Mr. Chief Justice WHITE delivered the opinion of the court :

As a stockholder of the Union Pacific Railroad Co. the appellant filed his bill to
enjoin the corporation from complying with the income-tax provisions of the tariff act
of October 3, 1913 ( sec . 2 , ch . 16 , 38 Stat. , 166) . Because of constitutional questions
duly arising the case is here on direct appeal from a decree sustaining a motion to
dismiss because no ground for relief was stated .
The right to prevent the corporation from returning and paying the tax was based
upon many averments as to the repugnancy of the statute to the Constitution of the
United States, of the peculiar relation of the corporation to the stockholders and their
particular interests resulting from many of the administrative provisions of the
assailed act, of the confusion, wrong, and multiplicity of suits and the absence of all
means of redress which would result if the corporation paid the tax and complied with
the act in other respects without protest, as it was alleged it was its intention to do.
To put out of the way a question of jurisdiction we at once say that in view of these
averments and the ruling in Pollock v . Farmers' Loan & Trust Co. ( 157 U. S. , 429) ,
sustaining the right of a stockholder to sue to restrain a corporation under proper aver
ments from voluntarily paying a tax charged to be unconstitutional on the ground
that to permit such a suit did not violate the prohibitions of section 3224 , Revised
Statutes , against enjoining the enforcement of taxes, we are of opinion that the con
tention here made that there was no jurisdiction of the cause since to entertain it would
violate the provisions of the Revised Statutes referred to is without merit. Before
coming to dispose of the case on the merits, however, we observe that the defendant
corporation having called the attention of the Government to the pendency of the
cause and the nature of the controversy and its unwillingness to voluntarily refuse to
comply with the act assailed , the United States as amicus curiae has at bar been heard
both orally and by brief for the purpose of sustaining the decree.
Aside from averments as to citizenship and residence, recitals as to the provisions
of the statute and statements as to the business of the corporation contained in the
first 10 paragraphs of the bill advanced to sustain jurisdiction , the bill alleged 21 con
stitutional objections specified in that number of paragraphs or subdivisions. As
all the grounds assert a violation of the Constitution , it follows that in a wide sense they
all charge a repugnancy of the statute to the sixteenth amendment under the more
immediate sanction of which the statute was adopted.
The various propositions are so intermingled as to cause it to be difficult to classify
them. We are of opinion, however, that the confusion is not inherent, but rather
arises from the conclusion that the sixteenth amendment provides for a hitherto
unknown power of taxation ; that is, a power to levy an income tax which, although
direct, should not be subject to the regulation of apportionment applicable to all
other direct taxes. And the far-reaching effect of this erroneous assumption will be
made clear by generalizing the many contentions advanced in argument to support
it, as follows:
(a) The amendment authorizes only a particular character of direct tax without
apportionment, and therefore if a tax is levied under its assumed authority which
does not partake of the characteristics exacted by the amendment, it is outside of the
amendment and is void as a direct tax in the general constitutional sense because
not apportioned.
(b) As the amendment authorizes a tax only upon incomes " from whatever source
derived," the exclusion from taxation of some income of designated persons and
15
classes is not authorized and hence the constitutionality of the law must be tested
by the general provisions of the Constitution as to taxation, and thus again the tax is
void for want of apportionment .
(c) As the right to tax " incomes from whatever source derived " for which the
amendment provides must be considered as exacting intrinsic uniformity, therefore
no tax comes under the authority of the amendment not conforming to such standard,
and hence all the provisions of the assailed statute must once more be tested solely
under the general and preexisting provisions of the Constitution, causing the statute
again to be void in the absence of apportionment.
(d) As the power conferred by the amendment is new and prospective, the attempt
in the statute to make its provisions retroactively apply is void , because so far as the
retroactive period is concerned it is governed by the preexisting constitutional require
ment as to apportionment.
But it clearly results that the proposition and the contentions under it, if acceded
to, would cause one provision of the Constitution to destroy another ; that is, they
would result in bringing the provisions of the amendment exempting a direct tax
from apportionment into irreconcilable conflict with the general requirement that all
direct taxes be apportioned . Moreover, the tax authorized by the amendment,
being direct, would not come under the rule of uniformity applicable under the Con
stitution to other than direct taxes, and thus it would come to pass that the result of
the amendment would be to authorize a particular direct tax not subject either to
apportionment or to the rule of geographical uniformity, thus giving power to impose
a different tax in one State or States than was levied in another State or States. This
result instead of simplifying the situation and making clear the limitations on the
taxing power, which obviously the amendment must have been intended to accom
plish, would create radical and destructive changes in our constitutional system and
multiply confusion.
But let us by a demonstration of the error of the fundamental proposition as to the
significance of the amendment dispel the confusion necessarily arising from the argu
ments deduced from it. Before coming, however, to the text of the amendment, to
the end that its significance may be determined in the light of the previous legislative
and judicial history of the subject with which the amendment is concerned and with
a knowledge of the conditions which presumptively led up to its adoption and hence
of the purpose it was intended to accomplish, we make a brief statement on those
subjects.
That the authority conferred upon Congress by section 8 of Article I " to lay and
collect taxes, duties, imposts, and excises ” is exhaustive and embraces every con
ceivable power of taxation has never been questioned , or, if it has, has been so often
authoritatively declared as to render it necessary only to state the doctrine . And it
has also never been questioned from the foundation , without stopping presently to
determine under which of the separate headings the power was properly to be classed ,
that there was authority given, as the part was included in the whole, to lay and
collect income taxes . Again , it has never, moreover, been questioned that the con
ceded complete and all-embracing taxing power was subject, so far as they were
respectively applicable, to limitations resulting from the requirements of Article I ,
section 8 , clause 1, that " all duties, imposts, and excises shall be uniform throughout
the United States, " and to the limitations of Article I , section 2, clause 3, that " direct
taxes shall be apportioned among the several States " and of Article I , section 9,
clause 4, that " no capitation or other direct tax shall be laid , unless in proportion to
the census or enumeration hereinbefore directed to be taken ." In fact, the two
great subdivisions embracing the complete and perfect delegation of the power to tax
and the two correlated limitations as to such power were thus aptly stated by
Mr. Chief Justice Fuller in Pollock v . Farmers' Loan & Trust Co. , supra, at page
557: " In the matter of taxation , the Constitution recognizes the two great classes
16
of direct and indirect taxes and lays down two rules by which their imposition
must be governed , namely: The rule of apportionment as to direct taxes, and
the rule of uniformity as to duties, imposts, and excises." It is to be observed,
however, as long ago pointed out in Veazie Bank v . Fenno (8 Wall., 533 , 541),
that the requirement of apportionment as to one of the great classes and of uni
formity as to the other class were not so much a limitation upon the complete and
all-embracing authority to tax, but in their essence were simply regulations
concerning the mode in which the plenary power was to be exerted . In the
whole history of the Government down to the time of the adoption of the sixteenth
amendment, leaving aside some conjectures expressed of the possibility of a tax lying
intermediate between the two great classes and embraced by neither, no question has
been anywhere made as to the correctness of these propositions. At the very begin
ning, however, there arose differences of opinion concerning the criteria to be applied
in determining in which of the two great subdivisions a tax would fall . Without
pausing to state at length the basis of these differences and the consequences which
arose from them, as the whole subject was elaborately reviewed in Pollock v . Farmers'
Loan & Trust Co. ( 157 U. S. , 429 ; 158 U. S. , 601 ) , we make a condensed statement
which is in substance taken from what was said in that case . Early the differences
were manifested in pressing on the one hand and opposing on the other the passage
of an act levying a tax without apportionment on carriages " for the conveyance of
persons,,"' and when such a tax was enacted the question of its repugnancy to the
Constitution soon came to this court for determination . Hylton v . United States
(3 Dall. , 171. ) It was held that the tax came within the class of excises, duties, and
imposts and therefore did not require apportionment , and while this conclusion was
agreed to by all the members of the court who took part in the decision of the case
there was not an exact coincidence in the reasoning by which the conclusion was
sustained . Without stating the minor differences, it may be said with substantial
accuracy that the divergent reasoning was this: On the one hand , that the tax was
not in the class of direct taxes requiring apportionment, because it was not levied
directly on property because of its ownership , but rather on its use, and was therefore
an excise, duty , or impost ; and on the other, that in any event the class of direct
taxes included only taxes directly levied on real estate because of its ownership .
Putting out of view the difference of reasoning which led to the concurrent conclusion
in the Hylton case, it is undoubted that it came to pass in legislative practice that the
line of demarcation between the two great classes of direct taxes on the one hand and
excises, duties, and imposts on the other, which was exemplified by the ruling in
that case, was accepted and acted upon. In the first place, this is shown by the fact
that wherever (and there were a number of cases of that kind) a tax was levied directly
on real estate or slaves , because of ownership , it was treated as coming within the
direct class and apportionment was provided for , while no instance of apportionment
as to any other kind of tax is afforded . Again , the situation is aptly illustrated by
the various acts taxing incomes derived from property of every kind and nature which
were enacted beginning in 1861 and lasting during what may be termed the Civil War
period . It not disputable that these latter taxing laws were classed under the
head of excises, duties, and imposts, because it was assumed that they were of that
character inasmuch as, although putting a tax burden on income of every kind,
including that derived from property, real or personal, they were not taxes directly on
property because of its ownership . And this practical construction came in theory
to be the accepted one, since it was adopted without dissent by the most eminent of
the text-writers. (1 Kent Com. , 254, 256 ; 1 Story Const ., sec . 955 ; Cooley Const .
Lim. (5th ed . ) , *480 ; Miller on the Constitution , 237 ; Pomeroy's Constitutional Law,
sec. 281 ; Hare Const . Law, vol. 1 , 249 , 250 ; Burroughs on Taxation, 502 ; Ordronaux,
Constitutional Legislation, 225.)
17
Upon the lapsing of a considerable period after the repeal of the income tax laws
referred to, in 1894 an act was passed laying a tax on incomes from all classes of property
and other sources of revenue which was not apportioned , and which therefore was of
course assumed to come within the classification of excises, duties and imports which
were subject to the rule of uniformity but not to the rule of apportionment. The con
stitutional validity of this law was challenged on the ground that it did not fall within
the class of excises , duties, and imposts, but was direct in the constitutional sense
and was therefore void for want of apportionment, and that question came to this
court and was passed upon in Pollock v . Farmers' Loan & Trust Co. (157 U. S. , 429;
158 U. S. , 601) . The court, fully recognizing in the passage which we have previously
quoted the all-embracing character of the two great classifications including, on the
one hand, direct taxes subject to apportionment, and on the other, excises, duties ,
and imposts subject to uniformity, held the law to be unconstitutional in substance
for these reasons : Concluding that the classification of direct was adopted for the
purpose of rendering it impossible to burden by taxation accumulations of property,
real or personal, except subject to the regulation of apportionment, it was held that
the duty existed to fix what was a direct tax in the constitutional sense so as to accom
plish this purpose contemplated by the Constitution. ( 157 U. S. , 581. ) Coming to
consider the validity of the tax from this point of view, while not questioning at all
that in common understanding it was direct merely on income and only indirect on
property, it was held that considering the substance of things it was direct on property
in a constitutional sense to burden an income by a tax was from the point of substance
to burden the property from which the income was derived and thus accomplish thə
very thing which the provision as to apportionment of direct taxes was adopted to
prevent. As this conclusion but enforced a regulation as to the mode of exercising
power under particular circumstances, it did not in any way te the all-embracing
taxing authority possessed by Congress, including necessarily therein the power to
impose income taxes if only they conformed to the constitutional regulations which
were applicable to them . Moreover in addition the conclusion reached in the Pollock
case did not in any degree involve holding that income taxes generically and neces
sarily came within the class of direct taxes on property , but on the contrary recognized
the fact that taxation on income was in its nature an excise entitled to be enforced
as such unless and until it was concluded that to enforce it would amount to accom
plishing the result which the requirement as to apportionment of direct taxation was
adopted to prevent, in which case the duty would arise to disregard form and consider
substance alone and hence subject the tax to the regulation as to apportionment which
otherwise as an excise would not apply to it. Nothing could serve to make this
clearer than to recall that in the Pollock case in so far as the law taxed incomes from
other classes of property than real estate and invested personal property, that is,
income from "professions, trades, employments, or vocations " (158 U. S. , 637) , its
validity was recognized ; indeed it was expressly declared that no dispute was made
upon that subject and attention was called to the fact that taxes on such income had
been sustained as excise taxes in the past (ib . , p . 635) . The whole law was, how
ever, declared unconstitutional on the ground that to permit it to thus operate would
relieve real estate and invested personal property from taxation and “ would leave
the burden of the tax to be borne by professions, trades , employments , or vocations ;
and in that way what was intended as a tax on capital would remain, in substance,
a tax on occupations and labor " (ib . , p . 637) , a result which it was held could not
have been contemplated by Congress.
This is the text of the amendment:
-The Congress shall have power to lay and collect taxes on incomes, from whatever
source derived , without apportionment among the several States, and without regard
to any census or enumeration .
24433°-VOL 18-16
18
It is clear on the face of this text that it does not purport to confer power to levy
income taxes in a generic sense-an authority already possessed and never ques
tioned-or to limit and distinguish between one kind of income taxes and another, but
that the whole purpose of the amendment was to relieve all income taxes when im
posed from apportionment from a consideration of the source whence the income
was derived . Indeed in the light of the history which we have given and of the deci
sion in the Pollock case and the ground upon which the ruling in that case was based ,
there is no escape from the conclusion that the amendment was drawn for the purpose
of doing away for the future with the principle upon which the Pollock case was
decided, that is, of determining whether a tax on income was direct not by a consider
ation of the burden placed on the taxed income upon which it directly operated , but
by taking into view the burden which resulted on the property from which the income
was derived, since in express terms the amendment provides that income taxes, from
whatever source the income may be derived , shall not be subject to the regulation of
apportionment. From this in substance it indisputably arises, first, that all the con
tentions which we have previously noticed concerning the assumed limitations to
be implied from the language of the amendment as to the nature and character of the
income taxes which it authorizes find no support in the text and are in irreconcilable
conflict with the very purpose which the amendment was adopted to accomplish;
second, that the contention that the amendment treats a tax on income as a direct
tax although it is relieved from apportionment and is necessarily therefore not sub
ject to the rule of uniformity as such rule only applies to taxes which are not direct,
thus destroying the two great classifications which have been recognized and enforced
from the beginning, is also wholly without foundation since the command of the
amendment that all income taxes shall not be subject to apportionment by a con
sideration of the sources from which the taxed income may be derived , forbids the
application to such taxes of the rule applied in the Pollock case by which alone such
taxes were removed from the great class of excises, duties, and imposts subject to the
rule of uniformity and were placed under the other or direct class. This must be
unless it can be said that although the Constitution as a result of the amendment in
express terms excludes the criterion of source of income, that criterion yet remains
for the purpose of destroying the classifications of the Constitution by taking an
excise out of the class to which it belongs and transferring it to a class in which it
can not be placed consistently with the requirements of the Constitution . Indeed,
from another point of view, the amendment demonstrates that no such purpose was
intended and on the contrary shows that it was drawn with the object of maintaining
the limitations of the Constitution and harmonizing their operation . We say this
because it is to be observed that although from the date of the Hylton case because of
statements made in the opinions in that case it had come to be accepted that direct
taxes in the constitutional sense were confined to taxes levied directly on real estate
because of its ownership, the amendment contains nothing repudiating or challenging
the ruling in the Pollock case that the word direct had a broader significance since it
embraced also taxes levied directly on personal property because of its ownership,
and therefore the amendment at least impliedly makes such wider significance a part
of the Constitution-a condition which clearly demonstrates that the purpose was
not to change the existing interpretation except to the extent necessary to accomplish
the result intended , that is, the prevention of the resort to the sources from which a
taxed income was derived in order to cause a direct tax on the income to be a direct
tax on the source itself and thereby to take an income tax out of the class of excises,
duties, and imposts and place it in the class of direct taxes.
We come then to ascertain the merits of the many contentions made in the light of
the Constitution as it now stands, that is to say, including within its terms the provi
sions of the sixteenth amendment as correctly interpreted . We first dispose of two
propositions assailing the validity of the statute on the one hand because of its repug
19
nancy to the Constitution in other respects, and especially because its enactment
was not authorized by the sixteenth amendment.
The statute was enacted October 3, 1913, and provided for a general yearly income
tax from December to December of each year. Exceptionally, however, it fixed a
first period embracing only the time from March 1 to December 31 , 1913, and this
limited retroactivity is assailed as repugnant to the due process clause of the fifth
amendment and as inconsistent with the sixteenth amendment itself. But the date
of the retroactivity did not extend beyond the time when the amendment was opera
tive, and there can be no dispute that there was power by virtue of the amendment
during that period to levy the tax, without apportionment, and so far as the limita
tions of the Constitution in other respects are concerned, the contention is not open,
since in Stockdale v . Insurance Cos. (20 Wall . 323, 331), in sustaining a provision in a
prior income tax law which was assailed because of its retroactive character, it was
said :
The right of Congress to have imposed this tax by a new statute, although the
measure of it was governed by the income of the past year, can not be doubted ;
much less can it be doubted that it could impose such a tax on the income of the
current year, though part of that year had elapsed when the statute was passed .
The joint resolution of July 4, 1864, imposed a tax of 5 per cent upon all income of
the previous year, although one tax on it had already been paid, and no one doubted
the validity of the tax or attempted to resist it.
The statute provides that the tax should not apply to enumerated organizations
or corporations, such as labor, agricultural or horticultural organizations, mutual
savings banks, etc. , and the argument is that as the amendment authorized a tax
on incomes " from whatever source derived, " by implication it excluded the power
to make these exemptions. But this is only a form of expressing the erroneous con
tention as to the meaning of the amendment, which we have already disposed of.
And so far as this alleged illegality is based on other provisions of the Constitution,
the contention is also not open, since it was expressly considered and disposed of in
Flint v. Stone Tracy Co. ( 220 U. S. , 108 , 173) .
Without expressly stating all the other contentions, we summarize them to a
degree adequate to enable us to typify and dispose of all of them .
1. The statute levies one tax called a normal tax on all incomes of individuals R
up to $20,000 and from that amount up by gradations, a progressively increasing
tax called an additional tax, is imposed . No tax, however , is levied upon incomes
of unmarried individuals amounting to $3,000 or less, nor upon incomes of married
persons amounting to $4,000 or less . The progressive tax and the exempted amounts,
it is said, are based on wealth alone, and the tax is therefore repugnant to the due
process clause of the fifth amendment.
2. The act provides for collecting the tax at the source; that is, makes it the duty
of corporations, etc. , to retain and pay the sum of the tax on interest due on bonds
and mortgages, unless the owner to whom the interest is payable gives a notice that
he claims an exemption . This duty cast upon corporations, because of the cost
to which they are subjected , is asserted to be repugnant to due process of law as a
taking of their property without compensation, and we recapitulate various conten
tions as to discrimination against corporations and against individuals predicated on
provisions of the act dealing with the subject:
(a) Corporations indebted upon coupon and registered bonds are discriminated
against, since corporations not so indebted are relieved of any labor or expense in
volved in deducting and paying the taxes of individuals on the income derived from
bonds.
(b) of the class of corporations indebted as above stated , the law further discrimi
nates against those which have assumed the payment of taxes on their bonds, since
although some or all of their bondholders may be exempt from taxation, the corpora
20
tions have no means of ascertaining such fact, and it would therefore result that taxes
would often be paid by such corporations when no taxes were owing by the individuals
to the Government.
(c) The law discriminates against owners of corporate bonds in favor of individuals
none of whose income is derived from such property , since bondholders are, during the
interval between the deducting and the paying of the tax on their bonds, deprived of
the use of the money so withheld .
(d) Again corporate bondholders are discriminated against because the law does
not release them from payment of taxes on their bonds even after the taxes have been
deducted by the corporation, and therefore if after deduction the corporation should
fail, the bondholders would be compelled to pay the tax a second time.
(e) Owners of bonds the taxes on which have been assumed by the corporation are
discriminated against because the payment of the taxes by the corporation does not
relieve the bondholders of their duty to include the income from such bonds in mak
ing a return of all income, the result being a double payment of the taxes, labor, and
expense in applying for a refund, and a deprivation of the use of the sum of the taxes
during the interval which elapses before they are refunded .
3. The provision limiting the amount of interest paid which may be deducted from
gross income of corporations for the purpose of fixing the taxable income to interest
on indebtedness not exceeding one-half the sum of bonded indebtedness and paid-up
capital stock, is also charged to be wanting in due process because discriminating
between different classes of corporations and individuals.
4. It is urged that want of due process results from the provision allowing individuals
to deduct from their gross income dividends paid them by corporations whose incomes
are taxed and not giving such right of deduction to corporations.
5. Want of due process is also assertred to result from the fact that the act allows a
deduction of $3,000 or $4,000 to those who pay the normal tax, that is, whose incomes
are $20,000 or less, and does not allow the deduction to those whose incomes are greater
than $20,000 ; that is, such persons are not allowed for the purpose of the additional or
progressive tax a second right to deduct the $3,000 or $4,000 which they have already
enjoyed. And a further violation of due process is based on the fact that for the pur
pose of the additional tax no second right to deduct dividends received from corpora
tions is permitted .
6. In various forms of statement, want of due process, it is moreover insisted , arises
from the provisions of the act allowing a deduction for the purpose of ascertaining the
taxable income of stated amounts on the ground that the provisions discriminate
between married and single people and discriminate between husbands and wives
who are living together and those who are not.
7. Discrimination and want of due process results, it is said, from the fact that the
owners of houses in which they live are not compelled to estimate the rental value in
making up their incomes , while those who are living in rented houses and pay rent
are not allowed , in making up their taxable income, to deduct rent which they have
paid, and that want of due process also results from the fact that although family
expenses are not as a rule permitted to be deducted from gross, to arrive at taxable
income, farmers are permitted to omit from their income return certain products of the
farm which are susceptible of use by them for sustaining their families during the year.
So far as these numerous and minute, not to say in many respects hypercritical , con
tentions are based upon an assumed violation of the uniformity clause, their want of
legal merit is at once apparent, since it is settled that that clause exacts only a geo
graphical uniformity and there is not a semblance of ground in any of the propositions
for assuming that a violation of such uniformity is complained of. Knowlton v . Moore
(178 U. S. , 41 ) ; Patton v. Brady (184 U. S. , 608 , 622) ; Flint v. Stone Tracy Co. (220
U. S. , 107, 158 ) ; Billings v . United States (232 U. S. , 608, 622).
21
So far as the due process clause of the fifth amendment is relied upon, it suffices to
say that there is no basis for such reliance since it is equally well settled that such clause
is not a limitation upon the taxing power conferred upon Congress by the Constitu
tion; in other words, that the Constitution does not conflict with itself by conferring
upon the one hand a taxing power and taking the same power away on the other by
the limitations of the due process clause . Treat v. White (181 U. S. , 264) ; Patton v.
Brady (184 U. S. , 608) ; McCray v . United States ( 195 U. S. , 27, 61) ; Flint v . Stone
Tracy Co. , supra; Billings v . United States (232 U. S. , 261 , 282) . And no change in
the situation here would arise even if it be conceded , as we think it must be, that this
doctrine would have no application in a case where although there was a seeming
exercise of the taxing power, the act complained of was so arbitrary as to constrain to
the conclusion that it was not the exertion of taxation but a confiscation of property;
that is, a taking of the same in violation of the fifth amendment, or, what is equivalent
thereto, was so wanting in basis for classification as to produce such a gross and patent
inequality as to inevitably lead to the same conclusion. We say this because none
of the propositions relied upon in the remotest degree present such questions . It is
true that it is elaborately insisted that although there be no express constitutional
provision prohibiting it, the progressive feature of the tax causes it to transcend the
conception of all taxation and to be a mere arbitrary abuse of power which must be
treated as wanting in due process . But the proposition disregards the fact that in the
very early history of the Government a progressive tax was imposed by Congress and
that such authority was exerted in some if not all of the various income taxes enacted
prior to 1894 to which we have previously adverted . And over and above all this the
contention but disregards the further fact that its absolute want of foundation in reason
was plainly pointed out in Knowlton v. Moore, supra, and the right to urge it was
necessarily foreclosed by the ruling in that case made. In this situation it is of course
superfluous to say that arguments as to the expediency of levying such taxes or of the
economic mistake or wrong involved in their imposition are beyond judicial cogniz
ance. Besides this demonstration of the want of merit in the contention based upon
the progressive feature of the tax , the error in the others is equally well established
either by prior decisions or by the adequate bases for classification which are apparent
on the face of the assailed provisions; that is, the distinction between individuals and
corporations, the difference between various kinds of corporations, etc. Knowl
ton v. Moore, supra; Flint v . Stone Tracy Co. , supra; Billings v . United States, supra;
National Bank v . Commonwealth (9 Wall . , 353) ; National Safe Deposit Co. v. Illinois
(232 U. S. , 58 , 70) . In fact, comprehensively surveying all the contentions relied
upon, aside from the erroneous construction of the amendment which we have pre
viously disposed of, we can not escape the conclusion that they all rest upon the mis
taken theory that although there be differences between the subjects taxed , to differ
ently tax them transcends the limit of taxation and amounts to a want of due process,
and that where a tax levied is believed by one who resists its enforcement to be want
ing in wisdom and to operate injustice, from that fact in the nature of things there
arises a want of due process of law and a resulting authority in the judiciary to exceed
its powers and correct what is assumed to be mistaken or unwise exertions by the
egislative authority of its lawful powers, even although there be no semblance of
warrant in the Constitution for so doing.
We have not referred to a contention that because certain administrative powers to
enforce the act were conferred by the statute upon the Secretary of the Treasury,
therefore it was void as unwarrantedly delegating legislative authority, because we
think to state the proposition is to answer it. Field v . Clark ( 143 U. S. , 649 ) ; Butt
field v. Stranahan (192 U. S. , 470, 496 ) ; Oceanic Steam Navigation Co. v . Stranahan
(214 U. S. , 320) .
Affirmed.
Mr. Justice McREYNOLDS took no part in the consideration and decision of this case.
22
(T. D. 2291. )
Income tax.
Amendment of T. D. 2005 of July 8, 1914, changing prorating from the yearly to a

monthly basis .
TREASURY DEPARTMENT ,
To collectors of internal revenue:
The provision in T. D. 2005 , viz, " In prorating, fractional parts of
years will not be considered , " is hereby amended to read as follows :
"In prorating, the actual time property has been held will be
ascertained in months, a fractional part of a month in the actual time
being counted as a whole month when the fraction is 15 days or more
and discarded when the fraction is less than 15 days . "
For the purpose of ascertaining the amount of gain or loss to be
shown in returns of income, arising in connection with property
which was acquired prior to March 1 , 1913 , in the case of individuals
or prior to January 1 , 1909 , in the case of corporations , the total gain
or loss will be ascertained as provided by the rule set forth in T. D.
2005. This total gain or loss will be divided by the actual time
(ascertained as herein set forth) the property was held , and this
quotient will be multiplied by the time in months subsequent to
March 1 , 1913 , in the case of individuals , and subsequent to January
1 , 1909 , in the case of corporations . The fractional part of a month
within the tax period will be treated as a whole month when the
fraction is 15 days or more and discarded when the fraction is less
than 15 days.
W. H. OSBORN ,
Approved :
W. G. MCADOO ,
Secretary ofthe Treasury.
(T. D. 2292.)
Narcotic law.
Amending the first paragraph of T. D. 2244 of September 20 , 1915, requiring the nar
cotic content of preparations or remedies to be indicated on official order forms.
Washington, D. C. , January 31 , 1916.
In entering items calling for narcotic preparations or remedies on
the order forms issued by the Commissioner of Internal Revenue . in
accordance with the provisions of section 2 of the act of Decembe.
23
17, 1914, the quantity of narcotic drug to the fluid or avoirdupois

ounce should be indicated thereon , or, if ordered in tablet or pill
form , the total number of tablets or pills, and the quantity of nar
cotic drug in grains or fractions thereof contained in a tablet or pill
must be stated. The narcotic content of official liquid or solid
preparations or remedies need not be indicated on order forms pro
vided their official character is designated by " U. S. P. " or "N. F. "
The law does not permit the use of official narcotic order forms for
any other purpose than to obtain narcotic drugs coming within its
scope, and in ordering physicians ' medicine cases , buggy cases ,
hypodermic cases, and similar articles, the official order form should
be used only for the narcotic drugs or preparations and remedies
containing such drugs , which, however, may be attached to and for
warded with the order for the desired article. The ordering of a
narcotic preparation or remedy in a manner which does not clearly
indicate the kind and quantity of narcotic drug contained therein or
that it is a "U. S. P." or " N.F. " preparation or remedy can not be
permitted.
The enforcement of this ruling will become effective May 1 , 1916,
in order to enable manufacturers and other dealers to acquaint their
customers with its provisions. • Until that date narcotic orders
received by manufacturers and dealers which call for complex prepa
rations or remedies , the formula for which is not well known to the
purchaser, should have the quantity of narcotic drug to the fluid or
avoirdupois ounce or in an ounce of tablets or pills added in red ink
to the order form to distinguish it from the original order,, the manu
facturer or dealer immediately notifying the purchaser to make a
corresponding addition on the duplicate order retained by him.
DAVID A. GATES ,
Approved :
W. G. MCADOO ,
(T. D. 2293.)
Income-tax or other clerks as deputy collectors.

Authorizing collectors to commission income-tax or other clerks as deputy collectors
without additional compensation under the same provisions and with the same
restrictions as applied in T. D. 2235 of August 28 , 1915 , to the commissioning of
field officers.
Washington, D. C. , February 10, 1916.
Mr.
SIR: This office is in receipt of your letter of the 8th instant,
referring to T. D. 2235, authorizing collectors to commission revenue
24
agents, inspectors , and special employees as deputy collectors with

out additional compensation for the purpose of administering oaths ,
and requesting to be advised whether or not this decision can be
extended to apply to clerks on the income-tax roll, stating that the
deputies in your office are too busy on other assignments to assist in
the income-tax department and it would be advisable to have income
tax clerks empowered to administer oaths .
In reply, you are advised that this office sees no objection to the
commissioning by collectors of income-tax or other clerks as deputy
collectors without additional compensation under the same pro
visions and with the same restrictions as applied in T. D. 2235, to the
commissioning of the field officers named .
A copy of this letter will be published in Treasury Decisions as
authority to collectors for such action.
Respectfully, W. H. OSBORN,
Approved :
By direction of the Secretary.
WM. P. MALBURN,
Assistant Secretary of the Treasury.
(T. D. 2294. )
Denatured alcohol.
Alcohol may be transferred directly from weighing tank, at distillery warehouse, to

tank cars for shipment to central denaturing warehouses.
Washington, D. C. , February 9, 1916.
Sir: Referring to the application of the for permission to
transfer alcohol directly from the weighing tank, located in the com
pany's distillery warehouse, to tank cars for shipment to central
denaturing warehouses, instead of first depositing the alcohol in the
warehouse storage tanks , you are informed that, while no specific pro
vision is made in the denatured alcohol law or regulations for such
transfer, the weighing tank used when the alcohol is to be immedi
ately transferred to the tank car, may, for the time being, be regarded
as a temporary storage tank.
The alcohol so transferred should be entered for deposit , and should
be reported by the storekeeper and gauger, and in your bonded ac
count as in the case of alcohol deposited in and withdrawn from the
storage tanks provided in article 20 of regulations No. 30 , except that
the words weighing tank or initials W. T. will be used in such cases in
25
place of the serial number of the storage tank into and from which the
alcohol would otherwise have been deposited and withdrawn.
Respectfully, DAVID A. GATES ,
COLLECTOR OF Internal ReveNUE, Peoria, Il .
(T. D. 2295.)
Honey wine.
Special-tax liability not incurred on account of production and sale of so-called
"Honey wine, " but wine stamps at the rate of 24 cents per gallon are required to
be affixed to packages thereof when sold or offered for sale.
OFFICE OF COMMISSIONER OF INTERNAL REVENUE
Washington, D. C. , February 10 , 1916.
SIR : Referring to communication of former Revenue Agent Ander
son, dated October 26 , 1915 , submitting for analysis a sample of a
beverage known as " Honey wine, " taken on the premises of 9
you are informed that the classification of this beverage has been given
much consideration by this office.
As you are aware, this office has previously classed such beverage
as a fermented liquor made from malt or a substitute therefor , and ,
accordingly, the manufacturer thereof was required to qualify as a
brewer. However, inasmuch as such beverage is not beer, lager beer,
ale, porter, or any other similar fermented liquor such as is taxable
under the provisions of section 3339 , Revised Statutes, this office is
of the opinion that it is inconsistent to say that special-tax liability
as a brewer is incurred on account of the production thereof. Further,
as it is not a wine or distilled spirits , special-tax liability as liquor
dealer could not consistently be asserted on account of the sale thereof,
and, as it is not an admixture of distilled spirits or wine, it is not a
product of rectification .
Inasmuch as this beverage appears to be more in the nature of a
cordial than any other taxable beverage, this office is of the opinion
that it is taxable under the emergency revenue act at the rate of 24
cents per gallon. This appears to be consistent in view of the lan
guage of the act imposing a tax upon " all liqueurs, cordials , or similar
compounds, domestic or imported , by whatever name sold or offered
for sale ." Therefore , where this preparation is sold or offered for
sale to consumers , wine stamps should be affixed thereto at the rate
of 24 cents per gallon. Special-tax liability, however, as rectifier or
liquor dealer is not incurred on account of the manufacture and sale
thereof.
INTERNAL-REVENUE AGENT, Detroit, Mich.
26
(T. D. 2296.)
Emergency revenue law.
Leaf tobacco dealers making sales of leaf tobacco for others on commission do not
incur special-tax liability as commission merchants.
SIR : This office is in receipt of your letter of the 27th ultimo re
garding office letter addressed to you under date of the 25th ultimo,
in which you were directed to see that all dealers in leaf tobacco who
made sales of leaf tobacco for others on a commission basis paid
special tax as commission merchants or commercial brokers, as the
case may be, as well as special tax as dealers in leaf tobacco .
In reply you are advised that this office has given further consid
eration to this matter and has reached the conclusion that it was not
the intent of Congress to impose a double occupation tax on account
of the same transaction, and that where the only business done on
commission by a dealer in leaf tobacco is in connection with the sale
of leaf tobacco, only the special tax on dealers in leaf tobacco is
incurred, and that no special- tax liability as commercial broker or
commission merchant is incurred under such circumstances . All
rulings in conflict with the above are hereby revoked .
COLLECTOR OF INTERNAL REVENUE , Statesville, N. C.
(T. D. 2297.)
Synopsis of rulings regarding tax imposed on proprietors of theaters under the sixth
subdivision of section 3 of the act of October 22 , 1914 .
To collectors of internal revenue, revenue agents , and othes concerned:
This office is in receipt of numerous inquiries regarding the special
tax imposed on proprietors of theaters under the sixth subdivision
of section 3 of the act of October 22 , 1914 , indicating that there is a
more or less general misunderstanding regarding the interpretation
of the subdivision above mentioned . Therefore, this office deems it
advisable to restate herein its construction of the sixth subdivision
of section 3 of the act aforesaid.
27
Where the owner of a building pays special tax as proprietor of a

theater, covering a theater or auditorium in the building in question,
the stamp secured by him will cover all dramatic or operatic or other
representations, plays, or performances given in such theater or
auditorium produced either by himself or under his proprietorship,
or produced by others under lease of the theater or auditorium from
the owner thereof. The owner may, upon application to the collector
of internal revenue, have the special-tax stamp transferred to any
other theater, auditorium, or airdome, provided the seating capacity
of the theater, auditorium, or airdome is not greater than the seating
capacity indicated on the face of the special-tax stamp. Of course,
if performances are continued at the building from which the stamp
is transferred, a new special-tax stamp must be taken out to cover
such building .
Where a lessee of a theater pays special tax therefor, the special
tax stamp secured by him , if not transferred to another location, will
cover performances given in the theater under the proprietorship of
another who subleases the theater from the lessee. However, if the
lessee sells out his lease and is no longer connected with the theater
in any capacity whatsoever , his special- tax stamp will not cover per
formances given by the purchaser of the lease.
Where two parties pay special tax and operate a theater as a part
nership, upon one of the partners selling out his interest or a new
partner coming into the partnership , the special-tax stamp secured by
the first partnership will cover performances given by the succeeding
partnership.
Where a hall or auditorium is maintained for public entertainment,
but operatic or dramatic or other representations, plays , or perform
ances are given therein only occasionally, for example, on an average
of not exceeding twice a month, the proprietors of such hall or audi
torium do not incur special-tax liability .
The owners or agents of theatrical troupes traveling around the
country and giving performances in halls or auditoriums for which
special taxes have not been paid by the owners or lessees thereof, are
required to pay special tax under the sixth subdivision of section 3
of the act aforesaid , and may have their special-tax stamps transferred
from place to place upon application to the collector of internal
revenue. It will suffice if the owner or agent, upon entering a col
lection district, files with the collector a statement as to the theaters
and towns in which performances are to be given .
Any previous rulings inconsistent or inharmonious with the above
are revoked to that extent .
DAVID A. GATES ,
28
(T. D. 2298. )
Narcotic law.
Method to pursue in filling orders for narcotic drugs covered by the act of December 17,
1914, received through an unregistered broker from a foreign customer.
Washington, D. C., February 10, 1916.
Mr.
SIR: Your letter of February 4, requesting to be advised how an
order for narcotic drugs sent by a foreign customer to a broker who
never gets physical possession of the drugs, although they are charged
to him and the bills of lading are procured by him, can be filled , the
broker not being in a position to part with the general order sent him
and not being permitted to register and make use of official order
forms, has been received.
In reply, you are advised that under such circumstances the in
tents and purposes of the Harrison narcotic law would be observed
if the broker files with the manufacturer an affidavit to the effect that
the foreign order is a bona fide one, and gives the name and address
of the foreign customer with an accurate statement as to the kind and
quantity of narcotic drugs to be exported .
This affidavit must be filed by the manufacturer filling the order
with the official order forms already in his possession, and the ship
ment can then be handled according to customs regulations covering
the exportation of such drugs.
In every instance of this character the manufacturer who furnishes
the drugs for exportation must have on file some evidence as to the
shipment being a bona fide one, and if the affidavit referred to is not
forthcoming refuse to fill the order.
Approved :
W. G. MCADOO ,
(T. D. 2299.)
Narcotic law.
Method to be pursued by court officers in making sales of narcotic drugs and prepara
tions under attachment proceedings which come within the scope of the act of
December 17, 1914.
Washington, D. C., February 14, 1916.
INTERNAL REVENUE AGENT, New York.
SIR: In reply to your letter of January 29 , asking what method
should be pursued by a sheriff or other court officer in making sales of
29
narcotics under attachment proceedings, you are advised that such

court officer should prepare a complete inventory of all narcotic
drugs coming into his possession through court proceedings and
require the purchaser to make out a Government order form to the
insolvent concern , in order that the records of both parties will be
kept straight.
Such officers should also be advised that to dispose of any narcotic
drugs at a public sale to a person not registered under the Harrison
law is illegal, as aiding such purchaser to violate section 8 of the law.
Unused order forms belonging to an insolvent concern should be
turned over to the collector of internal revenue who issued them for
cancellation and necessary correction on his record.
Approved :
W. G. MCADOO,
(T. D. 2300.)
Income-tax act of October 3, 1913 - Decision of the Supreme Court.

QUESTION OF CONSTITUTIONALITY.
The claim that the income tax is a direct tax and outside of the sixteenth amend
ment and unconstitutional disposed of by the decision in Brushaber v . Union
Pacific Railroad Co. (T. D. 2290) . The claim that it was repugnant to the Consti
tution on account of its retroactive feature and on account of the provision for a
progressive tax also disposed of by said decision.
Washington, D. C. , March 3, 1916.
in the case of Tyee Realty Co. v. Anderson, collector, and Edwin
Thorne v. Anderson, collector, is published for the information of
internal-revenue officers and others concerned .
DAVID A. GATES ,
SUPREME COURT OF THE UNITED STATES . Nos . 393 AND 394. OCTOBER TERM, 1915.
Tyee Realty Co. , plaintiff in error, v. Charles W. Anderson, collector of internal revenue
and Edwin Thorne, plaintiff in error, v. Charles W. Anderson, collector of internal
revenue.
IN error to the District Court of the United States for the Southern District of New York.
[February 21 , 1916.]
Mr. Chief Justice WHITE delivered the opinion of the court:
Both the plaintiffs in error, the one in 393, a corporation, and the other in 394, an
individual, paid under protest to the collector of internal revenue taxes assessed
30
under the income-tax section of the tariff act of October 3, 1913 (sec . 2, ch . 16 , 38
Stat. , 166) . After an adverse ruling by the Commissioner of Internal Revenue on
appeals which were prosecuted conformably to the statute (Rev. Stat. , secs. 3220,
3226) by both the parties for a refunding to them of the taxes paid , these suits were
commenced to recover the amounts paid on the ground of the repugnancy to the
Constitution of the section of the statute under which the taxes had been collected ,
and the cases are here on direct writs of error to the judgments of the court below
sustaining demurrers to both complaints on the ground that they stated no cause of
action.
Every contention relied upon for reversal in the two cases is embraced within the
following propositions: (a) That the tax imposed by the statute was not sanctioned
by the sixteenth amendment because the statute exceeded the exceptional and lim
ited power of direct income taxation for the first time conferred upon Congress by that
amendment and, being outside of the amendment and governed solely, therefore, by
the general taxing authority conferred upon Congress by the Constitution , the tax
was void as an attempt to levy a direct tax without apportionment under the rule
established by Pollock v . Farmers ' Loan & Trust Co. ( 157 U. S. , 429; 158 U. S. , 601) .
(b) That the statute is, moreover, repugnant to the Constitution because of the pro
vision therein contained for its retroactive operation for a designated time and because
of the illegal discriminations and inequalities which it creates, including the pro
vision for a progressive tax on the income of individuals and the method provided
in the statute for computing the taxable income of corporations.
But we need not now enter into an original consideration of the merits of these
contentions because each and all of them were considered and adversely disposed of
in Brushaber v. Union Pacific Railroad Co. That case , therefore , is here absolutely
controlling and decisive . It follows that for the reasons stated in the opinion in the
Brushaber case the judgments in these cases must be and they are affirmed .
(T. D. 2301.)
Income-tax act of October 3, 1913-Decision of the Supreme Court.

1. General PROVISIONS APPLICABLE TO THE INCOME-TAX LAW.
The general provisions of law, including laws in relation to collection and refund
of taxes, are applicable to the income-tax law.
2. SECTION 3224 , REVISED STATUTES .
The provisions of section 3224, Revised Statutes, forbid a suit to restrain the
assessment or collection of internal-revenue taxes.
3. INJUNCTION ON ACCOUNT OF UNCONSTITUTIONALITY .
A suit to enjoin the assessment of collection of a tax because of alleged unconsti
tutionality of the statute not allowable .
4. CONTENTION OF COMPLAINANT WITHOUT MERIT.
The contention that this case comes within the exception on account of the
equities is without merit.
5. DECISION OF LOWER COURTS AFFIRMED .
The decision of lower courts dismissing complaint are affirmed . (T. D. 1983;
T. D. 2142.)
Washington, D. C., March 3, 1916.
in the case of Dodge v . Osborn , Commissioner of Internal Revenue,
31
is published for the information of internal-revenue officers and

others concerned.
DAVID A. GATES ,
SUPREME COURT OF THE UNITED STATES . No. 396. OCTOBER TERM, 1915.
John F. Dodge and Horace E. Dodge, appellants, v. William H. Osborn, Commissioner

of Internal Revenue.
APPEAL from the Court of Appeals of the District of Columbia.
[February 21 , 1916. ]
The appellants filed their bill in the Supreme Court of the District of Columbia
against the Commissioner of Internal Revenue to enjoin the assessment and collection
of the taxes imposed by the income-tax section of the tariff act of October 3, 1913
(38 Stat. , 166 , 181 ) , and especially the surtaxes therein provided for, on the ground
that the statute was void for repugnancy to the Constitution of the United States.
The case is here on appeal from the judgment of the court below affirming the action
of the trial court in sustaining a motion to dismiss the complaint for want of jurisdic
tion, because the complainants had an adequate remedy at law and because of the
provision of section 3224, Revised Statutes , that " no suit for the purpose of restraining
the assessment or collection of any tax shall be maintained in any court."
We at once put out of view a contention that section 3224 is not applicable to taxes
imposed by the income-tax law, since we are clearly of the opinion that it is within
the contemplation of paragraph L of the act, which provides
That all administrative , special , and general provisions of law, including the laws
in relation to the assessment, remission, collection, and refund of internal-revenue
taxes not heretofore specifically repealed and not inconsistent with the provisions
of this section , are hereby extended and made applicable to all the provisions of this
section and to the tax herein imposed .
And for the same reason we do not further notice a contention as to the inappli
cability of sections 3220, 3226 , and 3227 , to which effect was given by the court below
requiring an appeal to the Commissioner of Internal Revenue after payment of a tax
claimed to have been erroneously or illegally assessed and collected and upon his
refusal to return the sum paid giving a right to sue for its recovery.
The question for decision , therefore, is whether the sections of the Revised Statutes
referred to are controlling as to the case in hand . The plain purpose and scope of
the sections are thus stated in Snyder v . Marks (109 U. S. , 189 , 193–194) , a suit brought
to enjoin the collection of a revenue tax on tobacco:
The inhibition of section 3224 applies to all assessments of taxes, made under color
of their offices, by internal revenue officers charged with general jurisdiction of the
subject of assessing taxes against tobacco manufacturers. The remedy of a suit to
recover back the tax after it is paid is provided by statute, and a suit to restrain its
collection is forbidden . The remedy so given is exclusive, and no other remedy
can be substituted for it. * * * Cheatham v. United States (92 U. S. , 85, 88),
and again in State Railroad Tax Cases (92 U. S. , 575, 613), it was said by this court,
that the system prescribed by the United States in regard to both customs duties and
internal-revenue taxes, of stringent measures , not judicial, to collect them, with
appeals to specified tribunals, and suits to recover back moneys illegally exacted
was a system of corrective justice intended to be complete, and enacted under the right
belonging to the Government to prescribe the conditions on which it would subject
itself to the judgment of the courts in the collection of its revenues. In the exercise
of that right, it declares, by section 3224, that it officers shall not be enjoined from
32
collecting the tax claimed to have been unjustly assessed, when those officers, in the
course of general jurisdiction over the subject matter in question, have made the
assignment (assessment) and claim that it is valid.
And this doctrine has been repeatedly applied until it is no longer open to question
that a suit may not be brought to enjoin the assessment or collection of a tax because
of the alleged unconstitutionality of the statute imposing it. Shelton v . Platt ( 139
U. S. , 591) ; Pittsburgh, etc. , Railway v. Board of Public Works (172 U. S. , 32) ; Pacific
Whaling Co. v. United States ( 187 U. S. , 447, 451 , 452).
But it is contended that this doctrine has no application to a case where wholly
independent of any claim of the unconstitutionality of the tax sought to be enjoined ,
additional equities sufficient to sustain jurisdiction are alleged , and this, it is asserted,
being such a case, falls within the exception to the general rule. But conceding for
argument's sake only the legal premise upon which the contention rests, we think
the conclusion that this case falls within such exception is wholly without merit,
since after an examination of the complaint we are of the opinion that no ground for
equitable jurisdiction is alleged . It is true the complaint contains averments that
unless the taxes are enjoined many suits by other persons will be brought for the
recovery of the taxes paid by them, and also that by reason of section 3187 , Revised
Statutes, making the tax a lien on plaintiffs' property the assessment of the taxes
would constitute a cloud on plaintiffs ' title. But these allegations are wholly inade
quate under the hypothesis which we have assumed solely for the sake of the argu
ment, to sustain jurisdiction , since it is apparent on their face they allege no ground
for equitable relief independent of the mere complaint that the tax is illegal and
unconstitutional and should not be enforced -allegations which if recognized as a
basis for equitable jurisdiction would take every case where a tax was assailed because
of its unconstitutionality out of the provisions of the statute and thus render it nuga
tory, while it is obvious that the statute plainly forbids the enjoining of a tax unless
by some extraordinary and entirely exceptional circumstance its provisions are not
applicable.
· There is a contention that the provisions requiring an appeal to the Commissioner
of Internal Revenue after payment of the taxes and giving a right to sue in case of
his refusal to refund are wanting in due process and therefore there is jurisdiction.
But we think it suffices to state that contention to demonstrate its entire want of merit.
Affirmed .
(T. D. 2302.)
Income-tax act of October 3, 1913 -Decision ofthe Supreme Court.

1. JURISDICTION.
There is no jurisdiction to entertain a suit brought to restrain collection of a tax.
2. MERITS OF THE CASE.
The contentions urged concerning the unconstitutionality of the law and of the
income taxes were disposed of adversely in Brushaber v . Union Pacific Railroad Co.
(T. D. 2290.)
in the case of Dodge v. Brady, collector, is published for the informa
tion of internal-revenue officers and others concerned .
DAVID A. GATES ,
33
SUPREME COURT OF THE UNITED STATES. No. 213. OCTOBER TERM, 1915.
John F. Dodge and Horace E. Dodge, appellants, v . James J. Brady, collector of

internal revenue.
APPEAL from the District Court of the United States for the Eastern District of Michigan.
[February 21, 1916. ]

The appellants are the same persons who sued in Dodge v. Osborn, just decided.
After the dismissal of that suit by the Supreme Court of the District of Columbia for
want of jurisdiction the parties, on June 10, 1914, filed their bill in the court below
against the collector of internal revenue to enjoin the collection of the surtaxes assessed
against them which were disputed in the previous case on substantially the same
grounds alleged in the complaint in that case. The bill alleged , however, that plain
tiffs had filed with the collector " an appeal or claim for the remission and abatement
of the surtaxes " because of the unconstitutionality of the statute imposing them and
that the Commissioner of Internal Revenue, to whom the claim had been forwarded by
the collector, had such protest under advisement. Upon the filing of the bill the
plaintiffs moved for a preliminary injunction which was denied July 29, 1914. On
the same day by leave of court a supplemental bill was filed which alleged that since
the filing of the original bill the Commissioner of Internal Revenue had ruled adversely
upon plaintiffs ' protest and that thereupon they had paid the surtaxes to the collector
under protest, and they prayed a recovery of the amount paid to the collector and for
the other relief asked in the original bill. The defendant moved to dismiss the bill
for want of jurisdiction because the suit was brought to enjoin the collection of a tax
contrary to the provisions of section 3224 , Revised Statutes, and for want of equity
because the income-tax law was constitutional and valid . The court sustained the
motion on the latter ground and dismissed the bill on the merits , and the case is here
on direct appeal because of the constitutional questions .
The Government insists that the court below was without jurisdiction to decide the
merits, and we come first to that question . It is apparent if the original bill alone is
taken into view that the suit was brought to enjoin the collection of a tax and the court
was without jurisdiction for the reasons stated in the previous case . And it is argued
by the Government that there was no jurisdiction under the supplemental bill, since
it fails to allege that an appeal was taken to the Commissioner of Internal Revenue
after the payment of the taxes and that he refused to refund them and therefore fails
to allege a compliance with the conditions imposed by sections 3220 and 3226 of the
Revised Statutes as prerequisites to a suit to recover taxes wrongfully collected . But
broadly considering the whole situation and taking into view the peculiar facts of the
case, the protest of the commissioner and his exertion of authority over it, and his
adverse ruling upon the merits of the tax, thereby passing upon every question which
he would be called upon to decide on an appeal for a refunding of the taxes paid , we
think that this case is so exceptional in character as not to justify us in holding that
reversible error was committed by the court below in passing upon the case upon its
merits, thus putting an end to further absolutely useless and unnecessary controversy.
We say useless and unnecessary, because on the merits all the contentions urged by
the appellants concerning the unconstitutionality of the law and of the surtaxes which
it imposes have been considered and adversely disposed of in Brushaber v. Union
Pacific Railroad Co.
Judgment affirmed .
24433°--VOL 18-16- -3
34
(T. D. 2303.)
Income-tax act of October 3, 1913-Decision of Supreme Court.
1. STOCKHOLDER ENJOINING PAYMENT OF TAX BY CORPORATION.

The decision in the case of Brushaber v. Union Pacific Railroad Co. (T. D. 2290)
is controlling .
2. THE SIXTEENTH AMENDMENT.
The provisions of the sixteenth amendment conferred no new power of taxa
tion, but simply prohibited the previous complete and plenary power of income
taxation possessed by Congress from the beginning from being taken out of the
category of indirect taxation , to which it inherently belonged , and being placed
in the category of direct taxation subject to apportionment.
3. MINING CORPORATIONS .
The tax on the product of a mine is not a tax upon property as such because of
its ownership, but a true excise levied on the results of the business of carrying
on mining operations.
4. JUDGMENT AFFIRMED .
The judgment of the United States District Court affirmed .
in the case of Stanton v. Baltic Mining Co. is published for the infor
mation of internal-revenue officers and others concerned .
DAVID A. GATES,
SUPREME COURT OF THE UNITED STATES . No. 359. OCTOBER TERM, 1915.
John R. Stanton, appellant, v . Baltic Mining Company et al.

APPEAL from the District Court of the United States for the District of Massachusetts.
[February 21, 1916. ]

As in Brushaber v. Union Pacific Railroad Co. , this case was commenced by the
appellant as a stockholder of the Baltic Mining Co. , the appellee, to enjoin the volun
tary payment by the corporation and its officers of the tax assessed against it under
the income-tax section of the tariff act of October 3, 1913 ( 38 Stat. , 166 , 181 ) . As the
grounds for the equitable relief sought in this case so far as the question of jurisdiction
is concerned are substantially the same as those which were relied upon in the Brush
aber case, it follows that the ruling in that case upholding the power to dispose of
that controversy is controlling here and we put that subject out of view.
Further, also like the Brushaber case, this is before us on a direct appeal prosecuted
for the purpose of reviewing the action of the court below in dismissing on motion
the bill for want of equity.
The bill averred " that under and by virtue of the alleged authority contained in
said income-tax law, if valid and constitutional , the respondent company is taxable
at the rate of 1 per cent upon its gross receipts from all sources, during the calendar
35
year ending December 31, 1914, after deducting (1) its ordinary and necessary ex
penses paid within the year in the maintenance and operation of its business and
properties, and ( 2 ) all losses actually sustained within the year and not compensated
by insurance or otherwise, including depreciation arising from depletion of its ore
deposits to the limited extent of 5 per cent of the ' gross value at the mine of the output,
during said year. " It was further alleged that the company would , if not restrained,
make a return for taxation conformably to the statute and would pay the tax upon
the basis stated without protest, and that to do so would result in depriving the com
plainant as a stockholder of rights secured by the Constitution of the United States
as the tax which it was proposed to pay without protest was void for repugnancy to
that Constitution . The bill contained many averments on the following subjects
which may be divided into two generic classes : (a) Those concerning the operation
of the law in question upon individuals generally and upon other than mining cor
porations and the discrimination against mining corporations which arose in favor
of such other corporations and individuals by the legislation, as well as discrimination
which the provisions of the act operated against mining corporations because of the
separate and more unfavorable burden cast upon them by the statute than was placed
upon other corporations and individuals—averments all of which were obviously
made to support the subsequent charges which the bill contained as to the repugnancy
of the law imposing the tax to the equal protection, due process, and uniformity
clauses of the Constitution . And (b ) those dealing with the practical results on the
company of the operation of the tax in question evidently alleged for the purpose of
sustaining the charge which the bill made that the tax levied was not what was deemed
to be the peculiar direct tax which the sixteenth amendment exceptionally author
ized to be levied without apportionment and of the resulting repugnancy of the tax
to the Constitution as a direct tax on property because of its ownership levied without
conforming to the regulation of apportionment generally required by the Constitution
as to such taxation.
We need not more particularly state the averments as to the various contentions in
class (a), as their character will necessarily be made manifest by the statement of the
legal propositions based on them which we shall hereafter have occasion to make. As
to the averments concerning class ( b) , it suffices to say that it resulted from copious
allegations in the bill as to the value of the ore body contained in the mine which the
company worked and the total output for the year of the product of the mine after
deducting the expenses, as previously stated , that the 5 per cent deduction permitted
by the statute was inadequate to allow for the depletion of the ore body, and therefore
the law to a large extent taxed not the mere profit arising from the operation of the
mine, but taxed as income the yearly product which represented to a large extent the
yearly depletion or exhaustion of the ore body from which during the year ore was
taken . Indeed , the following alleged facts concerning the relation which the annual
production bore to the exhaustion or diminution of the property in the ore bed must be
taken as true for the purpose of reviewing the judgment sustaining the motion to
dismiss the bill.
That the real or actual yearly income derived by the respondent company from its
business or property does not exceed $550,000 ; that, under the income tax, the said
company is held taxable, in an average year, to the amount of approximately
$1,150,000, the same being ascertained by deducting from its net receipts of $1,400,000
only a depreciation of $ 100,000 on its plant and a depletion of its ore supply limited
by law to 5 per cent of the value of its annual gross receipts and amounting to $150,000;
whereas, in order properly to ascertain its actual income, $750,000 per annum should
be allowed to be deducted for such depletion, or five times the amount actually
allowed.
Without attempting minutely to state every possible ground of attack which might
be deduced from the averments of the bill , but in substance embracing every material
grievance therein asserted and pressed in argument upon our attention in the elaborate
36
briefs which have been submitted , we come to separately dispose of the legal propo
sitions advanced in the bill and arguments concerning the two classes .
Class A. - Under this the bill charged that the provisions of the statute "are uncon
stitutional and void under the fifth amendment, in that they deny to mining com
panies and their stockholders equal protection of the laws and deprive them of their
property without due process of law, " for the following reasons:
(1) Because all other individuals or corporations were given a right to deduct a fair
and reasonable percentage for losses and depreciation of their capital and they were
therefore not confined to the arbitrary 5 per cent fixed as the basis for deductions by
mining corporations.
(2) Because by reason of the differences in the allowances which the statute per
mitted the tax levied was virtually a net income tax on other corporations and indi
viduals and a gross income tax on mining corporations.
(3) Because the statute established a discriminating rule as to individuals and other
corporations as against mining corporations on the subject of the method of the allow
ance for depreciations.
(4) Because the law permitted all individuals to deduct from their net income
dividends received from corporations which had paid the tax on their incomes and
did not give the right to corporations to make such deductions from their income of
dividends received from other corporations which had paid their income tax . This
was illustrated by the averment that 99 per cent of the stock of the defendant com
pany was owned by a holding company and that under the statute not only was the
corporation obliged to pay the tax on its income , but so also was the holding
company obliged to pay on the dividends paid it by the defendant company.
(5) Because of the discrimination resulting from the provision of the statute pro
viding for a progressive increase of taxation or surtax as to individuals and not as to
corporations.
(6) Because of the exemptions which the statute made of individual incomes below
$4,000 and of incomes of labor organizations and various other exemptions which
were set forth .
But it is apparent from the mere statement of these contentions that each and all
of them were adversely disposed of by the decision in the Brushaber case, and they
all , therefore, may be put out of view.
Class B. -Under this class these propositions are relied upon:
(1) That as the sixteenth amendment authorizes only an exceptional direct income
tax without apportionment, to which the tax in question does not conform , it is there
fore not within the authority of that amendment.
(2) Not being within the authority of the sixteenth amendment, the tax is there
fore, within the ruling of Pollock v . Farmers ' Loan & Trust Co. ( 157 U. S. , 429 ; 158
U. S. , 601) , a direct tax and void for want of compliance with the regulation of appor
tionment.
As the first proposition is plainly in conflict with the meaning of the sixteenth
amendment as interpreted in the Brushaber case, it may also be put out of view.
As to the second , while indeed it is distinct from the subjects considered in the
Brushaber case to the extent that the particular tax which the statute levies on min
ing corporations here under consideration is distinct from the tax on corporations other
than mining and on individuals, which was disposed of in the Brushaber case, a
brief analysis will serve to demonstrate that the distinction is one without a differ
ence, and therefore that the proposition is also foreclosed by the previous ruling.
The contention is that as the tax here imposed is not on the net product but in a
sense somewhat equivalent to a tax on the gross product of the working of the mine
by the corporation, therefore the tax is not within the purview of the sixteenth
amendment, and consequently it must be treated as a direct tax on property because
of its ownership, and as such void for want of apportionment. But aside from the
obvious error of the proposition intrinsically considered , it manifestly disregards the
37
fact that by the previous ruling it was settled that the provisions of the sixteenth
amendment conferred no new power of taxation, but simply prohibited the previous
complete and plenary power of income taxation possessed by Congress from the
beginning from being taken out of the category of indirect taxation to which it inher
ently belonged and being placed in the category of direct taxation subject to apportion
ment by a consideration of the sources from which the income was derived ; that is,
by testing the tax not by what it was-a tax on income-but by a mistaken theory
deduced from the origin or source of the income taxed . Mark, of course, in saying
this we are not here considering a tax not within the provisions of the sixteenth
amendment—that is, one in which the regulation of apportionment or the rule of
uniformity is wholly negligible because the tax is one entirely beyond the scope of the
taxing power of Congress and where, consequently, no authority to impose a burden,
either direct or indirect, exists . In other words, we are here dealing solely with the
restriction imposed by the sixteenth amendment on the right to resort to the source
whence an income is derived in a case where there is power to tax for the purpose of
taking the income tax out of the class of indirect, to which it generically belongs,
and putting it in the class of direct, to which it would not otherwise belong, in order
to subject it to the regulation of apportionment. But it is said that although this be
undoubtedly true as a general rule, the peculiarity of mining property and the
exhaustion of the ore body which must result from working the mine causes the tax
in a case like this, where an inadequate allowance by way of deduction is made for
the exhaustion of the ore body, to be in the nature of things a tax on property
because of its ownership, and therefore subject to apportionment. Not to so hold, it
is urged, is as to mining property but to say that mere form controls, thus rendering
in substance the command of the Constitution that taxation directly on property
because of its ownership be apportioned , wholly illusory or futile . But this merely
asserts a right to take the taxation of mining corporations out of the rule established
by the sixteenth amendment when there is no authority for so doing. It moreover
rests upon the wholly fallacious assumption that, looked at from the point of view
of substance, a tax on the product of a mine is necessarily in its essence and nature
in every case a direct tax on property because of its ownership unless adequate allow
ance be made for the exhaustion of the ore body to result from working the mine.
We say wholly fallacious assumption because, independently of the effect of the
operation of the sixteenth amendment, it was settled in Stratton's Independence v.
Howbert (231 U. S. , 399) that such a tax is not a tax upon property as such because
of its ownership, but a true excise levied on the results of the business of carrying
on mining operations (pp . 413 et seq .) .
As it follows from what we have said that the contentions are in substance and
effect controlled by the Brushaber case and in so far as this may not be the case are
without merit, it results that for the reasons stated in the opinion in that case and
those expressed in this, the judgment must be and it is affirmed.
(T. D. 2304.)
Narcotic law.
Exemption of certain public officials-Manner of ordering or prescribing narcotic

drugs by such exempt officials.
To collectors of internal revenue and others concerned:
Any official of the Federal Government, or of a State, county, or
municipal government requiring the use of, or prescribing in his
38
official capacity, any of the narcotic drugs coming within the scope
of the act of December 17, 1914 , is exempt from registration and
payment of special tax under the provisions of that act.
Opium, coca leaves, or any compound, manufacture, salt, deriva
tive, or preparation thereof, required by such officers in the discharge
of their official duties, should be ordered on the official stationery
of the department, bureau, or municipality under which such officers
are employed , and these orders should be signed with the full name
of the official, followed by his title and the department of the Federal,
State, county, or municipal government under authority of which he
acts.
When an exempt official prescribes, in his official capacity, any
narcotic drugs covered by the law, his prescription should be written
on an official prescription blank, if such blanks are provided by the
department of which he is an official, and the name and address of the
patient, and the name and title of the official, as above indicated,
inserted therein .
Great care should be exercised by such exempt officials to prevent
the narcotic drugs obtained or prescribed in the manner herein
described from falling into the hands of unauthorized persons, and
to see that they are used only for official purposes.
In order to facilitate the strict enforcement of this law, exempt
officials in charge of narcotic drugs should keep accurate records of
the amounts and quantities of such drugs purchased and dispensed ,
and have such records available for inspection by internal-revenue
officers ,
Where the exempt official, if a medical officer, is also engaged in
private practice outside of his official duties , the exemption herein
specified would not apply to this portion of his practice , and he would
be required to register, and in all other respects comply with the
provisions of the law and regulations governing such practice.
Dealers who supply narcotic drugs to the exempt officials referred
to herein, should require that such orders and prescriptions be
written on the official stationery, and that the title of the persons
signing same is shown as indicated . Such orders and prescriptions
should be filed with the regular narcotic orders and prescriptions
required under the provisions of the Harrison narcotic law.
DAVID A. GATES,
Approved March 6 , 1916 :
W. G. McADOO ,
39
(T. D. 2305.)
Denatured alcohol.
Two or more withdrawal permits may be issued under bond on Form 582A.
COLLECTOR FIFTH DISTRICT, Newark, N. J.
SIR : This office is in receipt of a letter from the " in the mat
ter of obtaining specially denatured alcohol under the company's
bond (Form 582A) , and requesting, in view of the fact that such
alcohol may be obtained from different sources, that several with
drawal permits (Form 670) be issued.
As the bond in question is so conditioned as to enable the maker to
obtain alcohol from any denaturing bonded warehouse or bonded
storeroom , this office sees no objection to the issuing of two or more
withdrawal permits in such cases, provided such permits do not
exceed in the aggregate the quantity of alcohol covered by the bond.
Where, however, renewal permit is called for in such cases, the same
should not , of course, exceed the quantity covered by the permit
previously issued and returned for cancellation, nor should renewal
permits be issued unless the available balance on the outstanding
bond (to be ascertained as provided in article 78 of Regulations 30)
warrants the issuing of such new permits.
Inasmuch as the receipt and use of alcohol in such cases are cov
ered by one bond , the spirits, whether received from one source or
various sources, will be treated as a whole, and separate accounts of
alcohol received from such various sources will not be necessary in
preparing the manufacturer's monthly report (Form 567) .
All permits issued to such manufacturers should have the manu
facturer's registered number entered thereon .
Approved :
BYRON R. NEWTON,
Acting Secretary of the Treasury.
(T. D. 2306.)
Emergency revenue law-Decision of court.

1. SPECIAL TAX ON BANKERS CONSTITUTIONAL .
The special tax on bankers is constitutional . The words " capital used or em
ployed " necessarily limit the tax to a special license or excise tax.
2. CAPITAL EMPLOYED .
Whether a given banker uses or employs any capital or the amount of it is a
question of fact to be found as any other fact.-Decision in Central Trust Co. v.
40
Treat ( 171 Fed . , 301) and Treat v . Farmers ( 185 Fed ., 760) not applicable. The
character of the investments has no bearing upon the question of amount invested .
Impossible to hold as a matter of law that the capital , surplus, or undivided profits
of a bank can be segregated from its other assets.
3. NONSUIT.
Facts in evidence stated and the motion to take off the nonsuit denied .
The appended decision of the United States District Court for the
Eastern District of Pennsylvania in the case of the Real Estate
Title, Insurance and Trust Company v. Lederer, collector, is pub
lished for the information of internal-revenue officers and others
concerned.
W. H. OSBORN,
DISTRICT COURT OF THE UNITED STATES , EASTERN DISTRICT OF PENNSYLVANIA.

No. 3646.
The Real Estate Title, Insurance and Trust Company v . Ephraim Lederer, collector of
internal revenue for the First District of Pennsylvania.
SUR motion to take off nonsuit.
In ruling upon the present motion all other questions than the three following may
be deemed to have been eliminated by agreement:
(1) The constitutionality of the act of Congress of October 22, 1914.
(2) The amount of capital which the plaintiff " uses or employs in its banking
business."
(3) The right of the plaintiff to have this second question submitted to a jury.
Of these, in their order. The constitutional question raised is one which has been
so fully discussed and considered in the cases already ruled that nothing more is
called for than a statement of the conclusions reached . The point made on behalf of
the plaintiff is that the tax which was collected is a direct tax upon its property
imposed upon plaintiff merely because of its ownership . If the tax is such a tax, the
act of Congress which imposes it is admittedly void . The whole argument which
makes for the unconstitutionality of the act is summed up in the asservation that the
principle upon which the Pollock case in 158 United States, 601, was ruled con
demns it. The ruling in that case was that a tax on the income derived from property
merely because of its ownership is a tax on the property and, in consequence, a direct
tax, and whether an act of Congress levied such direct tax was to be determined by
what the act did, not by what name the tax bore in the phraseology of the act. The
application of the principle to the present act is based upon the averment that what
this act does is to levy a tax upon the plaintiff in proportion to the value of its property
merely because of its ownership of property to that value and that this is a direct tax
upon property. The argument admits the power of Congress to impose a special
license tax for what may be termed the privilege of engaging in any profession, calling,
occupation, or business and to determine the amount to be paid either by the imposi
tion of an arbitrary sum or by the number of transactions had in a given time, or by
the volume of the business or the product, or by the nominal capital employed, or in
41
any way which is not the equivalent of a tax on the assessed value of what the tax
payer owns . The argument might further concede that a lawful tax could be imposed
upon a corporation engaged in the banking business with the license fee regulated in
amount by the nominal capital of the corporation to which its nominal surplus might
be added . When, however, its undivided profits are included the tax is at once
switched from an excise basis to a direct property-tax basis. The thought may per
haps be most clearly presented by assuming (although this involves an almost absolute
contradiction in terms) a corporation with all its assets employed in banking and hav
ing no liabilities . The tax imposed by this act would not differ in amount from a like
tax imposed directly upon the property of the corporation assessed at the valuation
which the corporation had itself placed upon its property.
The argument in support of the constitutionality of the act is in turn summed up
in the answer to the propositions thus advanced . It is that the Pollock case clearly
distinguishes between incomes which are derived from the profession, calling , or
business in which the taxpayer may be engaged , and the income which is derived
from property solely by reason of his ownership of it and gives recognition to a tax
on the former as an excise tax. The same distinction holds good between a special
license and a direct property tax. It is denied that what this act does is to tax prop
erty as such. On the contrary, what it does is to levy a special license tax upon one
engaged in a particular business because of the privilege he is exercising . If it be
true that the amount paid is the same as would have been paid had all the property
of the taxpayer been taxed on an assessed value basis this is merely incidental and
in a sense accidental and does not indicate the identity of the two things done. The
amount of the excise exacted is based upon the extent to which the taxpayer avails
himself of his privilege. This is assumed (as it can fairly be assumed) to be measured
by the amount of the capital which he has employed in the business. This capital is
fairly defined by the amount of his own money which he employs in the business
and this, in turn, is defined by all there is in the business less what belongs to creditors.
It, of course, happens that if a man employs his whole fortune as such capital the
license fees he pays exactly equal what he would pay if a like direct tax were imposed
upon the value of such fortune, but such likeness is no other, nor has it more signifi
cance than the equality in volume or bulk between two entirely different things
which have been subjected to the same measure . The words, " capital used or em
ployed," necessarily limit the tax to a special license or excise tax and exclude any
possible direct tax and were inserted for that purpose. The conclusion reached is
that the act is constitutional .
As the constitutionality of the act thus turns upon the amount of capital used or
employed , strict adherence must be given to this measure . This brings us to the
second question . The difficulties which may be encountered in seeking to get a
clear view of this branch of the case are due to failing to distinguish between the
economic and the legal features of the questions. The thought voiced in the phrase
that a man may be engaged in banking without employing his entire capital in that
business is intelligible and lends itself to easy grasp notwithstanding the fact that he is
responsible for all obligations incurred and the business in consequence has the credit
given by his whole fortune . The same thought may be transferred to a corporation
without losing in clearness. Indeed , banks and trust companies afford us a practical
illustration of the difference between capital employed and a credit thus given
which, in the economic sense, is doubtless additional capital . All of them may
have, and we know some of them do have, behind them the added credit of the
personal liability of stockholders . No one, however, would think of adding this to
the capital used or employed in the legal sense of these words. It is conceivable
that the banking business may be carried on without any capital in the sense in which
the words " capital, surplus, and undivided profits " are used in this act. We have
many living proofs of this inthe plan of organization of savings banks. Indeed , this
42
very act gives congressional recognition of the existence of such institutions. This
phase of the question may be dismissed with the remark that whether a given banker
(whether a natural person or a corporation) uses or employs any capital or the amount
of it is a question of fact to be found as is any other fact. Inasmuch as all practical ,
and indeed , possible, profitable banking, involves the thought of all moneys, not
required to make settlement with its customers, be kept invested , it is very difficult
to grasp the significance of the thought intended to be conveyed by a statement of
the fact that the moneys of the bank are invested . And further, inasmuch as a bank
(unless restricted by law to special forms of investment) may invest its moneys as
it pleases, it is more difficult to see any room for difference of liability to the payment
of the excise tax between bankers, one of whom invests his moneys in municipal
bonds and another who invests in commercial paper or any other form of lawful in
vestment. If any question were raised here of whether this plaintiff was a banker
within the meaning of this act, what he did would , of course, bear upon what he was,
but this act contains its own definition of a banker, and it is admitted the plaintiff
is one. This admission would seem to carry with it that what plaintiff did was bank
ing and to have no other significance than the other fact that it did other things besides
banking. What, if any, of its capital is employed in banking again is a fact to be
found and will be considered in connection with the third question . The final
stand taken by the plaintiff upon what is really its chosen ground of defense is based
upon a distinction which is more difficult to keep clear than the others . This plain
tiff is in the strongest possible position to urge this defense. It has consistently
treated itself as a trustee for depositors in its banking department and has scrupu
lously kept a sum equal to its aggregate of deposits as entirely separate from its other
moneys as a trustee could keep the moneys of his cestqui que trustent separate from
his own moneys . It has likewise kept a sum equal to the aggregate of its capital and
surplus invested in chosen securities which it has called " capital investments " or
by an equivalent name. Based upon these facts it lays claim to the benefit of the
principle of exemption from taxation which it asserts to have been applied in the
cases of Central Trust Co. v. Treat (171 Fed . , 301) and Treat v . Farmers ( 185 Fed . , 760) .
If the principle there applied is as broad as it is claimed to be and can be upheld
as law and is applicable it undoubtedly rules the present case in favor of the plaintiff.
It is confidently asserted that the rule established by these cases is that if the moneys
received from depositors are kept separate from the other moneys of the bank and are
invested in securities which are likewise kept separate from the other investments
of the bank and no more in amount of the moneys of the bank are invested in commer
cial paper by discount or purchase than is represented by the investments made of
deposit moneys, the other moneys of the bank being invested in so-called permanent
(whatever this may mean) forms of investment, then the legal inference is that no
part of the capital of the bank is invested in banking except the sums which may have
been spent for a banking house or banking fixtures and the like. We do not understand
any such principle to be deducible from the rulings in the cited case. There are,
it is true, some expressions in the opinions accompanying the rulings which supply
plausible support to the argument of counsel for plaintiff. As has been often remarked ,
however, opinions are to be read in the light of the facts of the case to which they
relate . The cited case was decided as a case stated , the facts being stipulated . It,
moreover, arose under a different act of Congress . The agreed fact was that the
capital of the bank in that case was invested in securities which had no relation to
banking and that all the funds of the bank which were in any way used or employed
in banking were moneys belonging to depositors and that no part of the capital or
surplus of the bank was so used or employed . It was no part of the duty of the court,
indeed it was powerless, to change the effect of the stipulation. The agreed fact
being that the banking business was carried on without any capital being employed
the court could not do otherwise than rule that no tax was payable. This is a very
43
different thing from ruling as a matter of law that if some of the moneys of a bank were
invested in commercial paper and some in other forms of investment, and if the
aggregate investments in commercial paper do not exceed the aggregate sum owing
to depositors, no part of its capital is used or employed in banking . There are at least
two seemingly unsurmountable obstacles in the way reaching such a conclusion.
One is how the character of the investments in which the banker puts his money can
make any difference .
As already observed , what he did might go to the question of whether he was a
banker if that were an open question . If he were a private individual what he did
with his money might have an important bearing upon the question next discussed
of the evidence of the fact of what he had put into the banking business. It must
be, however, that granted one is a banker and has money in the banking business
the character of the investments he makes of these moneys can have no bearing upon
the question of the amount of capital he has invested in that business. The other
obstacle is the utter impossibility of its being held as a matter of law that the capital,
surplus, or undivided profits of a bank either separately or in a lump sum can be
segregated from its other assets and identified as such . The loose phrases in common
use which might seem to imply such a possibility it is well understood do not. A
bank or trust company might be said to have invested its surplus in the erection of
a banking house or an office building . Everyone understands that all that is meant
by this is that it has so invested a sum equal to a certain part of its estimated accu
mulated profits . Surplus and kindred words are nothing more than banking expres
sions. It is certainly clear that in no legal sense can either capital or surplus be ear
marked as a concrete thing. The answer to the retort of counsel that "this company
plaintiff not only can do it but has done it " is an obvious one.
This brings us to the final question, Should the case have been submitted to the
jury to find the fact of how much capital the plaintiff used or employed in its banking
business? We have deferred certain features of the second question to be discussed
in connection with this. There are certain questions which provoke the comment
that they are mixed questions of law and fact. The expression is of more seeming
than real clarity. A more clarifying and helpful classification of facts is into eviden
tial and ultimate facts—meaning facts which can be directly established by testi
mony or evidence and facts which can only be deduced by inference from such
evidential facts. Evidential facts, if not in controversy, must be found by a jury
if the case is a jury case. Ultimate facts need not be so submitted if only one infer
ence can fairly and reasonably be drawn . When this case was called for trial it was
stated by counsel that the question involved was probably a question of law as the
facts were not in dispute. This meant that the trial judge should direct a verdict
for plaintiff or defendant. In the judgment of the trial judge this would have been
a proper disposition of the case. At the close of the plaintiff's case the defendant
moved for a nonsuit . The logic of the argument seemed to be good , that if the
plaintiff was not entitled to a verdict it had failed to make out a case and could prop
erly be nonsuited . A nonsuit was accordingly awarded . Plaintiff is in consequence
entitled to every inference which can fairly and reasonably be drawn from the facts
in evidence.
A recapitulation of them involves some repetition, but seems to be helpful to the dis
position of the case : (1) The plaintiff was not only engaged in the banking business,
but in the title insurance and other kinds of business unnecessary to enumerate; (2) it
kept, as already stated , the funds it received from depositors separate from its other
moneys; (3) some of its funds which it called its capital investments were invested in
real estate and other investments of a less mobile character than investments which are
commonly termed " liquid ; " (4) the moneys which it received from depositors it in
vested in securities which, in its judgment, were more readily and easily convertible
without loss into what is called cash ; (5) the investments which are classified as 4 were
44
kept separated from its other investments; (6 ) it kept its accounts in such a way as to
show, and from time to time made up and put out statements of its financial condition
by which it appeared that it possessed assets consisting of cash on hand , obligations of
borrowers, shares of stock and bonds of corporations, bonds and mortgages, ground
rents , real estate, and other property of a given aggregate supposed value (as well as
like property held by it as collateral) and showing also the aggregate amount of its debts
and other liabilities. This statement was balanced by including along with its liabili
ties the amount of its capital stock, its surplus, and undivided profits. The latter was
the equivalent of the balance of its profit and loss account. The aggregate of capital,
surplus, and profits was admitted to be not less than the amount which measured the
tax it had paid and was seeking to recover back. From any one of these facts or from
all combined could it fairly and reasonably be found that the plaintiff did not use
or employ any part of its capital in banking?
This opinion has already been drawn out to such length that we do not feel called
upon to add any observations except to the three features, the fuller discussion of which
was deferred to this place. These are the facts, that the plaintiff was engaged in other
business than banking ; the fact that it invested its moneys in different forms of invest
ments, and the fact that it kept its deposited moneys and investments made of them
separate from its other moneys and investments . As already observed , if a man, say
of a fortune of $1,000,000 , were to establish himself in several different kinds of business
and were to put $100,000 into his bakery business and $100,000 into the banking busi
ness it must, we think, be conceded that as a banker he would be liable to the tax
measured only by $100,000 invested capital, notwithstanding his personal liability for
its debts. If, however, he appointed agents to run his banking business for him and
left with them all its assets and put out statements showing the amount of the capital
of that business to be $100,000 he would be liable to a tax measured by that capital not
withstanding that he had authorized his agents to also do a real estate and brokerage
business and no matter in what form of investments the moneys of the business were
kept and in spite of the fact that the moneys of the business which came from deposits
were separately entered . If the business were turned into a partnership or were incor
porated the tax would , under like conditions, be the same.
The motion to take off the nonsuit is denied.
(T. D. 2307. )
Warehousing bonds.
Additional distillery warehousing bonds and transportation and warehousing bonds

are not to be accepted as substitutes for bonds previously filed .
Attention is called to the practice of some surety companies, in
signing additional warehousing and transportation and warehousing
bonds, of writing or printing in the margin thereof a notice that such
bonds are increased bonds to those previously filed.
The purpose of these bonds is to secure the tax on any additional
spirits that may be thereafter deposited , and not secured by the
former bonds, and, as becomes necessary in some cases, to cover over
45
deposits already made. Being given for this purpose, the same are
in no sense substitute bonds , and collectors will hereafter refuse to
approve the same where any notation is made thereon intended , or
which may be construed, as canceling any former bond, or limiting
the amount of either bond for less than its full penal sum .
W. H. OSBORN,
(T. D. 2308.)
Emergency revenue law- Marriage certificates.
Under the act of October 22, 1914, marriage certificates are exempt from stamp tax .
SIR: Referring to your personal visit to this office and to your
request to be informed as to whether or not marriage certificates are
taxable, you are advised that under the act of October 22 , 1914 , such
certificates are not required to be stamped .
Respectfully,
W. H. OSBORN ,
Mr.
(T. D. 2309.)
Narcotic law.
Interpretation of section 6 of the act of December 17, 1914, supplementary to T. D.

2213 of June 7, 1915 .
Washington, D. C. , March 11 , 1916.
Section 6 of the act of Congress approved December 17, 1914 , does
not apply to extemporaneous prescriptions unless written for a prep
aration or remedy as hereinafter defined . The exemptions in that
section apply exclusively to ready-made preparations and remedies
prepared in accordance with the United States Pharmacopoeia, Na
tional Formulary, or other recognized or established formula, usually
carried in stock by a dealer and sold without a prescription , pro
vided such preparations and remedies are sold , distributed , given
away, dispensed, or possessed strictly in good faith for medicinal
46
purposes only, and not for the purpose of evading the intentions or
provisions of the act . The selling, dispensing, or possession of any
such preparation or remedy containing opium , or any alkaloid , salt,
or derivative thereof, for the purpose of satisfying or of ministering
to a drug habit is not selling or dispensing for medicinal purposes
within the intentions of the law.
Preparations and remedies within the intent of section 6 are hereby
defined to be ready-made compound mixtures prepared in accord
ance with a recognized or established formula as indicated above,
which contain not more than one of the enumerated drugs in a quan
tity not greater than that specified, together with other active medici
nal drugs in sufficient proportion to confer upon such preparations
or remedies valuable medicinal qualities other than possessed by the
narcotic drugs if dispensed alone. Simple dilutions of a narcotic
drug made by admixture with inert or nearly inert susbtances, as
sugar of milk or simple solutions of narcotic drugs in water , sirup ,
diluted alcohol, flavoring matter, etc. , are not bona fide medicinal
preparations within the meaning of the exemption .
The several alkaloids, salts , or derivatives of opium, if aggregated
in the same mixture, are not exempt. A preparation which contains
the permitted maximum quantity of any one of the alkaloids , salts ,
or derivatives, if fortified by the addition of any one of the other
named alkaloids , or of its salts or derivatives , is not a preparation or
remedy of the character contemplated by the exemption of section 6.
Preparations or remedies which come within the exemptions of
section 6 , as herein defined , may be sold with or without a prescrip
tion , which prescription may be refilled if sold wholly in good faith
for medicinal purposes only.
The refilling of a narcotic prescription for an exempted prepara
tion or remedy, as herein defined , combined with other nonnarcotic
medicinal agents , with a consequent further dilution of the mixture,
will be permitted .
W. H. OSBORN,
Approved: Commissioner of Internal Revenue.
WM. P. MALBURN ,
(T. D. 2310. )
Emergency revenue law- Conveyances -Decision ofcourt.
1. PENALTY FOR FAILURE TO AFFIX STAMPS .

A grantee, vendee, or any other person participating in the making or issuing of
a paper without revenue stamps may be required to pay the tax thereon and is liable
for failure to do so to the penalty prescribed under section 6.
47
2. TAX UPON DEEDS EXECUTED BY STATE OFFICERS NOT AN INTERFERENCE WITH

THEIR DUTIES OR OPERATION OF STATE GOVERNMENT.
This is not a direct prohibition or interference with the proceedings of the State
court, but only compels the purchaser to receive a deed bearing the proper tax in
exactly the same way as if he were purchasing from an individual. Furthermore,
it is not an indirect attempt to exercise authority over the State court's action, for
it could not interfere with, or be increased in amount so as to equal and thus wipe
out, the transfer intended , unless by the same provision all transfers of real estate
were affected in the same way, and even entirely prevented . The revenue stamp
therefore is not a limitation upon the authority of the referee, but is merely an
excise tax upon the transfer involved in the purchase.
3. REFERENCE TO FORMER DECISIONS ON THIS SUBJECT .
This decision is in accordance with the reasoning in the case of the Farmers ' Loan
& Trust Co. v. Council Bluffs Gas & Electric Light Co. ( 90 Fed . , 806) , under the
war revenue act of June 13, 1898, and Wm. W. Crawford as Trustee v . New South
Farm & Home Co. (Southern District of Florida, Oct. 7, 1915 , published in T. D.
2253) , under the act of October 22, 1914.
4. COST F STAMPS .
The cost of revenue stamps may be included in the expenses of foreclosure sale.
The appended decision of the United States District Court, Eastern
District of New York, is published for the information of internal
revenue officers and others concerned .
W. H. OSBORN ,
UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF NEW YORK.
Home Title Insurance Co. of New York v. Henry P. Keith.
[March 3, 1916.]
CHATFIELD, Judge: The plaintiff brings the present action in order to raise the
question so frequently presented in the course of the business conducted by the
various title companies in this city when deeds conveying the title to property bought
in upon a sale in foreclosure must be executed and delivered by a referee who acts by
appointment of the court and under authority of the statutes of the State, in selling
the property, receiving the consideration therefor, and delivering the deed as a part of
the foreclosure action through which the mortgagor is divested of his title to the prop
erty mortgaged, and through which that title is thereupon vested in the purchaser
free and clear of the lien in process of foreclosure.
The question has been presented in the case of Farmers' Loan & Trust Co. v. Council
Bluffs Gas & Electric Light Co. (90 Fed . , 806), under the stamp-tax law of 1898, and
in Crawford v . New South Farm & Home Co. ( So. Dist. of Fla. , Oct. 7, 1915), under
the present statute (38 Stat. L., p. 745) .
In each of these cases it was held that the property actually passed from the de
fendant or the mortgagor to the purchaser by means of the court procedure, and that
the tax was upon the business as evidenced by the paper with which that title was
transferred.
48
It was held that the tax was not upon the court process nor upon the officer of the
court, and that the duties of the officer of the court were not interfered with except
as he in his ministerial capacity was required to do something in addition to the
requirements of the foreclosure proceeding.
In other words, in each of these cases the tax was held valid, as it was in the case
of Stirneman v. Smith ( 100 Fed . , 600) , but in which the certificate of a notary was
held not to require a stamp, where he was performing the work of a referee or ex
aminer in the taking of depositions for use in court.
The plaintiff has brought an action against the collector of internal revenue in this
district to recover the amount paid for certain revenue stamps affixed by the plaintiff
to a deed given to it by a referee in foreclosure in an action in the Supreme Court of
the State of New York, in the county of Kings . The plaintiff was not a party to that
foreclosure action , but purchased the property on the sale . The referee did not affix
the stamps required by the law (act of Congress of Oct. 22, 1914, sec . 5), nor did he de
duct any amount as a part of the expenses of the sale for the purchase of these stamps,
and the plaintiff under protest procured the stamps and affixed them before recording
this deed . It then brought an action to recover the amount so paid, and the United
States by demurrer has admitted the allegations of the complaint, and raised the
question of the right in law of the plaintiff to recover if the facts be as alleged by it.
The plaintiff urges two propositions in support of its right to recover : First, that
the act in question does not make any provision requiring the vendee or grantee to
pay a stamp tax; second, that the act is unconstitutional and void, if it imposes a
tax of any kind upon the deed given by a referee in pursuance to the order and as
a part of the procedure by the State court.
Section 5 provides that there shall be levied , collected , and paid for and in respect
of the documents mentioned and described in Schedule A or for or in respect of the
paper upon which such instrument shall be written, by any person who shall make,
sign , or issue the same, or for whose use or benefit the same shall be made, signed ,
or issued, the several taxes, etc.
Section 6 imposes a penalty if a person makes, signs, issues, or causes to be made,
signed, or issued any such document or paper without the stamp denoting the pay
ment of the tax .
Section 11 provides that any person who shall register, issue, or transfer, or who
shall cause to be issued , sold , or transferred , any instrument, document, or paper
without the tax shall be guilty of a misdemeanor, etc.
The plaintiff argues that a person buying at a judicial sale is neither the party
for whose use or benefit the instrument is issued nor the party who causes it to be
issued, nor is he the party signing or issuing the same.
The penalty against failure to attach the stamp is directed , first, to the person who
fails to duly stamp, as required , the paper which must bear a stamp before it can be
recorded .
Section 6 of the law imposes the penalty upon anyone who makes , signs, or issues
that is, uses or delivers-the deed . But this does not mean that the stamp must be
attached to the paper before the paper can be signed at all . It simply places upon
each of these individuals the responsibility of being charged with a misdemeanor if
the paper is not duly stamped before its actual issuance or use, and of course the lack
of the stamp must be rectified before recording . The " or " is disjunctive as to per
sons but conjunctive as to a complete act of making, signing, and using.
Under section 8 the initials of the person using or affixing the stamp and the date
must be placed upon the stamp as a cancellation. It would not be held that a signa
ture or partial execution of the paper, followed by a subsequent affixing of the stamp,
was a failure to comply with section 6, if the stamp was properly affixed and canceled
before the paper was issued . But all persons sharing in the transaction, if the paper
is not properly stamped in time, are liable. Hence, a grantee or vendee who par
49
ticipates in the making or issuing of a paper without the proper stamp could be
charged in the criminal sense with acts equivalent to " causing " it to be issued with
out a stamp, and section 6 is not governed by the meaning of the words " caused to
be issued ," as viewed from the steps in the foreclosure suit, in order to determine
upon whose motion or by whose application the deed was issued .
The transfer of title and the paper evidencing that transfer is issued for the use
and benefit of the person who gets the title . It is issued , so far as the foreclosure
suit is concerned , because the statute requires it and as evidence of the perform
ance of the necessary steps in the action. But its delivery as a deed is solely for
the purpose of placing a marketable title in the vendee's name, and that title and
its record are for the use of the vendee within the meaning of the tax law. If any
expense is rendered necessary in the purchase or use of such stamps that could be
included by the referee in the same way that, if the referee found it necessary to use
postage stamps for the conveyance of some document by mail, he could include the
purchase of these stamps . His so doing would not impugn or impair the validity
of the law requiring the use of postage stamps. Nor does the fact that the Govern
ment requires the use of postage stamps on mail matter show that their purchase
and use by a referee would be taxable as a disbursement.
The first point must therefore be decided against the plaintiff, and it throws no
light upon the constitutional question raised under the second point . Under point
2 the plaintiff seeks to show that the statutes relating to foreclosure procedure in a
State court in conducting a foreclosure, and the actions of the officer of the State
court in carrying on the foreclosure suit, up to and including the delivery of a deed
to the purchaser, with the receipt of the money from him therefor, are all operations
of the State in the exercise of its legal rights as an independent sovereignty with
respect to matters which have not been delegated by the several States to the
Federal Government, and it is contended that they are therefore not taxable by
the Federal Government in any form or guise whatever.
This argument is presented in two forms, first, as illustrated by the inability of
the Federal Government to impose a tax upon State salaries or the activities of the
State per se. Collector v . Day (78 U. S. , 113) .
It is said in the income tax cases (157 U. S. , 584) that " the United States have no
power under the Constitution to tax either the instrumentalities or the property of a
State."
In United States v. Railroad Co. (84 U. S. , 322) it was held that the United States
could not tax a municipal corporation, which, of course, was created with the authorit
of a State.
In South Carolina v. United States (199 U. S. , 437) it was held that the Federal
Government could not prevent a State from discharging its legitimate functions of
government, which would include the establishment of a judiciary, the employment
of officers to administer and execute the laws, and similar governmental functions.
Flint v. Stone Tracy Co. (220 U. S. , 107.)
It would follow from this that the Federal Government could not impose a tax,
either in the form of a stamp tax or the collection of money for the exercise of the
State's jurisdiction to perform its governmental functions, nor by so doing limit the
decision of matters between litigants, nor to provide for and carry out the sale of
property in satisfaction of an obligation which is to be fulfilled , including the neces
sary steps taken to dispose of either surplus property or the remaining questions of
the litigation in the court proceeding.
This proposition raises directly the question whether the apparent requirement
that any person (i . e . , the referee) must affix a stamp to the deed conveying the prop
erty to a purchaser in a foreclosure action (or otherwise the purchaser must see that it
is done in order to be able to record his instrument and to relieve the referee from
the effects of having failed to comply with the law) imposes a tax upon the operations
24433 °--VOL 18—16– -4
50
or the process of the court, and therefore upon the exercise of its sovereignty by the
State; or whether it is merely an excise tax upon the business transaction involved
in the purchase of the land and its transfer to the purchaser, or an excise tax upon the
use of an instrument of the nature required to complete such a purchase.
It has been held in so many instances that an excise tax of this nature is valid if it
does not come within the scope of the cases which have just been cited , i. e ., it is
valid if the paper is only evidence of action by the State authority and not a govern
mental transaction in the exercise of that authority, where the business privilege is
not separable from the right of the State to carry on its own functions, that it is un
necessary to consider whether a proper tax of this nature is legal .
The question which is difficult of determination is to decide when a tax is proper,
and , as has been pointed out by the attorney for the plaintiff, a statement that the
tax in question is valid because a tax of some other sort is valid begs the question
at issue at the outset. If the tax is valid , it necessarily falls into the category of the
other taxes which are valid . If it is not valid , it must be because of some distin
guishing feature which immediately takes it out of the valid class.
The matter must be disposed of, therefore, as one of principle and involves directly
therewith the proposition next raised by the plaintiff, that the attempt to tax the
functions of the State courts or the State government involves the power to prevent
their action, either by destruction (that is, by exhaustion of the resources usable in
the transaction) or destruction by prohibition of action unless coupled with some
impossible condition .
The plaintiff cites such cases as Fifield v . Close ( 15 Mich . , 505) and Veazie Bank v.
Fenno (75 U. S. , 533) , holding that an actual tax upon State sovereignty (involving
the right to make the tax equal to the amount of property involved ) is unconstitu
tional . In the latter case the proposition was recognized that a tax and prohibition
against the issuance of currency , unless the tax be paid and compliance with the
national law satisfied , was in effect a prohibition against the existence of other bank
notes which might comply with a State statute and not with the Federal statute. In
such case the subject matter must be within the jurisdiction of Congress in order to
render the tax constitutional , as otherwise it would be an interference with the opera
tion of rights of State sovereignty which had not been transferred or conferred upon the
Federal Government .
The same proposition is conversely stated and is the basis of the decisions in McCul
loch v . State of Maryland ( 17 U. S. , 159) , Osborn v . United States Bank (22 U. S. , 326) ,
Weston v. City Council of Charleston (27 U. S. , 289) , Dobbins v . Erie County (41 U. S. ,
279) , and the Bank Tax Case (69 U. S. , 200) , in each of which a State tax upon some
activity authorized by Federal law was held unconstitutional.
But in the present case no tax is specifically directed against the exercise of the
authority of the State nor based upon the exercise of that authority by the State.
The tax is estimated upon the transfer of real estate . A sale in foreclosure is the sale
of property for the purpose of realizing cash with which to pay off an obligation, and
in transferring that property in consideration for the cash a deed is necessary as an
evidence of title. The certificate of the referee and a receipt for the property would
be sufficient to meet the requirements of the court if the provisions of the real estate
law and the necessities of the purchaser did not call for what is known as a deed as
a muniment of the purchaser's title. He obtains for cash property which has pre
viously been the property of another person, and the transfer of that property for cash
is as liable to taxation as the transfer of property between two individuals for cash.
In other words, it is an incident of business which is subject to an excise tax , and the
paper evidence of the business may be the specific instrument which is taxable.
It can not be said that the power to impose such a tax could in any way destroy or
be made equal in amount to the value of the privilege or the value of the property as
51
to which the privilege was exercised . The mere language of a tax law requiring the
State to purchase and use stamps to a small or large amount upon the court papers
constituting the record of the proceedings in the foreclosure action would be open
to the objection of unconstitutionality in both ways. It would of itself be an inter
ference with the sovereign power of the State, and it would directly assert the right
of the Federal Government to indirectly control or even to prevent the exercise of
the State authority. But the tax upon a referee's deed is exactly alike in amount
and in nature to the tax upon the individual deed .
This is not a direct prohibition or interference with the proceedings of the State
court, but only compels the purchaser to receive a deed bearing the proper tax, in
exactly the same way as if he were purchasing from an individual . Further, it is
not an indirect attempt to exercise authority over the State court's action, for it could
not interfere with or be increased in amount so as to equal and thus wipe out the
transfer intended , unless by the same provision all transfers of real estate were affected
in the same way and even entirely prevented .
We need not argue the question whether the Federal Government would have the
power to prevent all transfers of real estate by excessive taxation , for we have started
with the assumption that some taxation of the transfer of real estate is within the
proper exercise of Federal authority. In a foreclosure sale the price sought must be
sufficient to cover the lien and the expenses. If these expenses include a stamp tax,
then the purchaser must bid sufficient to cover that tax or a deficiency will result.
If deficiency results, the expenses, including the stamp, would still be paid and the
deficiency would be transferred into a loss to the party who had invoked the authority
of the State court and who had not protected , by buying in the property or by bidding
up to an amount which would cover his claim and expenses or would result in a
deficiency judgment which in the theory of the law will recompense the mortgagee
for the amount which he does not realize from the sale of the property.
But in its nature the transfer of the property for the cash which it does bring is
exactly the same as the transfer of property from one individual to another for the
cash which the purchaser may pay . The deed which goes to make his title is exactly
the same in effect in each instance, and its taxability does not depend upon the
identity nor the authority of the person making the deed , and hence the addition
of a stamp is not a limitation upon the authority of that person , but is merely an
excise tax upon the transfer involved in the purchase. In this light it is reconcilable
with the provisions of the statute in question , and there seems to be no reason for
holding that the act is unconstitutional.
The demurrer will be sustained and judgment absolute dismissing the complaint
upon the merits may be entered .
(T. D. 2311.)
Income tax- Compromises.
Minimum amounts which will be accepted in settlement of the specific penalty.
With reference to corporations , individuals , and withholding agents
who have failed to file returns of annual net income within the pre
52
scribed time for the year 1915 and prior years under the income-tax
law, you are advised that it has been determined by the Treasury
Department to accept offers in compromise of the specific penalties
in minimum sums as follows :
For the year 1914.-$ 10 from corporations ; $ 5 from individuals
or withholding agents.
For the year 1915.-$20 from corporations ; $ 20 from individuals
or withholding agents.
For the years 1914 and 1915.-$30 from corporations ; $ 25 from
individuals or withholding agents.
The minimum amounts stated above apply only to those cases
where there was no intention to evade the law or escape taxation.
Form 656 must be used in transmitting all income- tax offers in
compromise to this office. In forwarding additional offers where the
original offer has been rejected , reference should always be made to
the " L" case number shown on the copy of the notice of rejection .
Particular attention is called to the necessity for the proper filling
in of all information called for on Form 656. After the words " Re
turn No." should be entered the form number of the return , as 1040,
1031 , 1042 , etc.
Offers in compromise can not receive favorable consideration in
cases where returns for the year in question have not been filed . In
such cases the recommendation that the offer be accepted should be
made " subject to the filing of the return ." Each offer in compro
mise should be accompanied by an affidavit in the form prescribed
in Mim. 1023 , in which the proponent should state briefly the cause
of the delinquency . Where affidavits allege facts showing that no
delinquency was incurred or recite circumstances which warrant
relief from the specific penalty as indicated in Mim. 1347 the offer
should be returned, unless there are facts in the possession of the
collector at variance with the contentions made by the proponents,
in which event a statement of such facts should be noted on Form 656 .
A strict compliance with these instructions will greatly relieve the
routine in connection with the handling of these cases.
All delinquents who do not compromise their liabilities to the spe
cific penalty, after ample opportunity has been given, should be
reported on Form 166 to the United States attorney for proceedings ,
except in cases required to be reported on supplemental delinquent
lists . (Mim . 1347.)
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
53
(T. D. 2312.)
Modifying T. D. 2246 of October 1, 1915.

Central denaturing bonded warehouse not required by manufacturers using Formula
2-b in the manufacture of sulphuric ether to be used in connection with the pro
duction of smokeless powder.
So much of T. D. 2246 as requires the establishment of central
denaturing warehouses at manufacturing plants where sulphuric
ether prepared from alcohol, denatured under Formula 2-b, is used
in the manufacture of smokeless powder, is hereby revoked .
Hereafter manufacturers using such denatured alcohol for the
purpose stated may procure the same from a distillery or central
denaturing warehouse wherever located.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
(T. D. 2313. )
Income tax.
Taxability of interest from bonds and dividends on stock of domestic corporations

owned by nonresident aliens , and the liabilities of nonresident aliens under sec
tion 2 of the act of October 3, 1913.
Washington, D. C. , March 21 , 1916.
To collectors ofinternal revenue:
Under the decision of the Supreme Court of the United States in
the case of Brushaber v. Union Pacific Railway Co. , decided January
24, 1916 , it is hereby held that income accruing to nonresident aliens
in the form of interest from the bonds and dividends on the stock of
domestic corporations is subject to the income tax imposed by the
act of October 3 , 1913.
Nonresident aliens are not entitled to the specific exemption
designated in paragraph C of the income-tax law, but are liable for
the normal and additional tax upon the entire net income " from all
property owned , and of every business , trade, or profession carried
on in the United States," computed upon the basis prescribed in
the law.
The responsible heads , agents, or representatives of nonresident
aliens, who are in charge of the property owned or business carried on
54
within the United States, shall make a full and complete return of
the income therefrom on Form 1040, revised, and shall pay any and
all tax, normal and additional, assessed upon the income received by
them in behalf of their nonresident alien principals .
The person, firm, company, copartnership, corporation , joint-stock
company, or association , and insurance company in the United States,
citizen or resident alien , in whatever capacity acting, having the
control, receipt, disposal, or payment of fixed or determinable
annual or periodic gains, profits , and income of whatever kind , to a
nonresident alien, under any contract or otherwise, which payment
shall represent income of a nonresident alien from the exercise of any
trade or profession within the United States , shall deduct and with
hold from such annual or periodic gains , profits, and income, regard
less of amount , and pay to the officer of the United States Govern
ment authorized to receive the same such sum as will be sufficient to
pay the normal tax of 1 per cent imposed by law, and shall make an
annual return on Form 1042.
The normal tax shall be withheld at the source from income ac
crued to nonresident aliens from corporate obligations and shall be
returned and paid to the Government by debtor corporations and
withholding agents as in the case of citizens and resident aliens, but
without benefit of the specific exemption designated in paragraph C
of the law.
Form 1008 , revised , claiming the benefit of such deductions as may
be applicable to income arising within the United States and for
refund of excess tax withheld , as provided by paragraphs B and P of
the income-tax law, may be filed by nonresident aliens, their agents
or representatives, with the debtor corporation , withholding agent,
or collector of internal revenue for the district in which the withhold
ing return is required to be made.
That part of paragraph E of the law which provides that "if such
* * * is absent from the United States, * * * the
person
return and application may be made for him or her by the person
* * * "" is held to be ap
required to withhold and pay the tax
plicable to the return and application on Form 1008 , revised, of non
resident aliens.
A fiduciary acting in the capacity of trustee, executor, or adminis
trator, when there is only one beneficiary and that beneficiary a
nonresident alien, shall render a return on Form 1040, revised ; but
when there are two or more beneficiaries, one or all of whom are non
resident aliens , the fiduciary shall render a return on Form 1041 ,
revised, and a personal return on Form 1040, revised , for each non
resident alien beneficiary.
1
The liability, under the provisions of the law, to render personal
returns, on or before March 1 next succeeding the tax year, of annual
55
net income accrued to them from sources within the United States
during the preceding calendar year, attaches to nonresident aliens
as in the case of returns required from citizens and resident aliens.
Therefore, a return on Form 1040, revised, is required except in cases
where the total tax liability has been or is to be satisfied at the source
by withholding or has been or is to be satisfied by personal return on
Form 1040 , revised , rendered in their behalf. Returns should be
rendered to the collector of internal revenue for the district in which
a nonresident alien carries on his principal business within the United
States or, in the absence of a principal business within the United
States and in all cases of doubt, to the collector of internal revenue
at Baltimore, Md. , in whose district Washington is situated .
Nonresident aliens are held to be subject to the liabilities and re
quirements of all administrative, special, and general provisions of
law in relation to the assessment, remission , collection, and refund
of the income tax imposed by the act of October 3 , 1913 , and col
lectors of internal revenue will make collection of the tax by dis
traint, garnishment, execution , or other appropriate process provided
by law.
So much of T. D. 1976 as relates to ownership certificate 1004 ,
T. D. 1977 (certificate Form 1060) , T. D. 1988 (certificate Form
1060 ) , T. D. 2017 (nontaxability of interest from bonds and dividends
on stock) , T. D. 2030 (certificate Form 1071 ) , T. D. 2162 (nontax
ability of interest from bonds and dividends on stock) and all rulings
heretofore made which are in conflict herewith are hereby superseded
and repealed .
This decision will be held effective as of January 1 , 1916 .
W. H. OSBORN,
Approved , March 30 , 1916 :
BYRON R. NEWTON,
Acting Secretary ofthe Treasury.
(T. D. 2314.)
Emergency revenue law- Theaters.
Revoking T. D. 2297 of February 11, 1916, relating to tax on proprietors of theaters.
To collectors ofinternal revenue, revenue agents, and others concerned:
This office, after due deliberation and full consideration , has de
cided to revoke T. D. 2297 , relating to tax imposed on proprietors
of theaters. Revenue officers in determining the tax to be due from
such parties will apply the general rules applicable to all internal
revenue special-tax payers.
56
Where operatic or dramatic or other representations, plays , or

performances are given in a hall or armory only occasionally, for
example, on an average of not exceeding twice a month , the pro
prietors of such hall or armory do not incur special-tax liability.
The owners or agents of theatrical troupes traveling around • the
country and giving performances in halls or auditoriums for which
special taxes have not been paid by the owners or lessees thereof
are required to pay special tax under the sixth subdivision of sec
tion 3 of the act aforesaid , and may have their special-tax stamps
transferred from place to place upon application to the collector of
internal revenue. It will suffice if the owner or agent upon entering
a collection district files with the collector a statement as to the
theaters and towns in which performances are to be given.
W. H. OSBORN,
(T. D. 2315.)
Distilled spirits -Bonds .
Bonds covering distilled spirits withdrawn for exportation to be in a penal sum of not
less than 125 per cent of the tax on the spirits so withdrawn .
Washington, D. C., March 31 , 1916.
Articles 38 and 111 of internal-revenue regulations No. 29 , revised
August 18 , 1914 , requiring export bonds and transportation and
export bonds for distilled spirits in a penal sum of not less than
double the amount of tax on the spirits , are hereby amended so as
to require all such bonds hereafter given to be in a penal sum of not
less than 125 per cent of the tax on such spirits.
W. H. OSBORN ,
Approved :
WM. P. MALBURN,
(T. D. 2316.)
Income tax- Form 22.
Collectors required to report collections of individual income tax on Form 22 under
proper classification showing amounts received as normal income tax and addi
tional tax.
SIR: Replying to your letter of the 10th instant, as to reporting on
Form 22 normal and additional income tax from individuals, you are
5.7
advised that notation on Form 23B referred to in your letter has been
discontinued, for the reason it developed that little or no benefit was
to be derived therefrom. It only served to furnish the collector with
information less complete than that which he already had or should
have on Form 1052. The principal purpose of this card is to supply
readily the data required on Form 22 in respect to payments under the
classification of additional or surtax as provided for in the income
tax act, and it is presumed by this office that same (Form 1052) is
at present used for this purpose in all collectors ' offices.
In Ac. Mim. 1220 , dated May 24 , 1915 , attention was particularly
invited to the necessity of reporting the surtax in individual income
tax payments separate from the normal tax.
The tabulation of data contained on Form 22 comprises the
valuable statistical report of the bureau, and it is therefore of the
utmost importance in reporting internal-revenue collections for col
lectors to adhere strictly to such designation and classification found
on the prepared blank form and in rendering the report to comply
with each and every instruction relating thereto .
Respectfully,
W. H. OSBORN ,
COLLECTOR SIXTH DISTRICT, Kansas City, Mo.
(T. D. 2317. )
Income tax.
The effective date of withholding at source from income paid to nonresident

aliens from corporate obligations.
Washington D. C., April 4, 1916.
The provisions of T. D. 2313 of March 21 , 1916 , relative to with
holding the normal tax of 1 per cent at the source from income paid
to nonresident aliens from corporate obligations will be held effective
as of May 1 , 1916.
The requirements as to withholding at other sources of income
paid to nonresident aliens heretofore in force remain without change
as to effective date.
The individual liability of nonresident aliens for tax on interest
from bonds and dividends on stock of domestic corporations and for
return and payment thereof to the Government under section 2 of
the act of October 3, 1913, will be held effective as of January 1 , 1916.
W. H. OSBORN ,
Approved :
WM. P. MALBURN,
58
(T. D. 2318.)
Emergency revenue law— Insurance policies.

Washington, D. C. , April 5, 1916.
SIR: This office is in receipt of your letter of -, inclosing a
communication from -, together with copy of hail insurance
policy issued by Mutual Hail Insurance Co., of — and
you inquire whether a policy of this character requires stamps under
the act of October 22 , 1914 , in order that you may be able to inform
Mr. in the premises .
In reply you are informed that the insurance exempted under the
said act of October 22 , 1914 , is as follows : Purely cooperative or
mutual fire insurance companies or associations carried on by the
members thereof solely for the protection of their own property and
not for profit ; life insurance ; personal accident insurance ; health
insurance ; workmen's compensation insurance carried on by the
members thereof solely for their own protection and not for profit.
You are advised that hail insurance does not fall within the exemp
tions as above set forth , and policies issued by the said Mutual
Hail Insurance Co. are taxable at the rate of one-half of 1 cent on $ 1
or fraction thereof of the premium charged .
Respectfully,
DAVID A. GATES,
Mr.
(T. D. 2319. )
Packing of coupons, etc. , in or with statutory packages of tobacco , snuff,

cigars, and cigarettes.
Manufacturers will not be permitted to differentiate as to character of coupons packed
in packages of same size and brand to meet varying conditions in States adopt
ing laws in consequence of the decision of the Supreme Court of the United
States on March 6 , 1916 ; any differentiation will be regarded as in violation of
the lottery provisions of section 3394 , Revised Statutes .
SIR: This office is in receipt of your letter of the 23d ultimo , in
which you state that it becomes absolutely necessary for manufac
turers to know the attitude of the department with reference to the
enforcement of that portion of section 3394 of the Revised Statutes
which provides that—
No package of manufactured tobacco, snuff, cigars, or cigarettes, prescribed by law,
shall be permitted to have packed in, or attached to, or connected with, them, nor
59
affixed to, branded , stamped, marked , written, or printed upon them, any paper,
certificate, or instrument purporting to be or represent a ticket, chance, share or
interest in, or dependent upon, the event of a lottery
and T. D. 1819 , dated December 3, 1912 , explaining the regulations
issued in pursuance of the statute quoted , in view of the recent
decision handed down by the Supreme Court on the 6th ultimo,
holding that the several States of the Union have the power to legis
late with reference to the use of coupons and trading stamps within
the respective States.
In reply you are advised that T. D. 1819 will be strictly adhered to
and manufacturers will not be permitted to differentiate as to the
character of coupons packed by them in statutory packages of the
same size and of the same brand of tobacco, snuff, cigars, and cigar
ettes, to meet the varying conditions in the several States adopting
laws in consequence of the Supreme Court decision . If coupons
possessing redemption value are packed in, or attached to , or con
nected with, any of their statutory packages of tobacco , snuff, cigars ,
and cigarettes, every package of the same size and of the same brand
must contain a coupon or coupons of the same value and if it is not
practicable, on account of State laws so to distribute coupons with
statutory packages of tobacco, snuff, cigars and cigarettes , any
differentiation will be regarded as constituting a clear violation of
section 3394, Revised Statutes , as amended .
Respectfully,
W. H. OSBORN ,
Mr.
CAR
(T. D. 2320.)
Special excise tax on corporations —Decision of court.
1. THE BUSINESS OF THE COMPANY.
The Middlesex Banking Co. under its charter had the powers of a safe-deposit
company , of a bank of deposit, and of a company to sell securities, but its principal
business was the sale of securities .
2. INTEREST ON DEBENTUre Bonds .
The company is not allowed as a deduction amounts paid as interest to purchasers
of evidences of indebtedness issued by it termed " debenture bonds."
3. INTEREST ON GUARANTEED REAL ESTATE SECURITIES .
Amount paid to purchasers of notes and bonds secured by mortgages on real estate
made in plaintiff's favor and sold and assigned to investors with its guaranty not
allowed as a deduction.
4. INTEREST.
The interest in question is not an expense of business.
5. JUDGMENT AFFIRMED.
The judgment of the United States District Court (221 Fed . , 86 ) is affirmed.
The appended decision of the United States Circuit Court of Ap
peals for the Second Circuit in the case of the Middlesex Banking Co.
60
v. Robert O. Eaton , collector of internal revenue, is published for the

information of internal-revenue officers and others concerned.
DAVID A. GATES ,
UNITED STATES CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
Middlesex Banking Company, plaintiff in error (plaintiff below), v . Robert O. Eaton,

collector ofinternal revenue, defendant in error (defendant below).
Before CoXE and WARD, Circuit Judges, and Learned Hand, District Judge.
WARD, Circuit Judge: This is an action at law by the plaintiff to recover of the defend
ant, United States collector of internal revenue for the District of Connecticut, taxes
paid by it under protest to him, assessed on its net income for the years 1909, 1910 ,
1911 , and 1912 under section 38 of the act of August 5, 1909. The case was tried before
Judge Thomas without a jury and he entered a judgment in favor of the defendant, to
which this writ of error is taken .
The plaintiff was incorporated in 1872 as the Middlesex Trust Co. , under a charter
giving it the franchises of a bank, trust company , and safe-deposit company.
In 1874 the power to receive fiduciary or trust funds and to act as guardian of the
property of minors was repealed and the power to take securities for loans authorized
by the charter and to sell and guarantee payment of the same was conferred .
In 1875 the name was changed to the Middlesex Banking Co.
In 1889 the charter was amended by repealing the power to act in a fiduciary capacity
as a trust company and its powers were defined as follows:
The corporation hereby created shall have power to receive on deposit or in custody
for safe keeping bonds, plate, jewelry, stocks, and other valuable property upon such
terms and for such compensation as may be agreed upon by the said corporation and
by the depositors of any such property aforesaid ; to receive money on deposit and to
allow and pay interest on said money, and to loan the same at interest; to borrow money
and issue its obligations, negotiable or otherwise, therefor, in which obligations, if
secured by first liens upon real estate worth at least double the face thereof, holders
of trust funds may invest such funds .
This gives the company the powers of a safe-deposit company , of a bank of deposit,
and of a company to sell securities.
Practically the whole of the business done by the plaintiff during the years in
question was the sale of its own obligations , called " debenture bonds," secured by
mortgages on property in the South and West, deposited with the Columbia Trust
Co. as trustee for the bondholders, and of the obligations of borrowers to the plaintiff,
secured by mortgages, which, accompanied by its own interest coupons for a less rate
of interest than it receives from the borrowers , it guarantees as to both principal and
interest and sells to purchasers . These latter are called " guaranteed real estate
securities." Both these forms of securities the plaintiff sells throughout the East by
means of agents, and its profit in each case is represented by the difference between I
the rate of interest it receives from its southern and western borrowers and the interest
which it pays to the eastern purchasers of the obligations.
The company's gross income for the four years in question was :
1909 .. $401, 846. 31
1910. 405, 335. 46
1911. 364, 663. 72
1912. 341, 376. 04
61
And it claims the right to deduct therefrom interest paid on its debenture bonds
and guaranteed real estate securities as follows:
1909 .. $240, 819.47
1910. 241, 497.20
1911 . 220, 777. 51
1912.. 212, 436. 47
The theory is that the plaintiff is a bank or banking association, and that the interest
in question is paid upon money deposited with it as such and is deductible under the
provisions of subdivision 3 of paragraph 2 of section 38 of the act of 1909 (36 Stat . L.,
p. 112) . Section 38 reads :
That every corporation, joint-stock company *or *association,
* now ororganized for profit
and having a capital stock represented by shares, hereafter organized
under the laws of the United States or of any State or Territory of the United*States,*
or under the acts of Congress applicable to Alaska or the District of Columbia, *
shall be subject to pay annually a special excise tax with respect to the carrying on
* *
or doing business by such corporation, joint stock-company or association,
equivalent to 1 per centum upon the entire net income over and above $5,000
received by it from all sources during such year, exclusive of amounts received
by it as dividends
*
* upon stock of other corporations, joint-stock
*
* companies or asso
ciations, * subject to the tax hereby imposed;
Second . Such net income shall be ascertained by deducting from the gross amount * *
of the income of such corporation, joint-stock company or association; *
received within the year from all sources (first) all the ordinary and necessary expenses
actually paid within the year out of income in the maintenance and operation of its
business and properties, * * * (second) all losses actually sustained within the
*
year and not compensated by insurance or otherwise, * * (third) interest
actually paid within the year on its bonded or other indebtedness not exceeding the
paid-up capital stock of such corporation , joint-stock company or association, * * *
outstanding at the close of the year, and in the case of a bank, banking association,
or trust company, all interest actually paid by it within the year on deposits; * *
Without stopping to analyze the charter powers of the plaintiff and to determine
whether it is or is not a bank or banking association and, whether, if so, it has not also
other and different powers, we think it perfectly clear that the interest in question
is not interest upon money deposited with it, but is interest paid on its own obligations
or on the obligations of others guaranteed by it which it has sold to the investing
public. The purchase price is no more money deposited with the plaintiff at interest
than is money paid to a railroad company for the purchase of its bonds. The transac
tion is not a banking transaction at all like the giving of a pass book or a certificate
of deposit to a depositor, but a business of selling securities to investors. Selden v .
Equitable Trust Co. (94 U. S. , 419 ) . We attach no importance to the contention that,
even if the foregoing be true, still the interest in question is deductible as an ordinary
and necessary expense actually paid out of the income in the maintenance and opera
tion of the business provided for under the first subdivision of paragraph 2 , because
the whole subject of the deduction of interest is specifically regulated in subdivision 3.
The judgment is affirmed.
(T. D. 2321. )

Ruling regarding special-tax liability incurred by persons or firms holding themselves
out as customhouse brokers.
TREASURY Department, 1

SIR : This office is in receipt of your communication of the 11th
instant, regarding certain parties who are licensed under the cus
62
toms service as customhouse brokers, but who have not paid special
taxes as such under the provisions of the fifth subdivision of section
3 , act of October 22 , 1914.
Replying, you are informed that, under the fifth subdivision of
section 3, act aforesaid, a customhouse broker is defined as—
Every person, firm, or company whose occupation it is, as the agent of others, to
arrange entries and other customhouse papers , or transact business at any port
of entry relating to the importation or exportation of goods, wares or merchan
dise. *
Under the definition as set forth, this office is of the opinion that a
person or firm holding himself or itself out to the public as engaged
in the occupation of customhouse broker, either by maintaining an
office or sending out literature, advertising matter, etc. , is required
to pay special tax under the provision of law aforesaid .
Accordingly, this office will issue instructions to collectors of
internal revenue to collect special taxes from all parties holding
themselves out as above.
Respectfully, DAVID A. GATES,
Acting Commissioner of Internal Revenue
CHIEF DIVISION OF CUSTOMS, Treasury Department.
(T. D. 2322. )
Medicinal preparations for the sale of which special tax is required.

List of preparations to be added to those appearing in T. D. 2222 of June 25, 1915,
for the sale of which special tax is required , and removal of the names of two
preparations from such list.
The following alcoholic medicinal preparations are added to the
list set forth in T. D. 2222 of June 25 , 1915 :
Name. Manufacturer.
Buhrers Bitters...... Weideman-Fries Co. , Cleveland, Ohio.

Cossack Stomach Bitters... D. Vandewart & Son, New York, N. Y.
Kil-A-Kol. Pond's Bitters Co. , Chicago, Ill.
Nibol Laxative Kidney and Liver Bitters . Lobin Distilling Co. , St. Louis, Mo.
Pater Emanuel's Herb Wine.. The Ambrose Co. , Bridgeport, Conn.
Root Plant Medicinal Gin . Lobin Distilling Co. , St. Louis, Mo.
Serravallo's Tonic.... J. Serravallo's Pharmacy, Trieste, Austria.
Vermouth Stomach Bitters .. Lobin Distilling Co. , St. Louis, Mo.
Wincarnis .... Coleman & Co., Norwich, England.
Special tax will be required for the sale of such preparations, even
though such sales are for medicinal use. The liability of dealers for
63
sales for medicinal use of the preparations above mentioned will,

however, be held to date from and after June 1 , 1916 .
For the following-named preparations, the manufacturers have
submitted amended formulas for the compounding thereof, and such
preparations as now produced conform to the standard adopted by
this office. Accordingly, special-tax liability is not incurred on
account of the sale of the same solely in good faith for medicinal
purposes .
Name. Manufacturer.
Mrs. Joe Person's Remedy..... Remedy Sales Corporation, Charlotte, N. C.

Niggemann's Black Tonic Blood Purifier.. Albert Niggemann, St. Louis, Mo.
With regard to the preparations listed below, the manufacture

thereof has been discontinued. Accordingly, the names of such
preparations are hereby removed from T. D. 2222.
Name. Manufacturer.
American Elixir..... Beggs Manufacturing Co., Chicago, Ill.

Aromatic Stomach Bitters. The S. Holtzman Co. , Johnstown, Pa.
Beef, Iron, and Wine . Crown Supply Co. , Pittsburgh, Pa.
Beef, Wine, and Iron . Waudby, Son & Co. , Pittsburgh, Pa.
Bitter Wine . Aug. W. Burggraf, Johnstown, Pa.
Botanic Bitters.. F. E. Mayhew & Co. , San Francisco, Cal.
Dandelion Bitters .. Beggs Manufacturing Co., Chicago, Ill.
De Witt's Stomach Bitters . E. C. De Witt & Co., Chicago, Ill.
Jaffe's Intrinsic Tonic.. Jaffe Wine Co., Sacramento, Cal.
June-Kola ..……. Beggs Manufacturing Co. , Chicago, Ill.
Karlsbader Stomach Bitters . Jos. Landshut, Pittsburgh, Pa.
O'Hare's Bitters... O'Hare Bitters Co. , Pittsburgh, Pa.
Scheetz Bitter Cordial. Percy R. Hentz, Pittsburgh, Pa.
Walther's Peptonized Port . Walther-Robertson Drug Co. , Pittsburgh, Pa.
DAVID A. GATES ,
(T. D. 2323.)
Narcotic law.
›
Revoking the ruling contained in T. D. 2292 of January 31 , 1916 , amending T. D.
2244 of September 20, 1915, requiring the narcotic content of preparations and
remedies to be indicated on official order forms.
Washington, D. C. , April 24 , 1916.
The ruling contained in T. D. 2292 , amending T. D. 2244 , requiring
the narcotic content of preparations and remedies in grains to the
64
fluid or avoidupois ounce, or the quantity of narcotic drug in grains

or fractions thereof, contained in a tablet or pill , to be indicated on
official narcotic order forms , is hereby revoked , to take effect
immediately.
Hereafter the name of the preparation , the quantity in ounces if
in liquid form , or if in tablet , pill , ampule , or suppository form , the
units or total thereof, and the name of the particular narcotic drug
contained in such preparations , tablets , pills , ampules , or supposi
tories, need only be entered on these order forms .
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
(T. D. 2324.)
Income tax.
Extension of the effective date of withholding at source from income paid to nonresident
aliens from corporate obligations.
Washington, D. C. , April 24 , 1916.
The provisions of T. D. 2313 of March 21 , 1916 , relative to with
holding the normal tax of 1 per cent at the source from income paid
to nonresident aliens from corporate obligations will be held effective
as of July 1 , 1916 , and the first paragraph of T. D. 2317 of April 4,
1916, is hereby amended accordingly .
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2325.)
Income tax.
Certificates for making effective the provisions of T. D. 2313 of March 21 , 1916.

Washington, D. C., April 24, 1916.
For making effective the provisions of T. D. 2313 of March 21 , 1916 ,
there are hereby provided and prescribed for use on and after July 1,
1916 , two certificates, to be known as Form 1004 , revised , and Form
1071 , revised.
65
Foreign firms and corporations acting for themselves will use Form
1001 , revised, and Form 1063 , as provided by T. D. 1976 and T. D.
1998 for domestic firms and corporations.
Nonresident aliens, individuals, and fiduciaries will use Form 1004,
revised , herein prescribed ; and this form may also be used by recog
nized banks , bankers , etc. , who may be authorized to act for said
nonresident alien owners of bonds of United States corporations .
Certificate Form 1004, revised, will be printed on white paper in
the form that follows :
Form Ownership Certificate- NONRESIDENT ALIENS .
1004.
Revised. (To be furnished with coupons detached from bonds or other obligations owned by citizens
or subjects (including fiduciaries) of foreign countries and who are not residents of the
United States. )
(Give name of debtor.)

INTERNAL
REVENUE
(Full description of bonds, giving name of issue and interest rate.)

INCOME
DEPARTMENT
TREASURY
191 ..
TAX
Amount of coupon or registered interest, $ ……..

(Date of maturity ofinterest. )
.-
I declare that I am a nonresident alien as to the United States, and that

I am the owner of the above-described bonds from which were detached
,
the accompanying coupons, or from which I am entitled to the above

described registered interest, and that all of the information as given in
this certificate is true and correct.
Date, . , 191 ..
(Usual business signature of owner of
*NOTE 1.- To be filled in only when du. bonds.)
lyauthorized agent executes this certificate
for owner, in which case the name and ad
dress of owner must be given, and collect (Full post-office address of owner.)
ing agent first receiving certificate must
stamp acrossface "Satisfied as toindentity
and responsibility of agent" (giving name
and address ofcollecting agent). * By Age t.
NOTE 2.- If securities are owned jointly (Usual business signature ofagent authnor
by several persons, one may sign, and the ized to sign for owner .)
names, addresses, and proportion of own
ership of each indorsed on the back hereof.
NOTE 3.- When numbers of bonds are
required to be given, same are to be (Full post-office address of agent.)
entered on back hereof.
(SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.)
(Reverse of Form 1004, revised . )

JOINT OWNERS.
If securities described on other side are owned jointly, the names and addresses of
owners and the proportion of ownership of each should be given.
Name. Full post-office Proportion owned.

addresses.
S( paces
)n.6 ames
for
24433 °-VOL 18-16-5

66
Certificate Form 1071 , revised, will be printed on yellow paper in

the form that follows :
Form Exemption Certificate—BANKS OR BANKERS , EITHER FOREIGN

1071 . OR DOMESTIC.
Revised.
(For the use of responsible banks or bankers, either foreign or domestic, for and on behalf
of nonresident owners of stock and bonds of corporations of foreign countries.)
(Give name of foreign corporation.)
(Full description of stock or bonds.)

INTERNAL
REVENUE
INCOME
DEPARTMENT
Amount of dividends , $ .
TREASURY
TAX
I (we) declare that the owners of the stock of foreign corporations upon
.-
which the aforesaid dividends were declared or bonds from which the
accompanying coupons were detached are nonresident aliens as to the
United States ; that the check or bill of exchange in payment of said
,
dividend or coupons from said bonds are simply in transit for payment
to said nonresident aliens ; that no citizen of the United States , wherever
residing, or foreigner residing in the United States or in any of its posses
sions, has any interest in said stock ; and that all of the information as
given in this certificate is true and correct. I (we) hereby agree that if
at any time it shall appear that the income or any part thereof represented
or covered by this certificate was or is subject to the normal tax imposed
by the United States, upon presentation of proof of that fact to me (us)
by, from, or through the Commissioner of Internal Revenue, Washington,
D. C. , I (we) will pay and remit to the United States Government the
amount of tax claimed to be due ; and I (we ) hereby further agree that
whenever in the judgment of the Commissioner of Internal Revenue it
shall be necessary in or to the administration of the income tax law, I
(we) will , upon request of said Commissioner of Internal Revenue,
disclose and furnish to him the names and addresses of the owners and the
amount of the stock and bonds aforesaid.
Date, "" 191 ..
(Name of bank or banker.)

By..
(Signature of official authorized to sign.) (Official position.)
(Full post-office address of bank or banker.)
(SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.)
These certificates will be in size 8 by 3 inches , and will be printed

to read from left to right along the 8-inch dimension.
The paper to be used will correspond in weight and texture to
white writing paper, 21 by 32 , about 40 pounds to the ream of 500
sheets.
They will be printed by the Government and furnished without
cost.
Banks or bankers desiring to furnish their own certificates may do
so , but the certificates so printed must conform in size to those pre
scribed and be printed in similar type upon the same color, shade, and
weight of paper as used by the Government.
67
Sample certificates showing size of type and color of paper can be

secured from the Commissioner of Internal Revenue, Washington,
D. C.
W. H. OSBORN ,
Commissioner of Internal Revenue
Approved:
BYRON R. NEWTON,
(T. D. 2326.)
Denatured alcohol.
Formula No. 22, specially denatured alcohol for use in formaldehyde solution.
Washington, D. C., May 1 , 1916.
SIR: At the request of the " of your district, for the use of
alcohol denatured with formaldehyde , the following formula has been
approved, to be used exclusively for the purpose of preserving the
United States Pharmacopoeia solution of formaldehyde :
To 100 gallons of ethyl alcohol add 10 gallons of solution formaldehyde , conforming
to the specifications of the United States Pharmacopœia.
The amount of denatured alcohol to be used in the finished product must not exceed
20 per cent.
COLLECTOR FIFTH DISTRICT, Newark, N. J.
(T. D. 2327.)
Narcotic law.
Annual inventory, in duplicate, of narcotic drugs required of persons applying for

registration under the provisions of the act of December 17, 1914.
Washington, D. C., May 2, 1916.
Every person, firm , or corporation making application for registra
tion under the provisions of the act of December 17 , 1914 , must at
the time of applying for such registration prepare, in duplicate, an
inventory of all narcotic drugs and preparations (other than those
specifically exempt under the provisions of section 6 as defined in
T. D. 2309 ) on hand at the date of application for registration.
Where, however, a registered person at some fixed date annually
68
takes a stock inventory, either at the close of the business fiscal year
or of the calendar year, such inventory, in duplicate, showing the
quantity and names of narcotic drugs and preparations on hand on
the date next preceding the date of application for registration may be
filed in lieu of the annual inventory required at the date of registra
tion.
The original inventory must be kept on file by the maker with pre
vious inventories, and the duplicate forwarded to the collector of
internal revenue . No special form of inventory is required , but it
must clearly set forth the name and quantity of each kind of nar
cotic drug, preparation , or remedy, and be verified by oath or affirma
tion executed in conformity with law. Collectors will refuse a reg
istration number and special-tax stamp to an applicant who fails to
furnish annually at or before the date of registration a duplicate of
such inventory.
W. H. OSBORN, 1
Approved : I
BYRON R. NEWTON,
1. S
p
(T. D. 2328.)
Emergency revenue law- Bonds.

Stamp tax on bonds given in connection with seizures of goods for violation of the
internal-revenue laws.
SIR : This office is in receipt of your letter of the 25th instant,
relative to stamp tax on bonds which have been forwarded to the
United States attorney in connection with seizures of goods for viola
tion of the internal-revenue laws.
These bonds are given under sections 3460 and 3459, Revised
Statutes. The bond under section 3460 is filed with you by the party
from whom the goods are seized so as to take the case into court,
the claimant giving bond to pay all costs and expenses of the
proceeding. The bond under section 3459 is for the release of the
goods preliminary to suit . 1
This office agrees with the opinion of the United States district
attorney that these bonds are exempt from stamp tax , as being
required in legal proceedings .
Respectfully,
DAVID A. GATES ,
COLLECTOR INTERNAL REVENUE, Philadelphia, Pa.
69
(T. D. 2329.)
Emergency revenue law-Certificates of naturalization.

Declarations of intention to become citizens and certificates of naturalization not
taxable under the act of October 22, 1914.
SIR : In reply to your letter of the 18th instant you are informed
that declarations of intention of aliens to become citizens of the
United States, whether originals or duplicates, are not taxable under
the act of October 22, 1914 .
You are further advised that certificates of naturalization or
duplicates thereof are not subject to tax under the said act.
You are, however, informed that where a person requests or
demands a certified copy of a declaration of intention or certificate
of naturalization , and it is required by law that the same be issued,
and the said certified copy of such declaration of intention or certifi
cate of naturalization is for his own personal use and benefit, it is
taxable in the amount of 10 cents, the stamp to be furnished by the
person applying for such certificate .
Duplicate copies of declarations of intention or certificates of
naturalization, to be furnished by the clerk of a court to the Depart
ment of Labor, are not taxable .
The persons mentioned in your letter will be informed in the
premises.
Respectfully,
DAVID A. GATES,
COMMISSIONER OF NATURALIZATION , Washington, D. C.
(T. D. 2330. )
Drawback on exported tobacco, snuff, and cigars.

Washington, D. C. , May 1 , 1916.
To collectors of internal revenue and others concerned .
To further facilitate the examination and destruction of stamps
on tax-paid tobacco, snuff, and cigars entered for export , such
stamps may hereafter be destroyed by the exporter's employees in
the presence of the officer detailed by the collector in charge of
exports and drawbacks .
The officer in such cases, however, will carefully verify by count
the packages offered for shipment, and he will see that the stamps
70
affixed to such packages are genuine and of the denominations

represented in the export entry. In making his return of inspection
(Form K) the officer will, in the cases here provided , modify the
return by certifying, immediately above the description of the
articles inspected , as follows:
* * * And I further certify that all the tobacco, snuff, and cigar stamps de
scribed in the following statement were totally destroyed in my presence * * *
Where large quantities of these articles are offered for shipment,

a sufficient number of persons should be employed in destroying the
stamps and repacking the articles as will insure inspection by the
officer without unnecessary delay.
So much of articles 164-166 as requires the presence of a customs
officer during such inspection and which requires the internal-revenue
inspector to personally destroy such tax-paid stamps are hereby
revoked .
W. H. OSBORN,
Approved:
BYRON R. NEWTON,
(T. D. 2331. )
Extracting alcohol from empty spirits packages—Decision of court.

1. Spirits recovered from the staves of empty double-stamped packages subject
to tax at the rate of $1.10 per gallon.
2. Inasmuch as the extracting concern can not affirmatively prove that the
spirits extracted from single-stamped packages was previously tax paid, such
spirits is subject to tax at the rate of $1.10 per gallon .
3. The judgment of the United States District Court affirmed .
Washington, D. C. , May 6, 1916.
The appended decision of the United States Circuit Court of Ap
peals for the Seventh Circuit in the case of the Western Extracting
Co. , a corporation, appellant, v . Julius F. Smietanka , collector of in
ternal revenue at Chicago , Ill . , appellee, is published for the informa
tion of internal-revenue officers and others concerned .
W. H. OSBORN,
UNITED STATES CIRCUIT COURT OF APPEALS , SEVENTH CIRCUIT. No. 2272.

Western Extracting Co. v. Julius F. Smietanka, collector of internal revenue.
APPEAL from District Court of the United States for the Northern District of Illinois, Eastern Division.
Before BAKER, KOHLSAAT, and ALSCHULER, Circuit Judges.
ALSCHULER, Circuit Judge: That soakage recovered from the staves of empty
whisky barrels must before entering into commerce bear the Government tax on spirits
71
of $1.10 per gallon was decided by this court in Hunter v. Corning & Co. (86 Fed . ,
913). There Corning received from the distiller's bonded warehouse for rectification
the barrels of whisky , emptied them, and recovered the soakage from the barrels.
It was assumed that the spirits there recovered were a part of such as had entered
into the pores of the barrel staves while in the bonded warehouse and that therefore
no tax had in fact been paid on such soakage, since under the law the tax actually
paid was on the free, pourable contents of the barrel as gauged at time of removal from
the warehouse. As to this it is frankly stated in the brief for appellant :
We admit in this bill that at the time a double-stamped barrel leaves a distiller's
bonded warehouse the liquid then contained in the pores of the wood of such barrel
is the original distilled spirits and that the general tax of $1.10 per gallon has not been
paid thereon by the distiller. We further admit that under Hunter v . Corning (86
Fed . , 913 ) it is the law of this circuit while such decision stands that, if such double
stamped barrel be practically treated at once by the extractor, he should pay the gen
eral tax upon the spirits which he obtains from the pores of the wood of such double
stamped barrel .
The relief sought by the bill herein is bottomed on the foundational allegation that
the soakage proposed to be extracted by appellant is in fact tax paid , and should not,
on being recovered for commerce, again be taxed .
The allegations of fact from which the conclusion of tax payment is claimed to
follow, are that appellant in its sole business of recovering the soakage from the bar
rels, buys of retail liquor dealers and others , only single-stamp barrels (as above
defined), and that such single-stamp barrels when coming to appellant for treatment
have been out of the warehouse an average of six months or more , and that during such
six months all the nontax-paid spirits in the staves at time of withdrawal from the
warehouse will have evaporated from the outside of the barrel , and have been wholly
replaced by absorption from the tax-paid contents of the barrel.
Conceding the process of evaporation and absorption to be as stated in the bill , the
conclusion that the tax has been paid on the soakage in the barrels when they come
to appellant, under the bill depends in large measure on the time the barrels have
been away from the warehouse. As to this , all the bill charges is that " the average
time for such period is not less than six months " ; and in appellant's brief it is stated
"an average of six months' time elapses as to every double-stamped barrel which
has been changed into a single-stamped barrel from the date it leaves the distiller's
warehouse and is purchased by us."
But what has the average to do with the case? The fact that six months is the aver
age would imply that in some cases the time is longer, and in others shorter than
six months. Indeed , for anything that appears in the bill to the contrary , barrels
may leave the distiller's warehouse , come into the hands of the wholesaler or rectifier,
be emptied, replaced by tax-paid liquor, and single stamped, and the barrel finally
be emptied and sold to appellant, all within a period of a very few weeks or even
days, and in such case the tax on the soakage would clearly be unpaid.
Suppose a consignment of just such barrels were treated by appellant, and 1,000
gallons of nontax-paid spirits recovered from them . Should this under any cir
cumstances be permitted to enter commerce without paying the tax? Then suppose
another such consignment comes for treatment, where the intervening time is a year,
and a like amount recovered which may be considered tax paid because of the evapora
tion and loss of all the original nontax-paid soakage and replacement by the tax-paid
contents. It is true that as to the two lots the average of time intervening between their
leaving the warehouse and reaching appellant would be six months ; but how would 1
this affect the right of the Government to have its tax on the first lot? The loss to
the owner through absorption of the tax-paid liquor does not give rise to any claim for
a refund of the tax which has been paid on what has been so lost, whereby it might
with show of reason be claimed that the tax due the Government on the first lot might
be balanced against the counter claim arising on the second . Under such circum
72
stances the very most that could be claimed is that the first lot not having paid the
tax should pay it, and the second having once paid the tax ought not again to be re
quired to pay. So if the soakage in one lot or barrel is tax paid , this fact would not
in any way relieve from the liability to pay the tax on the soakage from any lot or
barrel on which the tax has not been paid.
Furthermore, from the allegations of the bill the fact that a barrel is single stamped
does not of necessity require the conclusion that it has been materially longer out of
the warehouse than the double-stamp barrel . The bill states that the barrel becomes
single stamped when the distiller's double-stamp package is emptied by the whole
saler or rectifier, refilled with tax-paid spirits, and stamped as tax paid-the two
stamps theretofore thereon being effaced . But it states also that distiller's double
stamp packages are also sold directly to the retail dealer, and to others who may
finally empty them , and who may have on hand and may empty indiscriminately
double and single stamped barrels without rule or probability as to which was first
emptied . So the allegation that appellant uses only single-stamp barrels does not
under the facts charged in the bill necessarily distinguish as between single and
double stamp barrels which was longest out of the bonded warehouse.
But the bill states yet other elements than that of time as bearing on the rapidity
of evaporation , in the words following:
That such single-stamped barrels are held by such rectifiers and the said wholesale
liquor dealers until sold, and such barrels are carried or transported by steam cars,
wagons, trucks, or other vehicles, and sometimes by all of them, to divers points and
distances, and they are handled and rehandled divers times, and become exposed to
varying degrees of temperature, each and all of which largely increase and accelerate
the aforesaid process of evaporation and absorption before any of such barrels become
empty in the hands of the qualified retail liquor dealers or other persons, who have
poured out, used, or consumed the contents thereof.
Ordinary experience would suggest yet other materially influential conditions, such
as the kind and quality of the material of the barrel, as bearing on the porousness of
the wood, and the nature of the place where the barrels are kept after removal from
the warehouse—whether in a closed , dark, damp place, which would retard, or in a
place open, light, and airy, which would facilitate evaporation . And so from the bill
itself it may be concluded that under some conditions the evaporation may be con
siderable in a short time, and under others may be slight during a much longer period .
While the bill alleges that appellant treats or proposes to treat single-stamp barrels
only, and that single-stamp can be readily distinguished from double-stamp barrels,
such statements of conclusions are dependent on the allegations of fact upon which
they are predicated . In the bill it is stated " that it is impossible to ascertain or state
the exact period of time which elapses as to each barrel from the date of its removal
from the distillery bonded warehouse to the date your orator removes from the pores
of the wood thereof the liquid contained therein ."
The reason for such impossibility is well stated in appellant's brief, as follows:
It is true that, as all marks, brands , and stamps have been effaced from each barrel
we buy before its purchase by us, as provided by section 3324, it is impossible for us
to trace each barrel and show the exact length of time which has elapsed since it left
the distiller's hands.
There is nothing distinctive about the barrels themselves, as between single and
double stamp barrels. Both kinds come into the hands of those who sell to appellant.
If the stamps and brands remained thereon the information would be readily avail
able to determine not only when, and from what distillery the barrels were taken,
but also whether the barrels were single or double stamped, though in such case the
now single stamp would probably be denominated triple stamp . But the obliteration
of all stamps and brands makes all barrels then look alike, and the same conditions
which make it impossible to know when the barrels left the warehouse make it alike
impossible for appellant to know which of the empty barrels were single and which
73
double stamped; and it is not apparent from the bill how a gauger who inspects the
barrels when they come into appellant's possession, to determine whether they may
be treated tax free , can know any more about it than appellant.
But appellant urges that as a necessary result of the continuous process of evapora
tion and absorption after the barrels leave the warehouse, to use the language of its
brief
There is no way of ascertaining from time to time by the day, week, or month just
how much, if any, of the distilled spirits which formed the original soakage remain
in the pores of the wood of each barrel . Hence it is very clear that the tax which
should be paid by the extractor, if any, must vary from time to time, or constantly
shift as the length of time increases from the date the barrel leaves the warehouse,
and also as such evaporation may be enhanced by modifications in heat, changes in
position through handlings by different persons, transportation , and the like. Cer
tainly a question would arise in each barrel as to what quantity of the original spirits
which had not paid the tax remained in the pores of the wood thereof.
This admitted uncertainty as to each barrel is necessarily reflected in any accumu
lation of barrels, and surely does not warrant the alleged conclusion that the soakage
in any number of barrels is tax paid.
What is the rule governing such a condition of uncertainty? In appellant's brief
it is stated to be "any doubt as to such quantity must be solved, under the authorities
in favor of the extractor. There is no way in which such quantity could be ascer
tained , and any attempt to collect a tax thereon would be void ." We find no authori
ties which support such a doctrine. If under the statute it were doubtful whether or
not spirits or any other article should be taxed at all, such doubt would inure to the
benefit of the one sought to be taxed . But there is no doubt of the statute requiring
all spirits included in its provisions to pay the tax. The question here is not one of
statutory construction, but of proof whether or not the tax has been paid ; and we are
of the opinion that one asking the Government to stamp as tax paid , spirits to be
marketed in competition with tax-paid goods, must present to the authorities affirma
tive proof that the tax has been paid ; and such requirement is not satisfied by showing
a state of facts under which it is unknown or unknowable whether all or any part is
paid.
If when the barrels leave the warehouse carrying in the staves spirits on which no
tax has been paid, and are so handled that at a given time thereafter it can not be
known how much, if any, of the soakage in the staves has paid the tax, the owner is
very much in the situation of one who wilfully and indistinguishably mixes and con
fuses his own goods with those of another . The mixer must bear any resultant loss—
often to the extent of losing his own goods. If as applied to circumstances like those
here presented the rule were otherwise, one who would mix some tax-paid alcohol
with a quantity on which no tax has been paid , would be entitled to have the whole
mass treated as tax paid, unless the Government could affirmatively show the exact
proportions of each .
It is our view that when tax-paid spirits are mixed or suffered to be mixed with
nontax-paid spirits so that the proportion of each can not be ascertained , one under
taking to market the mixture must pay tax on the whole. In an early case it was
held " that the payment of the tax on all the spirits not having been proven, there
being a mixture of fraudulent spirits with spirits that had paid the tax, the whole lot
was forfeited to the use of the Government. " United States v. Fifty-four Barrels of
Distilled Spirits ( 25 Fed . Cas . , 1075) .
The bill alleges that on the faith of the Scott letter and others , and the long practice
thereunder of permitting such soakage to be recovered and marketed without requir
ing payment of any further tax thereon , there has been a long acquiesced in practical
construction of the statutes and rules governing such a situation by those charged with
supervision over and collection of the internal revenue, and that it would now be
highly inequitable to permit this practice to be changed as against appellant, which
74
has in reliance thereon , invested $100,000 in its plant which would become practically
valueless .
Many cases are cited in appellant's brief to the general effect that where a statute is
of doubtful meaning long and uniform construction and practice thereunder by the
department or officers of the Government charged with its enforcement is entitled to
great weight and will ordinarily be accepted and followed by the courts; but is there
such a question or principle here involved?
The statute plainly prescribes the records to be kept and returns to be made by
rectifiers in order to afford proof to the officers charged with carrying out the law that
the rectifier handles only tax-paid spirits . In the practice relied upon the statute
was departed from in dealing with appellant, notwithstanding he operated under a
rectifier's license . In its case proof other than that indicated by the statute was
accepted as evidence that the spirits it dealt with were tax paid.
Assuming that the plain provisions of the statute might be departed from in favor
of one holding a rectifier's license , who is handling spirits on which the tax has unques
tionably and provably been paid but who can not make proof in the particular form
and manner which the statute prescribes for ordinary rectifiers, yet the question here
presented is not one of statutory construction or interpretation but of proof as to
whether or not the tax has in fact been paid on the soakage which appellant would
recover. If appellant can not comply with the statute it surely can have no vested
right or interest in the kind , degree, or character of proof that may properly be required
to establish the fact of payment before the Government shall stamp the recovered
product as tax paid .
If experience has convinced the bureau that under the long existing practice
sufficient proof was not afforded that the tax had been paid on spirits which appellant
would market as tax paid , no reason is apparent why it may not amend and change the
practice, so that the Government may be amply secured in its revenues . That such
was the experience claimed by the commissioner to be the reason for the change in
the practice, abundantly appears from one of the orders of May 18, and a letter of the
commissioner of March 31 , 1910 , referred to in the bill. A different question might be
presented if it were now undertaken to unsettle and impeach completed transactions
under the old practice. But the orders complained of have reference only to the
future.
It is urged that the May 18 orders are unreasonable, because their enforcement
would in effect prevent appellant from carrying on its business , since owing to the
required effacement of all stamps, marks, and brands on the empty barrels before ap
pellant buys them, it can not supply the information demanded . But according to the
bill the presence or nonpresence in the staves of nontax-paid alcohol depends mainly
on the time which has elapsed between withdrawal from the warehouse and treatment
by appellant . The orders require proof of the facts from which this may be deter
mined . Surely there is nothing unreasonable or improper as to the purpose of the
orders ; and if the prescribed method can not be complied with, the bill suggests none
other, except the untenable assumption of " average of time." The effect of the orders
on appellant's business is not an exclusive test of their reasonableness .
In a letter referred to in the bill , of July 28 , 1905 , of Commissioner Yerkes, it is said:
It is of course evident that all spirits in the staves of a new single stamped barrel
which has been filled with tax-paid spirits must consist of spirits on which the tax
has been paid ; and consequently no further tax can be collected on such spirits when
recovered from the staves.
If it were proposed to treat such new barrels which could clearly and certainly be
proved to be such, a different question might arise . But here the bill expressly dis
claims that appellant treats new barrels into which the rectifier or wholesaler has put
tax-paid spirits, but, on the contrary, alleges that the barrels it proposes to treat are
those which, before being refilled by the rectifier or wholesaler, and sent out as single
75
stamp barrels, were in the bonded warehouse, on leaving which the soakage contained
in the staves was not tax paid . And since from the bill itself it is apparent that
appellant does not and can not know, and therefore can not prove whether the soakage
in such barrels at the time of extraction is tax paid , it is quite immaterial to appellant
what rule on the subject the bureau may promulgate . So far as appellant is con
cerned it could not in any event, under the facts of the bill, affirmatively show that
the soakage it proposes to extract and market is tax paid, and it is therefore not affected
by the precise form , kind, or degree of proof which the Government may require to
show that the tax is paid . Even if the orders might be said to be unreasonable as to
barrels which never held nontax-paid spirits, that is clearly not the case as to barrels
within the purview of the bill.
Holding as we do that the Government has in any event the right to require satis
factory proof that the tax on the soakage in any and all barrels has been paid before
same may be extracted, stamped , and marketed as tax paid, and finding from the
bill that appellant in its business as described does not and can not and will not
know whether or not the tax has been paid on the soakage it proposes to extract, we
conclude that the bill was properly dismissed for want of equity, and the decree of
the District Court is accordingly affirmed .
(T. D. 2332.)
Deposit ofcollections.
All collections from internal revenue made within the fiscal year to be deposited
within said fiscal year.
The following instructions issued by the Assistant Secretary of
the Treasury on May 3 relative to depositing collections are pub
lished for your information and guidance :
To collectors of customs and internal revenue:
In view of the existing conditions in the offices of many collectors and the hour at
which Government depositaries require daily deposits to be made therewith, col
lectors may close their business day at an hour sufficiently early to enable them to
make the deposits for that day before the banks close.
After balancing the accounts for the day, the collection of taxes and the sale of
stamps should be resumed and continued until the official closing time, and such
transactions should be accounted for as collections of the following business day,
except on the last business day of each fiscal year , when all collections made for that
day should be deposited with the regular depositary, which will be instructed to
remain open to receive this particular deposit .
Please instruct your deputies who deposit receipts to be governed in accordance
with the above .
This method is adopted for the convenience of both the collectors and the deposi
taries and in order that all collections actually made within the fiscal year may be
deposited therein and so covered into the Treasury.
WM. P. MALBURN, Assistant Secretary.
12
76
To the assistant treasurers of the United States, Federal reserve banks, and active national
bank depositaries:
Collectors of customs and internal revenue have been authorized to close the busi
1
ness day in their respective offices sufficiently early to enable them to deposit their
collections during banking hours, and to include collections made later in the day as
transactions of the next day, except on the last business day of each fiscal year, when
they will deposit the receipts for the entire day.
You are therefore requested to remain open on the last business day of the fiscal
year for the purpose of receiving deposits from the collecting officers who deposit
with your bank, notwithstanding the fact that the bank has been closed to the public
at the usual hour. This will enable the department to include all customs and
internal-revenue collections made during a fiscal year in its accounts and reports for
that year.
Compliance with the above instructions is requested .
WM. P. MALBURN , Assistant Secretary.
The instructions contained in T. D. 2205 , dated May 19, 1915, are
modified accordingly.
W. H. OSBORN,
(T. D. 2333.)
Medicinal preparations — Additional list requiring special tax.
Preparations to be added to list of alcoholic medicinal preparations appearing in

T. D. 2222 of June 25, 1915, for the sale of which special tax is required.
To collectors of internal revenue, revenue agents , and others concerned:
The following-named preparations have been found upon exami
nation to be insufficiently medicated to be unsuitable for use as bever
ages . Accordingly, the same are classed as compound liquors and
special-tax liability as liquor dealer is incurred on account of the sale
thereof.
Name. Manufacturer.
Beimer's Walnut Beverage .. Winona Liquor Co. (Inc.), Winona, Minn.

Beimer's Walnut Bitters . Do.
Franz Urban Boonekamp of Maag Bitters . Wm. Straube, 1497 Twenty-fourth Street, Detroit, Mich.
Himmalia Tonic.... C. O. F. Burkstrom & Co., Chicago, Ill.
Kobolo Tonic Stomach Bitters .. Kobolo Medicine Co., R. D. Weisskopf & Co., proprietors,
1714 South Ashland Avenue, Chicago, Ill.
The liability of dealers for sales of the above preparations for

medicinal use will be held to date from and after July 1 , 1916.
DAVID A. GATES,
11
77
(T. D. 2334.)
Sampling butter.
Instructions to be observed by revenue officers in sampling butter suspected of

being adulterated .
To revenue agents and others concerned:
This office has recently received considerable complaint from
various branches of the butter trade concerning the methods of
sampling suspected butter by internal-revenue officers and of the
failure of such officers to fully observe the instructions heretofore
issued governing this work, particularly in not notifying manufac
turers or holders of the product of the privilege of having samples
drawn by trier.
As it is impracticable to make inspections and take samples at
every creamery or place of manufacture, request has been made by
those interested in this industry that this work be done, as far as
possible, when the butter is placed in storage.
While this request can not in all instances be complied with, in
vestigating officers are hereby instructed , wherever possible, to
sample suspected butter when it is placed in storage or as soon there
after as practicable, and in all cases before sampling to fully advise
the manufacturer , owner, or holder of the butter of the proposed
sampling and of the privilege of requesting that the samples be drawn
by trier and to be present at the time and take duplicate samples
for their own use.
These instructions are not to be construed as limiting the sampling
of butter to that placed in storage, but where officers have any reason
to suspect butter that has been shipped direct to dealers or has been
removed from storage or sold contains abnormal moisture or any
other form of adulteration, they will make necessary investigation
and take samples of goods wherever found in accordance with in
structions contained in T. D. 1449 of January 2 , 1909 , T. D. 1498
of May 17 , 1909, and T. D. 1810 of October 31 , 1912 , and as herein
outlined .
The greatest care must be exercised to avoid mutilation or undue
injury to butter or the business of the manufacturer or person in
whose custody it is found , and the work of making preliminary tests,
transmitting official samples to this office, and all subsequent action
found necessary by the facts disclosed should be expedited as much
as possible.
W. H. OSBORN ,
78
(T. D. 2335.)
Loss in transit of distilled spirits for export.
In authorizing allowance for leakage or loss of distilled spirits in
transit for export, the law (sec. 1 , act of Dec. 20 , 1879) limits such
allowance to leakage or loss by unavoidable accident.
Losses resulting from defective cooperage, improper storage, or
handling are, therefore , not allowable under this statutė ; and where
unavoidable loss by accident is claimed , the nature and cause of the
accident, as well as the extent of the loss , must be satisfactorily
shown.
This department, however, recognizes the fact that slight losses
ncident to transportation may occur without fault or negligence of
either the shippers or carriers ; but where the loss reported as to any
ipackage exceeds 1 proof gallon , the loss , unless shown to have
resulted from unavoidable accident, will be regarded as due to some
avoidable cause, and the tax due on the spirits so lost will be
collected .
So much of articles 125-132 of Regulations No. 29, revised August
18, 1914, as are inconsistent herewith are hereby repealed .
W. H. OSBORN ,
Approved :
W. C. MCADOO,
(T. D. 2336. )
Fusel oil.
Change in Regulations No. 7 relative to the method of testing fusel oil before removal
from distilleries.
Regulations No. 7, paragraphs 6 and 8 , page 65, prescribing the
method of testing fusel oil before removal from the distillery and the
report to be made to the collector by the officers making the test, are
hereby amended by the substitution of the words " saturated salt solu
79
tion " for the word "water" wherever the latter appears in said para
graphs .
The saturated salt solution to be used is a solution of common table
salt (NaC ) in water, containing all the salt which the water is capable
of dissolving. The solution is to be provided by the distiller and used
in the test tube, instead of water, on and after June 15 , 1916 .
W. H. OSBORN,
Approved :
W. G. MCADOO,
(T. D. 2337.)
Income tax.
come received from a partnership can not be traced to its source behind the part
nership for the purpose of claiming individual exemption.
Washington, D. C. , June 1 , 1916.
Under the terms of the income-tax law the income accruing to a
partnership entity is not subject to tax. The provisions of the law
relating to the exclusion of income derived from interest upon National
and State obligations and to the exclusion , for the purposes of the
normal tax, of income derived from dividends are applicable to in
come accruing to individuals and not to income accruing to partner
ships as such .
The share of the profits of a partnership to which any taxable
partner would be entitled if the same were divided , whether divided
or otherwise, is required by the law to be returned for taxation, and
no provision is made by the law for the exclusion of any part of the
share of such profits by reason of the source from which it may have
been derived by the partnership .
It is therefore held that " the share of the profits of a partnership
to which any taxable partner would be entitled if the same were
divided , whether divided or otherwise, " is subject to tax in the char
acter of income derived from the partnership as the source, whatever
its character may have been when it accrued to the partnership
itself,9 and that the net distributive interests on which the individual
members are liable for tax should include their proportionate shares
of the profits of the partnership derived from " interest upon the
obligations of a State or any political subdivision thereof, and upon
* * ""
the obligations of the United States or its possessions *
and " from dividends on the capital stock or from the net earnings of
80
corporations, joint-stock companies or associations, and insurance

* ""
companies taxable upon their net income * *
All rulings and decisions in conflict herewith are hereby super
seded and overruled .
W. H. OSBORN,
Approved :
W. G. MCADOO ,
(T. D. 2338. )
Emergency revenue law-Section 2.
T. D. 2078 of November 28, 1914, modified to provide for the stamping of wines
sold for consumption on and off the premises of retail liquor dealers.
SIR: This office is in receipt of your letter of the 16th instant,
relative to the collection of tax on wines, cordials , etc.
When the act of October 22, 1914 , went into effect, this office had
information that in many parts of the country barrels of wine were
exposed in retail places of business and sales made from them direct
to the consumer, and it appeared probable that the safest method
of collecting the tax under such circumstances was to require stamps
covering the tax to be affixed to the barrels . From further informa
tion received it appears that there are two classes of dealers , both
within the internal-revenue definition of retail liquor dealers, one of
which makes sales in retail quantities for consumption on the prem
ises, and the other which, under State regulations, is permitted to
sell only for consumption off the premises, although in quantities
of a pint, quart, gallon, or more. In the case of the latter class of
dealers, manifestly it is to the interest of the revenue that stamps
should be affixed to the containers delivered to the consumers rather
than to the barrels from which said containers are filled . T. D.
2078 is therefore modified to provide that in all cases where wines
are sold for consumption on the premises barrels of wine exposed for
sale in the retail place must be stamped, but where dealers are
limited by local regulations to sales for consumption off the premises ,
such barrels need not be stamped, but the stamps shall be affixed
to the containers in which the wine is delivered to the consumer.
Respectfully,
DAVID A. GATES ,
Mr.
81
(T. D. 2339. )
Alcoholic medicinal preparations.
Preparations to be added to list of alcoholic medicinal preparations appearing in T. D.

2222 ofJune 25, 1915, for the sale of which special tax is required .
Washington, D. C., June 3, 1916.
To collectors ofinternal revenue, revenue agents , and others concerned:
The following-named preparations have been found upon exami
nation to be insufficiently medicated to be unsuitable for use as bev
erages . Accordingly, the same are classed as compound liquors and
special-tax liability as liquor dealer is incurred on account of the sale
thereof:
Name. Manufacturer.
Best Bitters. A. J. Lukwinski, Cleveland, Ohio.

Carmeliter Bitters-Dark-Elixir of Life Burhenne & Dorn, 347 Hamburg Avenue, Brooklyn, N. Y.
Carmeliter Bitters E-Z Laxative .. Do.
Carmeliter Bitters- Light- Tonic and Appe Do.
tizer.
Carmeliter Ginger Brandy.... Do.
Ferro-China- Florentino. Commercial Wine & Bottling Co. , 182 Commercial Street
Boston, Mass.
The liability of dealers for sales of the above preparations for medic
inal use will be held to date from and after July 1 , 1916 .
DAVID A. GATES ,
(T. D. 2340. )
Narcotic Law-Decision of United States Supreme Court.

1. THE LAW IS A REVENUE MEASURE .
It is assumed that the statute has a moral end as well as revenue in view, but it
reaches this end within the limits of a revenue measure .
2. THE WORDS "ANY PERSON NOT REGISTERED ."
The words " any person not registered " in section 8 must be taken to refer to
the persons who are required to register.
3. JUDGMENT AFFIRMED .
The judgment of the United States District Court quashing the indictment on
the ground that the statute did not apply to possession of opium by a person not
registered (225 Fed . , 1003) is affirmed .
Washington, D. C. , June 19, 1916.
The appended decision of the Supreme Court in the case of United
States v. Jin Fuey Moy, is published for the information of internal
DAVID A. GATES ,
24433°-VOL 18-166
82
SUPREME COURT OF THE UNITED STATES. No. 525. OCTOBER Term, 1915.
United States, plaintiff in error, v. Jin Fuey Moy.

IN ERROR to the District Court of the United States for the Western District of Pennsylvania
[June 5 , 1916. ]
Mr. Justice HOLMES delivered the opinion of the court:
This is an indictment under section 8 of the act of December 17, 1914 (c . 1 , 38 Stat.,
785, 789 ) . It was quashed by the District Court on the ground that the statute did
not apply to the case (225 Fed . , 1003) . The indictment charges a conspiracy with
Willie Martin to have in Martin's possession opium and salts thereof- to wit, 1 dram
of morphine sulphate . It alleges that Martin was not registered with the collector
of internal revenue of the district and had not paid the special tax required ; that
the defendant for the purpose of executing the conspiracy issued to Martin a written
prescription for the morphine sulphate, and that he did not issue it in good faith , but
knew that the drug was not given for medicinal purposes , but for the purpose of
supplying one addicted to the use of opium. The question is whether the posses
sion conspired for is within the prohibitions of the act.
The act is entitled "An act to provide for the registration of, with collectors of
internal revenue, and to impose a special tax upon all persons who produce , import,
manufacture, compound , deal in, dispense, sell, distribute, or give away opium or
coca leaves, their salts , derivatives, or preparations, and for other purposes . " By
section 1 the persons mentioned in the title are required to register, and to pay a
special tax at the rate of $ 1 per annum, with certain exceptions, and it is made un
lawful for the persons required to register to produce , etc. , the drugs without having
registered and paid the special tax . All provisions of law relating to special taxes
are extended to this tax . By section 2 it is declared unlawful for any person to sell
or give away the drugs mentioned without a written order, provided for , excepting
deliveries by physicians , etc. , or on their order , and certain other cases . Then,
after provision for returns it is made unlawful by section 4 for any person who shall
not have registered and paid the special tax to send , carry, or deliver the drugs in
such commerce as Congress controls, again with exceptions . By section 6 prepara
tions containing certain small proportions of the drugs are excluded from the operation
of the act, under conditions. By section 7 internal-revenue tax laws are made ap
plicable, and then comes section 8, under which the indictment is framed .
By section 8 it is declared unlawful for " any person " who is not registered and has
not paid the special tax to have in his possession or control any of the said drugs,
and " such possession or control " is made presumptive evidence of a violation of this
section and of section 1. There is a proviso that the section shall not apply to any
employee of a registered person and certain others, with qualifications , or to the pos
ession of any of the drugs which have been prescribed in good faith by a physicians
registered under the act, and to the possession of some others. And , finally, it is
provided that the exemptions need not be negatived in any indictment, etc. , and
that the burden of proving them shall be upon the defendant . The district judge
""
considered that the act was a revenue act, and that the general words "any person
must be confined to the class of persons with whom the act previously had been pur
porting to deal . The Government , on the other hand , contends that this act was passed
with two others in order to carry out the international opium convention (38 Stat.,
pt . 2, 1929) ; that Congress gave it the appearance of a taxing measure in order to
give it a coating of constitutionality, but that it really was a police measure that
strained all the powers of the legislature , and that section 8 means all that it says,
taking its words in their plain , literal sense.
A statute must be construed , if fairly possible, so as to avoid not only the conclusion
that it is unconstitutional, but also grave doubts upon that score. United States v.
I
83
Delaware & Hudson Co. ( 213 U. S. , 366, 408 ) . If we could know judicially that no
opium is produced in the United States , the difficulties in this case would be less , but
we hardly are warranted in that assumption when the act itself purports to deal with
those who produce it (sec . 1 ) . Congress, at all events, contemplated production in
the United States , and therefore the act must be construed on the hypothesis that it
takes place. If opium is produced in any of the States, obviously the gravest ques
tion of power would be raised by an attempt of Congress to make possession of such
opium a crime. United States v . De Witt (9 Wall . , 41 ) . The Government invokes
Article VI of the Constitution, that treaties made under the authority of the United
States shall be the supreme law of the land . But the question arises under a statute,
not under a treaty . The statute does not purport to be in execution of a treaty , but
calls itself a registration and taxing act. The provision before us was not required
by the opium convention , and whether this section is entitled to the supremacy
claimed by the Government for treaties is, to say the least, another grave question,
and, if it is reasonably possible, the act should be read so as to avoid both .
The foregoing consideration gains some additional force from the penalty imposed
by section 9 upon any person who violates any of the requirements of the act . It is
a fine of not more than $2,000 or imprisonment for not more than five years , or both,
in the discretion of the court. Only words from which there is no escape could war
rant the conclusion that Congress meant to strain its powers almost , if not quite , to the
breaking point in order to make the probably very large proportion of citizens who
have some preparation of opium in their possession criminal , or at least prima facie
criminal, and subject to the serious punishment made possible by section 9. It may
be assumed that the statute has a moral end as well as revenue in view, but we are
of opinion that the District Court, in treating those ends as to be reached only through
a revenue measure and within the limits of a revenue measure, was right .
Approaching the issue from this point of view, we conclude that " any person not
registered " in section 8 can not be taken to mean any person in the United States , but
must be taken to refer to the class with which the statute undertakes to deal-the
persons who are required to register by section 1. It is true that the exemption of
possession of drugs prescribed in good faith by a physician is a powerful argument,
taken by itself, for a broader meaning. But every question of construction is unique,
and an argument that would prevail in one case may be inadequate in another. This
exemption stands alongside of one that saves employees of registered persons, as do
sections 1 and 4, and nurses under the supervision of a physician , etc. , as does section 4 ,
and is so far vague that it may have had in mind other persons carrying out a doctor's
orders rather than the patient's. The general purpose seems to be to apply to pos
session exemptions similar to those applied to registration . Even if for a moment
the scope and intent of the act were lost sight of, the proviso is not enough to over
come the dominant considerations that prevail in our mind.
Judgment affirmed.
Mr. Justice HUGHES and Mr. Justice PITNEY dissent.
(T. D. 2341. )
Deputy collectors to give personal receipts for collections.

After careful consideration, this office has reached the conclusion
that, in order thoroughly to protect the interests of both the tax
84
payer and the Government, some evidence of payment should be

given at the time to taxpayers who pay taxes directly to deputy
collectors , and that such a receipt as herein described is not in viola
tion of section 3183 , which prohibits the issuance of a receipt in lieu
of a stamp .
You are therefore instructed to direct your deputies hereafter to
give to special and other taxpayers, at the time of payment, a personal
receipt for moneys collected , substantially in the following form :
Received of John Doe $- > to be forwarded to the collector to cover special tax
due as
In case the payment is for stamp tax or for amounts other than
special tax, the form of receipt may be modified accordingly.
DAVID A. GATES ,
Approved, direction of the Secretary :
WM. P. MALBURN,
Assistant Secretary ofthe Treasury.
(T. D. 2342.)
Spirits Coloring.
Brandy owned and stored by the distiller in special bonded warehouse for export
may be colored . Existing regulations as to coloring brandy at distillery extended
to such cases by virtue of section 3255 , Revised Statutes.
I
GENTLEMEN : Your letter of the 10th instant is at hand, in which
you state that you have a request from the to be advised as
to the opinion of this office whether California wine spirits (brandy) I
of about 180 ° proof may be colored in bond for export . You state
that you are informed that has an order for 1,000 barrels of
this brandy for export to but the customers object to the
white color, and you ask whether, under the circumstances, coloring
matter may be added to the spirits in bond for exportation. It is
understood that the spirits in question are now in special bonded
warehouse.
In reply, you are informed that under existing regulations the
desired permission could not be granted , since the provisions allowing
the addition of burnt sugar to brandy by the distillers thereof are
limited to the product while on the distillery premises and in the
original packages, or to the brandy in bulk, before the same is drawn
off into merchantable packages. (Second full paragraph, p . 204 , No.
7-Revised July 10 , 1914.)
My attention has been called , however, to the fact that section
3255 , Revised Statutes, authorizes the Commissioner of Internal
85
Revenue, with the approval of the Secretary of the Treasury, to ex

empt distillers of brandy from the materials therein mentioned from
any provision of the law relating to the manufacture of spirits except
as to the tax thereon, when, in his judgment, it may seem expedient
so to do.
It does not appear to me that the extension of the desired relief
in this case would afford any special opportunity for fraud on the
revenue, and , under the circumstances, I am disposed , with the
approval of the Secretary of the Treasury, to extend the exemption
under which distillers of brandy are allowed to add burnt sugar to
brandy while on the distillery premises so as to include brandy owned
and stored by the distiller in packages in special bonded warehouse
which is to be exported in bond . In such case, the burnt sugar must
be added in the presence of the storekeeper-gauger under assignment
to the warehouse and after the brandy has been gauged for with
drawal for export and before the export stamp is affixed .
Approved :
W. G. McADOO ,
Messrs .
(T. D. 2343.)
Income tax-Allowance for depreciation of buildings —Charge to the jury.

1. DEPRECIATION DEPENDS ON LIFE OF BUILDING.
The physical loss or deterioration a building suffers during the tax year depends
on the life of the building ; how many years it would remain so as to be habitable
for the general purposes for which it was constructed .
2. YEARLY DEDUCTION .
The average amount of deduction each year covers the annual percentage.
3. DEDUCTIONS FOR IMPROVEMENTS .
When allowance is made for depreciation of a building no deduction shall be
allowed for expense of restoring the building or making good the exhaustion thereof.
4. EXHAUSTION , Wear, and Tear.
The words " exhaustion , wear, and tear " of a building contemplates only depre
ciation of the physical property itself, irrespective of its adaptability to the use
originally intended or the changing environments.
5. DECREASE IN RENTAL Value .
No allowance can be made for depreciation by reason of decrease in rental value
nor in value arising from lack of modern improvements.
Washington, D. C. , June 27, 1916 .
The appended charge of the court to the jury in the District Court
of the United States for the Southern District of New York, in the
86
case of Hyman Cohen v. John Z. Lowe, collector, is published for the

information of internal-revenue officers and others concerned.
DAVID A. GATES ,
UNITED STATES DISTRICT COUrt, Southern DISTRICT OF NEW YORK.
Hyman Cohen, plaintiff, v. John Z. Lowe, collector, defendant.
CHARGE OF THE COURT.
GRUBB , Judge: Gentlemen of the jury , this is an action by the plaintiff, Mr. Cohen,
who has paid the income tax for the year 1913 , to the Government on the Government
basis, and claims that he paid in excess of what the law would have required him to
pay, and , therefore , has brought this suit to recover back the excess .
There are three items on which he claims he overpaid the Government when he
made the payment on the income tax ; two of them are matters of law as to which there
is no question of fact, and which do not require consideration of the jury at all , but
require the decision of the court without a jury ; the other one depends upon a question
of fact, and not upon a question of law, and is therefore properly determinable by a
jury, with instructions from the court.
The plaintiff is suing to recover that excess from the Government, having already
paid the tax under protest. The item which requires your decision relates to the
amount of depreciation in the building that he owned at No. 320 West Eighty-fourth
Street during the tax year of 1913. The law requires him to pay a tax on the net
income derived from that building, and it allows him, as a deduction from the amount
of net income which he receives, among other things, this deduction :
A reasonable allowance for the exhaustion , wear, and tear of property arising out of
its use or employment in the business, not to exceed , in the case of mines, 5 per cent
of the gross value, at the mine, of the output for the year for which the computation
is made , but no deduction shall be made for any amount of expense of restoring prop
erty or making good the exhaustion thereof, for which an allowance is or has been
made.
So the question to be submitted to you for decision arises under the provision of
law allowing that deduction .
There is no question that the plaintiff was entitled to a deduction for wear and tear
of this building, and the Government allowed him, I believe , 3 per cent-he claims
5 per cent and the question for you to determine is whether he is entitled to any
greater allowance for depreciation over and above what the Government allowed him,
which is 3 per cent.
The burden would be upon him reasonably to satisfy you from the evidence that
he was entitled to an allowance of an amount greater than 3 per cent in order to obtain
that allowance because , as I say , he is the plaintiff asserting the claim. You will see
from the language of the law itself that the allowance is for wear and tear when it !
relates to a building and exhaustion when it relates to mines or property of that kind ,
but wear and tear when it relates to a building; that means the physical deterioration
that a building suffers during the tax year ; it does not include the depreciation in value
due to a loss in rental value, because of modern buildings going up with better facilities
than the old building had; that is not the idea.
I
The idea is the amount of physical loss or deterioration that the building suffers
during the tax year-that , of course , is a narrow question . It depends upon what you T
believe would be the life of the building , the length of life , the number of years that
the building would remain in a condition to be habitable for the uses for which it was
87
constructed , not merely how many years it would stand without being condemned and
torn down, but how many years , in your judgment from the evidence, it would remain
so as to be habitable for the general purposes for which it was constructed —that is, in
this case, for use as an apartment house . That would be the life of the building, and
when you arrive at that you could readily ascertain the amount of annual depreciation
that the building would suffer, because it would be fair to assume that the deteriora
tion would have accrued over the life of the building, and the average amount of de
duction each year for depreciation would cover the annual percentage.
The parties have agreed that you might render your verdict in the form of a special
verdict ; that is, by determining what, if any, percentage over and above the 3 per
cent the plaintiff is entitled to for depreciation . If he has not reasonably satisfied you
from the evidence that he is entitled to any percentage over the 3 per cent , then you
can just bring in a verdict on that issue for the defendant, the Government , because
they have already allowed him 3 per cent. If you are reasonably satisfied from the
evidence that the plaintiff is entitled to more than 3 per cent, then the parties have
agreed that you should render a verdict for the plaintiff in the form of percentage ; that
is, what percentage it would be over 3 per cent that you find the plaintiff is entitled to ,
and your verdict in that event might be at any figure between 3 and 5 per cent. It is
admitted that the plaintiff claims only 5 per cent .
So you are to determine here two questions : In the first place , whether there is any
excess over 3 per cent allowable for the building during the tax year of 1913. If you
fail to be reasonably satisfied from the evidence that there is any excess , then you will
return a verdict for the Government, the defendant in this case. If you are reasonably
satisfied from the evidence that the allowance made by the Government was too small ,
then it would be your duty to return a verdict indicating what your belief from the
evidence is as to the proper rate of depreciation which should be allowed him, if it
should be in excess of 3 per cent, and return that verdict.
As I say, it is conceded that the plaintiff does not claim he is entitled to more than 5
per cent for depreciation ; the law itself mentions 5 per cent, but that only relates to
exhaustion of mines by taking the ore out of it ; it has no limitation or effect on this
question of depreciation on a structure .
As to the evidence, you heard the testimony read to you of the two witnesses, Mr.
Kempner and Mr. Cohen, the plaintiff, and you heard Mr. Garber, a witness for the
Government, testify orally Those are the witnesses whose testimony you are to con
sider as relating to the question of the amount of depreciation properly allowable for
the use of this building during the tax year of 1913. Look at them with the idea of
making up your proper judgment as to what the life of the building would be, in years,
and how much, on that basis, it would be proper to allow each year for depreciation ,
and when you arrive at that you have arrived at the matter submitted to you for your
decision.
I have some requests to charge which I will read to you along with what I have
already said , they being part of the law of the case. These requests are asked by
the Government :
You are instructed that the only deduction for depreciation of this building to
which plaintiff is entitled on his income-tax return is a reasonable allowance for the
exhaustion, wear, and tear of the building, arising out of its use as an apartment
house, and no deduction shall be made for any amount of expense of restoring the
building, or making good the exhaustion thereof, for which an allowance is otherwise
made by you, or has already been made by the Commissioner of Internal Revenue ;
you shall allow no deduction for any amount paid out for permanent improvements
or betterments made to increase the value of the building.
Of course, what he has spent out for repairs, he has already taken off by only return
ing the net income, so that that naturally is not considered under this deduction,
which is an additional deduction after the net income is arrived at.
88
You are further instructed that the words " exhaustion, wear, and tear of the
building, arising out of its use as an apartment house, " contemplate only deprecia
tion of the physical property itself, irrespective of outside influences on its value,
or its adaptability to the use originally intended , or to the environments in which it
finds itself after a period of years.
You are further instructed that plaintiff is not entitled to any allowance for depre
ciation by reason of the decrease in the rental value of the building or by reason
of a decrease in the income derived therefrom.
You are further instructed that plaintiff is not entitled to any allowance for depre
ciation by reason of the decrease in the value of the building, arising from its lack of
modern improvements and from its antiquity in that respect caused by the advance
in the art of constructing apartment buildings with modern and up-to-date improve
ments, arrangements, and conveniences.
Mr. MATTHEWS. I would also ask your honor to instruct the jury that it is to be
assumed in this case, since the ordinary wear and tear improvements were made to
the building in 1913, that such would be the case throughout its life.
THE COURT. I think that is true, gentlemen of the jury. The life of the building
is to be measured upon the basis of the owner of the building keeping it in proper
repair during the future as well as during the tax year.
Just return your verdict in the shape of a percentage you agree on, if any, over
and above the 3 per cent; if you do not agree to any percentage above 3 per cent,
then just bring in your verdict for the defendant.
Take the case, gentlemen.
(Whereupon the jury retired, and rendered a verdict in favor of the defendant .)
Mr KAYE . I should just like to ask the question whether the jury considers 3 per
cent an adequate allowance.
THE FOREMAN OF THE JURY. Yes, sir.
(T. D. 2344.)
Income tax.
Authorization of acceptance by debtor corporations and withholding agents of owner

ship certificates on old Form 1004, revised , prior to October 1, 1916, when properly
executed and stamped before presentation.
Where income-tax ownership certificates (old Form 1004 , revised)
have been executed by nonresident alien individuals to accompany
coupons detached from bonds or other obligations of domestic cor
porations, they may be accepted by debtor corporations and with
holding agents prior to October 1 , 1916 , if the words " not exempt "
are stamped in large type across the face of certificates before presen
tation , and debtor corporations and withholding agents will be held
liable for the normal tax of 1 per cent.
Where the certificates executed on old Form 1004, revised , disclose
ownership to be that of foreign firms, corporations, or organizations,
89
they may be accepted in lieu of certificates on Form 1001 , revised ,

when presented prior to October 1 , 1916 , and debtor corporations
and withholding agents will not be held liable for the tax.
DAVID A. GATES ,
Approved :
W. G. MCADOO ,
(T. D. 2345.)
Act of August 5, 1909- Special excise tax on corporations Decision

of United States Court of Claims.
1. THE MINEHILL DECISION IN THE SUPREME COURT.
Decision in the Minehill case (228 U. S. , 295 ; T. D. 1847) does not apply where
a corporation is organized for the ostensible purpose of building and operating a
railroad and leases the road before it is built.
2. DOING BUSINESS .
If a corporation is doing the business for which it was organized , the income
derived from such business is taxable under the act of August 5 , 1909.
3. CORPORATIONS ORGANIZED TO BUILD AND LEASE PROPERTY.
If the purpose for which it was organized was to build and lease property, the
rents derived from such lease are taxable, even though thereby the corporation
leases all the property and of necessity goes out of all corporate business excepting
the collection and distribution of its rents.
4. CONTRACT TO LEASE .
Where a contract to lease was executed and lessees enter into possession of the
property under the contract and remain in possession, paying the rental, the result
is the same as if a formal lease had been executed and the relation of landlord and
tenant existed .
Washington, D. C. , July 7, 1916.
The appended decision of the United States Court of Claims , in
the case of Rio Grande Junction Railway Co. v. United States , is
concerned.
DAVID A. GATES ,
COURT OF CLAIMS OF THE UNITED STATES . No. 32746.

Rio Grande Junction Railway Co. v. United States.
[Decided May 29, 1916. ]
BARNEY, Judge, delivered the opinion of the court :
This suit is brought by the plaintiff to recover the sum of $2,279.39 collected from it
as a corporation tax for the year 1912 under the provisions of section 38 of the act of
August 5, 1909 (36 Stat. , 11, 112-117).
90
The plaintiff is a railway corporation, organized under the laws of the State of
Colorado. Its articles of incorporation authorized it to “ mortgage or lease the whole
or any part of such railroad with the improvements thereon at pleasure " ; and by a
special act of the General Assembly of the State of Colorado it was authorized “ to
lease its entire railroad, assets, and property of every description whatever to any
railroad company ." On the 24th day of December, 1899, the plaintiff, as party of the
first part, entered into a contract with the Denver & Rio Grande Railroad Co. and
the Colorado Midland Railway Co. , as parties of the second part, which provided in
substance as follows: After some recitations showing that the plaintiff company was
then engaged in the construction of the railroad authorized by its articles of incorpora
tion, and for that purpose had authorized the issue of two millions of first-mortgage
gold bonds, and that the other two companies desired the possession and use of this
railroad for junction purposes, it was agreed (1) that the parties of the second part
would guarantee the payment of said gold bonds ; (2 ) that the plaintiff company would
complete its railroad in all respects except rolling stock on or before May 1 , 1890 ; (3)
after such completion or sooner, at the joint request of said other two companies, it
agreed to execute and deliver to them a lease of said junction railroad for the term of
50 years from the 1st day of January, 1890. In consideration of the execution of
said lease the parties of the second part agreed to pay to the plaintiff company as rent
for its said railroad 30 per cent of its gross earnings, said rent to be first applied to
the payment of the coupons of said gold bonds, and the surplus, if any, in such manner
as the board of directors of the plaintiff company should direct ; also that said parties
of the second part would pay all taxes assessed and levied against said railroad property
and betterments and improvements during the terms of such lease. Said contract also
provided that it was not to take effect until ratified by the shareholders of all of said
parties, in accordance with the laws of the State of Colorado. 1
It appears that the laws of the State of Colorado require such contracts to be ratified
by two-thirds of said shareholders at a meeting called for that purpose, and that require
ment seems to have been satisfied.
Immediately upon the completion of said junction railway said parties of the second
part entered into its possession and use, under said contract, and have continued in
such possession and use ever since, paying to the plaintiff the rent therefor as provided
to be paid in the lease agreed to be executed in said contract.
Since the execution of said contract the only business transacted by the plaintiff
has been the collection of its rental under said contract, the payment of the interest on
said gold bonds, and the distribution of dividends among its stockholders. For the
year 1912, less its exemption, the income of the plaintiff was $221,299.56 , upon which
a tax of $2,213 was assessed by the collector of internal revenue at Denver, Colo. ,
and demanded of the plaintiff . Payment of this tax was refused , and afterwards
three months' interest on this sum was added for failure to pay the tax before July 1 ,
1913, making the whole tax subsequently demanded $2,279.39, which was paid by
the plaintiff under protest. It is for the recovery of this sum that this suit is brought,
the plaintiff contending that it was not due under the provisions of the corporation tax
act of August 5 , 1909, which act, so far as it relates to the question involved in this case,
is as follows:
That every corporation **
* * * organized for profit and having a capital stock*
represented by shares * *
and engaged in business in any State
shall be subject to pay annually a special*excise tax with respect to carrying on or
*
doing business by such corporations * equivalent to 1 per cent upon the
entire net income over and above $5,000 received by it from all sources during such
year, exclusive of amounts received by it as dividends upon
up stock of other corpora
tions * * subject to the tax hereby imposed. *
Such net income shall be ascertained by deducting from the gross amount of the
* *
income of such corporation , * received within the year from all sources
(first) all the ordinary and necessary expenses actually paid within the year out of
income in the maintenance and operation of its business and properties, including all
91
charges, such as rentals or franchise payments, required to be made as a condition to

the continued use or possession of the property ; (second ) all losses actually sustained
within the year and not compensated by insurance or otherwise, including a reasonable
*
allowance for depreciation of property * * (36 Stat. , ch. 6 , pp . 11 , 112-117 . )
This statute has been construed by the Supreme Court in several cases , and the
decisions of that court in the following cases will be briefly noted :
In the case of Zonne v. Minneapolis Syndicate (220 U. S. , 187) the defendant was a
corporation organized for and engaged in the business of letting stores and offices in a
building owned by it, and collecting and receiving rents therefor . This corporation
demised and let all of the real estate belonging to it to another party for the term of 130
years . Subsequently it caused its articles of incorporation to be so amended as to make
its sole business the holding of the title of said real estate subject to said lease, and the
distribution of its rentals therefor as well as the proceeds of any sale of the same among
its stockholders . The court held that under these circumstances said corporation was
not engaged in doing business within the meaning of said act. Justice Day, who
delivered the opinion of the court, said : " Upon the record now presented we are of the
opinion that the Minneapolis Syndicate, after the demise of the property and reorgani
zation of the corporation , was not engaged in doing business within the meaning of the
act. It had wholly parted with control and management of the property ; its sole au
thority was to hold the title subject to the lease for 130 years, to receive and distribute
the rentals which might accrue under the terms of the lease, or the proceeds of any sale
of the land if it should be sold . "
The case of McCoach v. Minehill & Schuylkill Haven Railway . Co. (228 U. S. , 295) ,
presented the following facts: The Minehill Company was a corporation incorporated by
the Legislature of the State of Pennsylvania for the purpose of constructing and opera
ting a railroad , and under its charter had built a railroad and operated it for many years.
Under the authority of the legislature it leased its railroad and all of the appurtenances
thereto belonging unto the Philadelphia & Reading Railway Company for a term of
999 years from January 1 , 1897. Pursuant to this lease the entire railroad and all the
property connected with it was turned over to the Reading Company and since then
has been operated by that company. The Minehill Company has since kept up its
corporate existence , collected and distributed its rents, maintained offices , stock
books , etc. The court decided that it was not subject to the tax imposed by this act .
In the opinion in that case, delivered by Mr. Justice Pitney , it was said ( Id. , 305 , 306):
As to these matters the case is governed by what was said by the court in Flint v.
Stone Tracy Co. (220 U. S. , 145) :
"It is therefore apparent, giving all the words of the statute effect, that the tax is
imposed not upon the franchises of the corporation irrespective of their use in busi
ness, nor upon the property of the corporation, but upon the doing of corporate or
insurance business and with respect to the carrying on thereof. "
And again (p . 150) :
"The tax is not payable unless there be a carrying on or doing of business in the
designated capacity, and this is made the occasion for the tax, measured by the stand
ard prescribed ."
Also (Id. , 306 ) :
"In our opinion the mere receipt of income from the property leased (the property
being used in business by the lessee and not by the lessor) and the receipt of interest
and dividends from invested funds, bank balances, and the like, and the distribution
thereof among the stockholders of the Minehill Co. , amount to no more than receiv
ing the ordinary fruits that arise from the ownership of property ."
The same doctrine is adhered to in the later case of Emery , Bird & Thayer Realty
Co. v. United States (237 U. S. , 28) , where it is said :
The question is rather what the corporation is doing than what it could do.
But it is contended by the defendants that this case does not come within the
decisions cited , because the plaintiff has never leased its property . We do not agree
with this contention. A contract to make a lease was executed ; the lessees entered
92
into possession of the property under this contract, paid the agreed rental and have
remained in such possession and continued to pay such rental ever since . Thus it
appears that the relation of landlord and tenant in fact has during all that period been
maintained . Many authorities might be cited to the proposition that the facts stated
created a tenancy, and the relation of landlord and tenant. Cheney v . Newberry &
Co. (67 Cal. , 125) ; Neppach v . Jordan (15 Oreg. , 308) ; 24 CYC. , 884, and cases cited ;
Taylor's Landlord and Tenant ( sec . 43 et seq).
However, whatever may be the strict legal definition of the relation of the parties
in such a case as this, the result of such a transaction is exactly the same as the formal
lease provided for if the agreement had in fact been executed . Pratt v. Hudson River
Railroad Co. (21 N. Y. , 305) ; Sanders v . Pottlitzer (144 N. Y. , 209) . It is certain that
so long as the agreed rent was paid there could have been no eviction of the tenants
in fact, and if there had been a failure to pay the rent agreed upon in the contract an
action at law could have been maintained to recover it. If either party had refused
to execute the lease as agreed , the other party could have compelled such execu
tion by proceedings in equity . In the meantime it would seem to be a case for the
application of one of the maxims of equity jurisprudence that equity looks upon that
as done which ought to have been done.
We do not think, however, the case presented by the plaintiff comes within the
cases cited, for reasons which we will proceed to give. Its articles of incorporation
show that it was designed as a junction company ; that is to say, that it was intended
as a connecting line between other lines named . The contract for a lease was executed
within six months after the date of its articles of incorporation, and by its terms it may
be well inferred that the lessees guaranteed the payment of all funds borrowed for its
construction, and from the latter fact it may well be inferred that its construction was
not begun until these bonds were issued and their payment guaranteed . It does not
appear that this company ever purchased or owned any rolling stock or anything per
taining to the operation of a railroad except its track and appurtenances necessary for
the use of rolling stock. As soon as said junction railroad was completed the lessees
took possession of it and have been operating it ever since. Shortly after it was incor
porated and before the execution of the agreement the General Assembly of Colorado
authorized the plaintiff to lease its railroad (not then built) , which must have been
for the purpose of making doubly certain what the articles of incorporation already
seemed to allow. These facts lead to but one conclusion , and that is that the " busi
ness " for which the plaintiff was incorporated was to build and lease a junction railroad
and enjoy the profits of that business alone. It never equipped a railroad for use as
such and never intended to, as all the facts go to show. If plaintiff is allowed to evade
payment of the corporation tax in this way, we see no reason why this practice can not
be followed in the construction hereafter of every railroad and thus evade the payment
of a large percentage of the tax upon the net income of railway corporations.
In the McCoach case, supra , Mr. Justice Pitney , in delivering the opinion of the
court, said : "From the facts as stated above it is entirely clear that the Minehill
Co. was not during the years 1909 and 1910 engaged at all in the business of
maintaining or operating a railroad, which was the prime object of its incorporation. "
[ Italics ours. ] (Id . , 303–304 . ) In the instant case plaintiff was not during the time
for which it was taxed "‘ engaged at all in the business of maintaining or operating a
railroad, " and that was not the " prime object of its incorporation . " In fact, it has
been from the beginning engaged in the prime object of its incorporation , which is
the leasing of a junction railroad and distributing the rent among its stockholders. In
other words, the plaintiff organized for the purpose and only purpose of building and
leasing this one particular road and , as a necessary consequence, of collecting and dis
tributing among its stockholders the rents received . It has performed the first purpose
and is now engaged in the second .
In the Flint case, supra, Mr. Justice Day, who delivered the opinion of the court,
said (at p. 150) : " In the present case the tax is not payable unless there be a carrying
l
93
on or doing of a business in the designated capacity " * [ Italics ours.] As we

think we have already shown, whatever powers the plaintiff by its articles of incor
poration may have had , it exercised and only intended to exercise the one designated
capacity of building and leasing a junction railroad , and it was upon the income
derived from this lease that it was taxed .
In the case of Park Railroad Co. , cited in the McCoach case (228 U. S. , at pp . 311,
312), it appears that the corporation was " organized to work, develop , sell, and convey
real estate ; to lease, exchange, hire, or otherwise acquire property; to erect, alter, or
improve buildings ; to conduct, operate, manage, or lease hotels, etc. It appeared
that at the time of the imposition of the tax the sole business or property owned by
the realty company was the Hotel Leonori. It was leased for 21 years at an annual
rental of $55,000 . The corporation was engaged in no business, except the manage
ment and lease of that hotel property, and was in receipt of no other income than that
derived from its rental, and has no assets other than that property and the income
thereof. It was held to be doing business within the meaning of the act. ' There
was no extended report of the proceedings on appeal in that case, but the decision
appears to have been as stated in the above quotation.
From all these cases we believe the true doctrine to be that if a corporation is doing
the business for which it was organized the income derived from such business is
taxable under the act of August 5, 1909, supra. If the purpose for which it was organ
ized was to build and lease property, then the rents derived from such lease are taxable,
even though thereby the corporation leases all the property and of necessity goes out
of all corporate business excepting the collection and distribution of its rents. We
do not believe a corporation should be allowed to organize for the ostensible purpose
of building and operating a railroad and then lease the road before it was built under
such circumstances as to show that that was its original and only purpose, and thereby
evade the payment of the corporation tax.
It follows from the foregoing that the petition should be dismissed , and it is so
ordered .
All concur.
(T. D. 2346.)
Corporation taxes- What acts constitute doing business in the United
States- Court decision.
1. DOING BUSINESS IN UNITED STATES .
A Canadian company held to have engaged in business in the United States,
rendering its net income liable to taxation, when there receiving large quantities
of material consigned to itself and storing it, hiring and paying for storage room
therefor, delivering it to customers, purchasers thereof, soliciting contracts by
agents for the purchase and supply of same, renting and paying rent for a room for
doing the business, depositing and collecting the checks received in payment and
paying the expenses of the business therefrom. (231 Fed ., 223.)
2. SINGLE ACT.
The terms " doing business within the State ' or “ doing or transacting business
in the United States' do not include the doing of a single act or the making of a
single contract, but do include a continued series of acts by an agent or agents
continuously within the State or the United States, as the case may be. (231 Fed .,
223.)
OFFICE OF COMMISSIONER OF INTERNAL Revenue,
The appended decision of the District Court of the United States
for the Northern District of New York in the case of Laurentide
94
Co. (Ltd.) v. Durey and Irwin, collectors of internal revenue, is

concerned .
DAVID A. GATES ,
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF NEW YORK.

Laurentide Co. (Ltd.) v. Cyrus Durey, collector of internal revenue. Laurentide Co
(Ltd.) v. Roscoe Irwin, collector of internal revenue.
RAY, District Judge: The assessment of the taxes above referred to and their pay
ment to the collectors above named under protest is not in question . Complainant
took all preliminary steps essential to the commencement of the actions. The ques
tion is, Were such taxes legally assessed and properly paid under and on the returns
made and facts shown? or, to put the question another way, Was the complainant, on
the returns made and facts shown, exempt from the assessment and payment of the
taxes mentioned on the ground it was a foreign corporation and was not doing business
in the United States within the meaning of the laws referred to?
Section 38 of the act of 1909, " An act to provide revenue, equalize duties , and
encourage the industries of the United States, and for other purposes " (36 Stat. , pt.
1, pp. 112, 113), provides
That every corporation * * * crganized for profit and having a capital stock rep
resented by shares *
*
*
now or hereafter organized under the laws of any foreign
country and engaged in business in any State or Territory of the United States, shall be
subject to pay annually a special excise tax with respect to the carrying on or doing busi
ness by such corporation, ** * * equivalent to one per centum upon the entire net
income over and above five thousand dollars received by it from all sources during such
year, exclusive of amounts received by it as dividends upon stock of other corporations,
* * subject to the tax hereby imposed ; or, if organized under the laws of any
foreign country, upon the amount of net income over and above five thousand dollars
received by it from business transacted and capital invested within the United States
and its Territories, Alaska, and the District of Columbia during such year, exclusive, etc.
Then follows a provision for ascertaining such net income by making deductions
from the gross income for operating expenses, etc. , and losses, depreciation, etc.
Special provision is made for the deduction of $5,000 and for a return or report by
the corporation.
February 29, 1912, the Laurentide Co. (Ltd. ) verified and filed with the collector
its return of annual net income for the year 1911 , giving its location, etc. , and paid-up
capital stock at $7,200,000, " no capital invested in United States of A. , " and bonded
indebtedness as $1,200,000 . This return gave its "gross income " as $162,291 , its
net income as $162,291, made no claim to deductions except the " specific deduction
from net income allowed by law, $5,000 , which was deducted , leaving $157,291 as
subject to the said tax. In this return no claim was made that the corporation was
not doing business in the United States.
The return for 1912 showed " gross income $725,238.93" ; deductions for maintenance
and operation of the business, $605,329.30, and for losses $19,348.37 ; “ net income,
$100,561.26, " and specific deduction from net income allowed by law $5,000 , leaving,
says the return, "amount on which a tax at 1 per centum is to be calculated for assess
ment, $95,561.26, " and on this sum the tax was assessed .
The return for 1913 gave gross income as $929,629.12, deductions for operating
expenses $733,669.22, total deductions, same $733,669.22, and "net income on which
tax at 1 per centum is calculated, " and on which it was calculated , $195,959.90,
95
These last two returns had written on the margin thereof "this company is not
doing business in the United States and this return is given under protest." The
collector held adversely to this clause .
Chapter 16, Laws of United States (act of Oct. 3, 1913 , 38 Stat. ) , being an act "to re
duce tariff duties and to provide revenue for the Government and for other purposes,"
section 2 provides, A, subdivision 1 , and G (a) (b)—
That there shall be levied , assessed, collected , and
* paid annually upon the entire
*
net income arising or accruing * a tax of 1 per centum per
* *from all sources
*
annum upon such income, and a like tax shall be assessed , levied , collected ,
and paid annually upon the entire net income from all property owned, and of every
business, trade, or profession carried on in the United States by persons residing else
where. G (a ) . That this normal tax hereinbefore imposed upon individuals likewise
shall be levied, assessed, and paid annually upon the entire net income arising or
accruing from all sources during the preceding calendar year to every corpora
tion * * * organized in the United States, no matter how created or organized ,
not including partnerships ; but if organized, authorized , or existing under the laws of
any foreign country, then upon the amount of net income accruing from business *
transacted and capital invested within the United States during such year . * *
(b) Provided: * *
Here follows a provision for deductions. The question presented is, Did the Lau
rentide Co. (Ltd. ) have “a net income from business transacted (by it) and capital
invested within the United States during such year, " the year for which return
was made (under protest) and the tax was imposed?
There is no claim it had capital invested in the United States, but it is insisted that
during each of the years mentioned ( 1911 , 1912 , and 1913) it transacted business in
the United States and derived the net income shown by the returns.
The facts proved by abundant evidence are as follows :
(1) The plaintiff was and is a foreign corporation organized and existing under the
laws of the Dominion of Canada.
(2) It was and is engaged in the manufacture and sale of paper used by printers
and newspaper concerns in printing newspapers.
(3) Its manufacturing plant and home office was and is at Grandmere, Quebec,
Dominion of Canada.
(4) It for a time in 1911 had desk room in New York City, occupied by a stenogra
pher and employee of the corporation, and in 1912 rented a room and opened up an
office in the city of New York, N. Y. , where it, by its agent and representative, did
business of and for the corporation in selling paper during the rest of 1912 and during
1913 .
(5) It had one and sometimes two traveling salesmen in the United States head
quarters in New York at such room, who traveled and solicited business and contracts
for the supply and purchase of paper manufactured by it in Canada. The corporation
owned the office furniture.
(6) These traveling salesmen or agents had power to solicit contracts in the United
States and agree upon terms, except price of goods, and insert same in printed form
contracts, ascertain from the home office in Canada by telephone the price they could ´
fix, have such contract signed by the purchaser or contracting party in the United
States , and then forward same by mail to the home office of the company in Canada
for acceptance or approval and signature by one of its executive officers, and return
to such salesman or agent for delivery to the customer in the United States, who then
delivered same . The contract was not to be binding on the corporation " unless
signed by one of its executive officers at Grandmere, P. Q.”
(7) These contracts were not for the manufacture of the paper, and sale and delivery
of same, but simply for the sale thereof; that is, as stated in the contract, " the paper
company agrees to sell , and the purchaser agrees to purchase, entire require
ments of newspaper used in the publication of (name of newspaper designated ) a
newspaper, published in the city of ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ tons of paper per • during
96
(time fixed) , according to terms and conditions, as set forth as follows " (then followed
terms as to delivery, etc.) .
(8) After such contracts were made, the Laurentide Co. consulted its own con
venience in providing for delivery, according to the terms of the contract, and shipped
the paper consigned to itself in such quantities as it saw fit, provided the quantity
was sufficient to fulfill the contract as to delivery from time to time as demanded , to
a point in the town or city where the purchaser under the contract carried on his or
its business of printing and publication, selected by itself and to some storehouse
selected by it where the paper was kept or stored until required for actual delivery
to the purchaser. The paper was shipped at the expense and risk of the said cor
poration and stored at its own risk, and such corporation (the seller) also paid the
warehouse or storage charges. The corporation had a standing contract with a cartage
company in New York City to deliver paper stored for it when called for by customers.
It had contracts with warehousemen to deliver the goods in storage when properly
called for by the purchasers as customers. The corporation also kept on hand , usually
in New York, paper to supply extra demands for paper. In fact, there was no de
livery to the purchaser until called for by it under the contract, and then delivery
was made from the storehouse or warehouse of the corporation in the town or city
where the purchaser did its business. Insurance, if any, was paid by the corporation,
and in fact the paper, until actually delivered , was held , stored , and owned by the
said Laurentide corporation.
(9) The corporation also purchased supplies, etc. , for its plant in Canada in the
United States.
(10) The corporation had a bank account at a bank in Glens Falls , N. Y. , where
checks given in payment for paper were deposited for collection and on which checks
in payment for supplies purchased and of salesmen were drawn. Balances not
required for current business were sent to the home office in Canada.
(11) Occasionally a customer from the United States would personally visit the
home office and execute his contract and occasionally a contract called for some deliv
eries f. o. b. on the cars at the plant in Canada. These were exceptional cases.
The question is, Was the Laurentide Co. (Ltd. ) " engaged in business in any State
or Territory of the United States " so as to make it liable for a special excise tax " with
respect to the carrying on or doing business by such corporation "? This tax, under
the act of 1909 , is to be assessed and paid “ upon the amount of net income over and
above $5,000 received by it (such foreign corporation) from business transacted and
capital invested within the United States * * * during such year. " Under the
act of October 3, 1913, as to a foreign corporation , the tax is assessed and paid " upon
the amount of net income accruing from business transacted and capital invested
within the United States during such year." Hence the question is, Was " business
transacted " by such corporation during the year mentioned within the meaning of
the law?
In the one case we have " engaged in business " within the United States and in the
other " business transacted " within the United States.
When the Laurentide Co. employed and sent its agents clothed with power, even
though limited, into the United States to travel about and solicit customers or pur
chasers for its manufactured product, and paid their expenses , and hired and paid for
a place of business in the United States, even though but desk room , and empowered
such salesmen to make written contracts in part in the United States subject to its
approval in Canada, and when approved deliver them and did so ratify and have such
contracts delivered , paid rent, storage charges, and other expenses and also for the
work so done by checks drawn on a bank in the United States, where it kept, even
temporarily, its funds received for goods delivered in the United States to purchasers,
and then, to carry out and perform its written contracts so made, and which in nearly
all cases, were to be performed in the United States as to delivery of goods and in part
97
as to making payments therefor, shipped such goods consigned to itself into the United
States to different points, where it hired and paid for storage or warehouse room and
had them delivered to itself at such rooms, where it stored them for itself in its own
name and at its own risk pending delivery to the customer, and did this for its own
convenience and to insure delivery according to contract, and also shipped into the
United States and stored in like manner goods to meet anticipated demands, it did
business in the United States and " engaged in business " in the United States, and
also transacted business in the United States.
These business transactions were commenced within the United States by soliciting
contracts ; the making of the contracts by signing was consummated in Canada in part
but the delivery thereof was made in the United States. The corporation sent its
goods into the United States and stored them in its own name, retaining and having
complete title. It delivered from its own rented warehouses in the United States
and when payment was made to it by check it collected such checks in the United
States and deposited the proceeds to its own credit in its own bank account in the
United States and , as stated , paid all its liabilities incurred in the business done in
the United States by checks drawn on such bank account, and therefore made pay
ments completing the various transactions in the United States. True , some of the
business connected with these transactions was done in Canada . For instance, the
approval of the contracts and the shipping of paper into the United States, and the
receipt and indorsement of checks received prior to actual deposit for collection . All
the conditions of these contracts were not to be complied with in Canada. The most
of them and the more important ones were to be performed in the United States .
Here delivery was to be made and here the contract was solicited , agreed upon, and
signed by the purchaser. Here the Laurentide Co. had its property with which to
make deliveries in storage at its own expense in its own warehouses-those hired and
paid for by it.
Appropriating the idea of Mr. Justice Peckham, expressed in Pennsylvania L. M.
F. I. Co. v. Meyer ( 197 U. S. , at p. 415 ) , I think it would be somewhat difficult for the
Laurentide Co. (Ltd. ) or its able attorney to describe what it was doing in the United
States if it was not doing, carrying on, and transacting business therein when there
receiving large quantities of news paper consigned to itself and storing it , hiring and
paying for storage room therefor, delivering it to custumers, purchasers thereof, solicit
ing contracts by agents for the purchase and supply of same, renting and paying rent
for a room for doing the business , depositing and collecting the checks received in pay.
ment, and paying the expenses of the business therefrom, all done in the State of New
York in the United States. It was not necessary that the contracts should have been
made wholly in the United States-Pennsylvania Life Insurance Co. v. Meyer ( 197
U. S. , 407 , 414)—or that their execution or performance should have been wholly in
the United States . Same case cited and approved Equitable Life Society v. Penn
sylvania (238 U. S. , 143, 147) , affirming 239 Pennsylvania Statutes, 288, and also by
the Circuit Court of Appeals in this the Second Circuit, Geo . W. Bently & Co. v.
Chivers (215 Fed . , 959, 962) .
The mere act of sending salesmen into another State to sell sewing machines there,
the orders being filled from the home office in another State and the contracts and
cash collected being immediately remitted to agencies of the seller in other States ,
and the seller having neither office, store , nor managing salesmen in the State where
such salesmen operated , has been held not to be doing business within such State
30 as to make the seller taxable on credits as provided by Revised Code of Mississippi,
1880 (sec . 497) ; Singer Manufacturing Co. v. Adams ( 165 Fed . , 877) , although such
seller was employed in trade or business within the State when it had "one or more
local agencies in Mississippi in control of salesmen , selling sewing machines throughout
a limited number of counties and reporting to such local agencies, which in turn
reported to a district agency in another State." That case is an authority in favor
24433°-VOL 18—16– -7
98
of the Government's contention here, as the statute referred to provides, "every

* * * employed
person, resident or nonresident, whether corporate or otherwise
in any kind of trade or business, shall be taxable for the same in the county where
such person may reside or have a place of business or be temporarily located at the
time of the assessment." The local agency established in the State gave the seller
a place of business or a temporary location within the State, while a mere traveling
salesman had neither. In the instant case the Laurentide Co. (Ltd. ) had a place of
business , several in fact, in the United States, and was temporarily located and had
and owned property which it was storing in the United States and delivering as its
business contracts demanded .
In Flint v. Stone Tracy Co. (220 U. S. , 107, 171) , where section 38 above quoted
from was directly under consideration by the Supreme Court of the United States,
that court (at p . 171) said :
It remains to consider whether these corporations are engaged in business. "Busi
ness " is a very comprehensive term and embraces everything about which a person
can be employed ." Black's Law Dictionary, 158 , citing People v . Commissioners of
Taxes (23 N. Y. , 242, 244) . “ That which occupies the time, attention , and labor of
men for the purpose of a livelihood or profit. " Bouvier's Law Dictionary (vol . 1,
p. 273).
We think it is clear that corporations organized for the purpose of doing business ,
and actually engaged in such activities as leasing property, collecting rents, managing
office buildings, making investments of profits, or leasing ore lands and collecting
royalties, managing wharves, dividing profits and in some cases investing the surplus,
are engaged in business within the meaning of this statute and in the capacity neces
sary to make such organizations subject to the law.
Of the Motor Taximeter Cab Co. case, No. 432 , the company owns and leases taxi
cabs, and collects rents therefrom . We think it is also doing business within the
meaning of the statute.
True, "doing business within the State " or " doing or transacting business in the
United States '' do not include the doing of a single act or the making of a single con
tract, but do include a continued series of acts by an agent or agents continuously
within the State or the United States, as the case may be. International Text Book
Co. v. Pigg (217 U. S. , 91 ) . In that case it is held
The reasonable construction of a State statute relating to foreign corporations doing
business within the State does not include the doing of a single act or the making of
a single contract, but does include a continuous series of acts by an agent continu
ously within the State . Cooper Manufacturing Co. v . Ferguson (113 U. S. , 727) .
A foreign corporation engaged in teaching by correspondence and which continu
ously has an agent in a State securing scholars and receiving and forwarding the
money obtained from them, is doing business in the State ; and such a corporation does
business in Kansas within the meaning of section 1283 of the general statutes of that
State of 1901 .
At pages 103 and 104, the court said as to " doing business :"
In view of the nature and extent of the business of the International Textbook Co.
in Kansas, the first inquiry is whether the statutory prohibition against the maintain
ing of an action in a Kansas court by " any corporation doing business in this ( that)
State" embraces the plaintiff corporation . It must be held , as the State court held,
that it does; for, it is conceded , that the Textbook Co. did not , before bringing this
suit, make, deliver, and file with the Secretary of State either the statement or cer
tificate required by section 1283 ; and upon any reasonable interpretation of the
statute that company, both at the date of the contract sued on, and when this action
was brought, must be held as " doing business ' in Kansas . It had an agent in the
State who was employed to secure scholars for the schools conducted by correspond
ence from Scranton , and to receive and forward any money obtained from such
scholars. Its transactions in Kansas, by means of which it secured applications from
numerous persons for scholarships, were not single or casual transactions, such as
might be deemed incidental to its general business as a foreign corporation, but were
parts of its regular business continuously conducted in many States for the benefit
of its correspondence schools. While the Supreme Court of Kansas has distinctly
held that the statute did not embrace single transactions that were only incidentally
99
necessary to the business of a foreign corporation, it also adjudged that the business
done by the Textbook Co. in Kansas was not of that kind , but indicated a purpose
to regularly transact its business from time to time in Kansas, and therefore it was to
be regarded as doing business in that State within the meaning of the statute ; and
that it "was the intention of the legislature that the State should reach every con
tinuous exercise of a foreign franchise, " and that it should apply even where the
business of a foreign corporation was " purely interstate commerce " Deere v.
Wyland (69 Kansas, 255, 257 , 258) ; State v. Book Co. ( 65 Kansas, 847 ) ; Commission
Co. v. Haston (68 Kansas, 749) . In our judgment, those rulings as to the scope of the
statute were correct.
It is seen to be immaterial that in the case at bar the money collected was trans
mitted to the home office in Canada, or sent there in the first instance , or that the
entire transactions, including the making and signing of the contracts, their execu
tion or performance and payment of moneys pursuant thereto were not carried on
from start to finish within the United States.
It seems to me clear that on the returns made the taxes were legally assessed , or
imposed , and paid, and that the plaintiff is not entitled to recover in either case.
In Equitable Life Society v . Pennsylvania ( 238 U. S. , 143 ) , a Pennsylvania statute
was under consideration and the Pennsylvania court held that the State could impose
a tax on the business of a foreign insurance corporation doing business within the
State and that it was properly held that premiums on policies issued to persons in the
State and paid directly to the home office measured the tax and did not amount to
taxing property beyond the jurisdiction of the State . The court held that the rela
tion of the foreign company to domestic policyholders constituted doing business
within the meaning of the statute, for, as the Supreme Court said , “ it is obvious that
many incidents of the contract are likely to be attended to in Pennsylvania, such as
payment of dividends when received in cash , sending an adjuster into the State in
case of dispute, or making proof of death ."
. There will be a judgment in each case dismissing the complaint on the merits
with costs.
(T. D. 2347.)
Adulterated butter - Charge of court.
1. DEFINITION OF ADULTERATED BUTTER.

Butter having 16 per cent or more of moisture contains an abnormal quantity and
is adulterated butter.
2. NORMAL BUTTER.
Normal butter properly made contains somewhere from 12 to 15 per cent of mois
ture . Manufacturers must not use a process which absorbs over 16 per cent of water
or they will be liable as manufacturers of adulterated butter.
3. MEANING OF THE WORD " ABSORPTION. "
The word " absorption " means to take up and retain. It means the retention in
and taking up and working water in with the butter, so that when it is packed in a
firkin or tub or package in which it is marketed or sold to the consumer it contains
distributed through it more than 16 per cent of water.
4. ENGAGING IN BUSINESS .
If the natural effect of the process used was to cause the absorption of more than
16 per cent of water, the plaintiff will be held to be engaged in the production of
adulterated butter as a business . If it was a mere oversight and accident and not
due to the process adopted, merely the result unforeseen and unintended for a day
or two, a mere accident, the plaintiff was not engaged in making it as a business.
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5. INTENT.
The court refused to charge that there must have been intent to put adulterated
butter on the market.
Washington, D. C. , July 11 , 1916.
The appended charge to jury of Judge Ray in the United States
District Court for the Northern District of New York is published
for the information of internal-revenue officers and others concerned.
G. E. FLETCHER ,
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF NEW YORK .
The Rosemary Creamery Co. v. Charles C. Cole, collector.
RAY, Judge : Gentlemen of the jury, this action is brought by the Rosemary
Creamery Co., of Adams, Jefferson County, N. Y. , against Neal Brewster as collector
of internal revenue of this district, he having been substituted in place of Mr. Cole,
who died , and who was formerly collector , to recover the sum of $550 , the amount of
special tax or license fee, more properly called , imposed on that company by the
collector .
The Government claims that the Rosemary Creamery Co. was at that time and had
been engaged in the business of manufacturing and putting out adulterated butter.
Not butter adulterated with any pernicious or unhealthful compound, but adul
terated within the meaning of the statute by incorporating into it in the process of
manufacture and retaining in it, and having absorbed in it, when made and put on
the market and sold , an abnormal and excessive amount of water. Now, generally,
in this case the only question for you to determine is whether or not, at that time, at
the time the Government had in view immediate proceedings for the imposition of
that tax, the Rosemary Creamery Co. was engaged , within the meaning of the statute,
in the business of the manufacture of adulterated butter. Was this butter adulterated
within the meaning of the statute relating to the manufacture of adulterated butter?
Was this butter adulterated within the meaning of the statute I have mentioned and
was defendant engaged in the business of manufacturing it? I will read the act, or a
portion of it. "For the purpose of this act butter is hereby defined to mean an article
of food as defined, " etc. , in another place . I charge you that butter is an article of
food within the meaning of the statute, and such butter as has been mentioned here
in this case is an article of food . The question is, Was it adulterated ? The statute
says:
For the purpose of this act " butter " is hereby defined to mean an article of food
as defined in " An act defining butter, also imposing a tax upon and regulating the
manufacture, sale, importation , and exportation of oleomargarine, " approved August
2 , 1886; that " adulterated butter" is hereby defined to mean a grade of butter pro
duced by mixing, reworking, rechurning in milk or cream, refining, or in any way
producing a uniform, purified , or improved product from different lots or parcels of
melted or unmelted butter or butter fat, in which any acid , alkali, chemical, or any
substance whatever is introduced or used for the purpose or with the effect of deodor
izing or removing therefrom rancidity, or any butter or butter fat with which there
is mixed any substance foreign to butter as herein defined , with intent or effect of
cheapening in cost the product, or any butter in the manufacture or manipulation of
which any process or material is used with intent or effect of causing the absorption
of abnormal quantities of water, milk, or cream.
Now, that relates to the making of butter. That first part of the statute relates to
process butter or renovated butter, and with that you have nothing to do because it
101
is not claimed that this plaintiff here, the Rosemary Creamery Co. , was engaged in
doing that .
Then we come to "Anybody engaged in the manufacture or manipulation of it ”—
that is, in the making of it or in the making over of it or making it ready for market,
in the manufacture or manipulation of which any process or material is used with
intent or effect of causing the absorption of abnormal quantities of water, milk, or
cream , and doing this would make it adulterated butter, if it was done with intent
or effect and in a business of thus adulterating it and it has as a result of the process
followed more water than normal , as I will explain.
Process butter or renovated butter is hereby defined to mean butter which has been
subjected to any process by which it is melted , clarified , or refined and made to re
semble genuine butter, but it is not necessary that the party making it have the intent
to produce that effect. But if in the manufacture or manipulation of butter a process
is clearly used with the effect of causing the absorption of abnormal quantities of
water, milk, or cream, the product is adulterated . The claim here is, that in making
this butter in question there at that factory for some length of time, ten days or two
weeks or more, at least the process used had the effect, whether it was intentional or
not, of causing that butter to absorb abnormal quantities of water, milk, or cream,
so that when it went upon the market it contained abnormal quantities—more than
the natural or normal quantity of water. Of course, it might be milk or cream . If
it was done for any considerable length of time , days or weeks , so that they were doing
that as a business, even if they didn't know the result, or their process knowingly
used was such that they didn't know the result, then they were engaged in that
business. These are the questions to be determined .
This special license fee was imposed and plaintiff paid it under protest and sues to
get it back. The burden here is on the plaintiff, the Rosemary Creamery Co. , to
show that they were not doing that as a business which I have described . The plain
tiff has the burden of proof in showing it. The Secretary of the Treasury has approved
the Internal Revenue Department regulation which states that 16 per cent or more
of water would be considered abnormal . Now, here the proof is all one way as to what
is normal. There is no claim that butter properly made contains 16 per cent of water
or more, and the proof is that normal butter properly made contains somewhere from
12 to 15 per cent. The Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, having said that 16 per cent of water or less was the limit
or normal quantity , we have here the Government on record as to what it claims is
abnormal and what may be considered normal.
I charge you that if you find as a matter of fact that this butter in question con
tained less than 16 per cent of water, then, of course , plaintiff had not been engaged in
either the manufacture or business of making adulterated butter. The Government by
adopting that regulation said imperatively that manufacturers must not use a process
which absorbs over 16 per cent of water . The Government here contends that the
proof shows that this butter, which in the making covered a period of 10 days or more
in the early days of August , and which was put on the market, contained an excess
of moisture, and contained so much as to show, nearly all of it, more than 16 per
cent of water. Now, you know the meaning of the word absorption . The word
absorption means to take up and retain. That mode or manner of manipulation of
butter, or the mode and manner of manufacture, which would have the effect to retain
in the butter or work water into the butter in the process of washing or manipulating
it, whether it was in excess of 16 per cent or not, that would cause and be absorption.
It means the retention in and taking up and working water in with the butter, so that
when it is packed in a firkin or tub or pail or package in which it is marketed or is
sold to the consumer it contains distributed through it more than 16 per cent of water.
Now, of course, if the making of that butter in that form containing more than 16 per
cent of water, if it did , was a mere oversight and accident and not due to the process
adopted, merely the result unforeseen and unintended for a day or two, a mere acci
102
dent, the plaintiff was not engaged in making it as a business. Of course you are not
to consider the fact that they did not know as a defense, that they did not know that
their actual process had that result, if generally they were engaged in that business
and using such a process and the process had that effect .
As to the process, the way they did it or the way they manipulated it, I charge
you they were engaged in the business of the manufacture of butter. Plaintiff's
business was making butter . They were making it in the way described by witnesses
and wholesaling it . If the natural effect of the process used was to cause the absorp
tion of more than 16 per cent of water, the plaintiff will be held to be engaged in the
production of such butter as a business . As I told you , if it was an accident happen
ing occasionally, the plaintiff would not be engaged in the business. The process
must be such that it would be likely naturally and usually to produce that result .
I am requested here to charge that " this plaintiff will not be considered to be a
manufacturer of adulterated butter during the period of 11 months prior to June
30, 1912, nor for any portion thereof unless it was then engaged in the production of
adulterated butter as a business. It must have been during the time . " It is not
necessary that plaintiff should have been so engaged in the production of that kind
of butter all of that time . Here it is conceded substantially that after the 1st of
October, and after this license fee was imposed on plaintiff that if it did engage in
that business it would have had to pay a tax in addition on the butter of that kind so
produced and they discontinued it, for after that there was no complaint that they
did what it was claimed they had been doing After that time they kept a record.
Before that time they had not done so. The Government contends that that is enough,
and that the plaintiff here, the Rosemary Creamery Co. , had run their business and
conducted their manufacture of butter so that it had an abnormal , excessive amount
of water in it caused or produced by the process used and failed to keep a record of the
water in it. That this confirmed it. Whereas, after that they kept daily records and
made tests such as to show what they produced and the amount of water contained
therein and were more careful and practical. I charge you that the Government does
not have to show or convince you that after this tax was imposed or license fee was
imposed, the plaintiff here, the Rosemary Creamery Co. , continued to make butter in
that form or that it used the same process. The question put to you by me is not
whether plaintiff continued in the way you find it did , if you find it did as claimed ,
but did the Rosemary Creamery Co. up to the time the tax was imposed make butter
containing that excessive amount of water as a business ; engage in that business?
If it had done as I have described it was engaged in the business of making adul
terated butter. It must have been some considerable portion of the time and it must
have been under this process; one which demanded of them the taking out the license
and the making of reports.
I am requested to charge you that moisture in butter does not make it adulterated
butter within the meaning of the act which would require them to take out a license.
I so charge . The mere presence of abnormal quantities of water as defined would
make it adulterated within the meaning of the statute ; and such adulteration as
would make the company liable to pay the tax if so made either negligently as a
business or purposely as a business, their mode and manner of doing it ; acts such as
made it the ordinary mode of making butter right along . Because you see here the
statute defines adulterated butter and states when it is adulterated . If the process,
manipulation , or manufacture , the manipulation or change of the product in the
process, is such as to cause, or any material is used which, even without intent, has
the effect of causing the absorption in the butter of abnormal quantities of water,
milk, or cream , then it is adulterated within the definition of the statute . Under
the act butter containing an abnormal quantity of water is adulterated when some
process is used or material has been used in the manufacture or manipulation which
causes an absorption of abnormal quantities of water, milk , or cream . The Govern
ment claims this butter did contain that abnormal quantity of water caused by the
103
manipulation or mode of manufacture of that butter at plaintiff's factory and that it

was discovered at and when delivered to the factory where it was sold in Cattaraugus
County . That the purchaser took samples and sent them to the State officials, and
after this examination or test for excessive water samples by two different individuals
were secured and sent to Washington ; tested by chemists competent in the business
and those chemists have been called here in addition to the employees from the
creamery where it was sold . The chemists say it contained, much of it, abnormal
quantities of water ; over and above 16 per cent of water . Under the evidence you
must find from 12 to 15 per cent was normal, but I leave it to you to say whether this
butter did contain abnormal quantities of water; was it excessively watered and dis
posed of in that condition and did it show abnormal watering? Taking the evidence
all together it is for you to say. If you find that this company was not engaged in
that business , and by business I mean mixers or manipulators and manufacurers of
adulterated butter as I have defined , then your verdict will be for the plaintiff for
$550 . If you find that they had so manipulated the butter and conducted that busi
ness in the mode and manner shown and the process used did result for a considerable
length of time in the manufacture or production of butter which contained an abnor
mal quantity of water , and I will charge it must have been over 16 per cent, then
of course, your verdict will be for this defendant.
Mr. DELANEY. I ask your honor to charge that as a business , plaintiff must have
had the intent to engage in the manufacture of that butter and manufactured the prod
uct as a business .
The COURT. It is meant by the statute that plaintiff intended to engage in the busi
ness of making butter and if the plaintiff conducted it so it made adulterated butter
and put it on the market , then it did have the necessary intent to cause that result
which was due necessarily to the process or mode of making the butter which was
made and put on the market, butter having this abnormal quantity of water, if it did ,
and then in such case plaintiff was engaged in the manufacture of this butter as a
business. [Exception . ]
The COURT. I refuse to charge that there must have been intent to put adulterated
butter on the market .
Mr. DELANEY. It would not be in an occasional manufacture.
The COURT. It might be an accident, but the Government claims here this is a prod
uct of the process of manufacture and a product of the factory for some 10 days or
2 weeks. It was not necessary to go over and handle and examine all the butter.
The Government contends that there was length of time sufficient to show that the
company was doing that as a regular business . It is for the jury to say. [Exception . ]
NOTE. The verdict was for the defendant.
(T. D. 2348.)
Loss of alcohol during transportation.

Loss of alcohol while in transit from a distillery bonded warehouse to a central dena
turing bonded warehouse.
Washington , D. C. , July 10, 1916.
By an act (Public No. 103-64th Cong. ) approved June 22 , 1916,
it is provided :
That where alcohol is withdrawn form a distillery warehouse for shipment to a
central denaturing bonded warehouse under the provisions of this act it shall be
lawful under such rules, regulations, and limitations as shall be prescribed by the
Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury,
104
for an allowance to be made for leakage or loss by any accident, and without any
fraud or negligence of the distiller, owner, carrier, or their agents or employees, occur
ring during transportation from a distillery warehouse to a central denaturing bonded
warehouse.
Pursuant to the above -named act, the following regulations are
prescribed :
Where the loss of alcohol during transportation to a central de
naturing warehouse exceeds 1 per cent of the original contents of any
package, tank, or tank car the party under whose bond the shipment
was made, in order to procure further allowance, will file with the
collector of the district in which such warehouse is located , an appli
cation, under oath, setting forth—
(1 ) The name and location of the distillery warehouse from which
the alcohol was withdrawn , and the date of withdrawal.
(2) A description of the packages , tank, or tank car from which the
loss occurred, the original contents of the same in wine and proof
gallons , and the exact loss of spirits sustained by each.
(3) The nature of the loss , whether by leakage or other unavoidable
accident, and that the loss was without fraud or negligence on his
part or, so far as he has reason to believe, on the part of the distiller
or carrier or his or their agents or employees .
(4) That he, the applicant, was the actual owner of the alcohol at
the time of loss , and that no claim has been made or is contemplated
against either the distiller or carrier on account of such loss or any
part thereof.
On receipt of such application the collector will, after verifying the
same by comparison with the report of the gauger, indorse his opinion
thereon as to its validity and forward the same to the Commissioner
of Internal Revenue.
If the application forwarded is allowed, the collector will be so
notified, and upon receipt of such notice he will instruct the officer
in charge of the central denaturing warehouse to note such allowance
on page 1 of his retained copy of Form 575.
DAVID A. GATES ,
Approved:
W. G. MCADOO,
(T. D. 2349. )
Income tax- Compromises.
Washington, D. C., July 24, 1916.
Referring to Mim. 1353 and T. D. 2311 , you are advised that after
further consideration the Treasury Department has decided to accept
105
offers in compromise of the specific penalty for delinquency in filing

income-tax returns for the year 1915 in minimum amounts as follows?
$5 for individuals and withholding agents ; $ 10 for corporations.
With respect to offers now pending, adjustment will be made on the
above bases and authority will be given in the notices of acceptance for
the furnishing of Form 627 on which to make claim for the excess
deposited .
T. D. 2311 and Mim . 1353 are modified accordingly in so far as the
amounts to be accepted for 1915 delinquencies are concerned , but
otherwise remain in full force and effect.
DAVID A. GATES,
Approved :
W. G. MCADOO,
(T. D. 2350. )
Loss in transit of distilled spirits for export.
Under T. D. 2335 a loss not exceeding 1 proof gallon from any one
package in transit for export may be allowed . A claim covering
such loss will not be required . Collectors will , in such cases , take
credit in their bonded spirits account , Form 94A , Part I, as " Exported
and accounted for," as to spirits withdrawn for export in the amounts
actually exported, and such losses as have been sustained in transit
as shown by the customs gauger's report will be entered separately
in the account and stated at line 14 , on page 1 .
Distilled spirits shipped in sealed cars with " USC in bond " seals ,
under T. D. 36139 , will not be subject to the limitations fixed in T. D.
2335. Losses not to exceed 4 wine gallons from any one package
will be allowed , provided the losses do not exceed an average of 2 wine
gallons from all the packages gauged in sealed cars . A claim will not
be required for the remission of tax on such losses unless in excess of
the amounts indicated herein . Collectors will take credit in their
accounts with such items in the same manner as in the cases of loss
not exceeding 1 proof gallon , above indicated .
The foregoing regulation is issued to meet emergencies due to the
large quantity of distilled spirits now being exported in bond, and
will be subject to revocation on notice.
DAVID A. GATES ,
Approved :
W. G. MCADOO ,
106
(T. D. 2351.)
Use of alcohol for scientific purposes.
Hospitals, though not incorporated, if maintained by endowment or otherwise and

not conducted for profit, may obtain alcohol free of tax for certain authorized
purposes.
TREASURY DEPARTMENT, July 24, 1916.
By an act (Public-No. 154-64th Congress) entitled "An act to
amend existing laws relating to the use of alcohol, free of tax, by
scientific institutions or colleges of learning," approved July 8, 1916 ,
it is provided
That the Secretary of the Treasury is authorized to grant permits, as provided for
in section thirty-two hundred and ninety-seven of the Revised Statutes of the United
States, for the withdrawal of alcohol from bond , free of tax to any scientific university
or college of learning created and constituted as such by any State or Territory under
its laws, though not incorporated or chartered , and to any hospital maintained by
endowment or otherwise, and not conducted for profit , upon the same terms and subject
to the same restrictions and penalties already provided by said section thirty-two
hundred and ninety-seven : Provided, however, That alcohol so obtained by hospitals
may be used in surgical operations and , except as a beverage, in the treatment of
patients, under such regulations as the Secretary of the Treasury may prescribe : And
providedfurther, That the bond required by said section thirty-two hundred and ninety
seven may be executed by an officer of such hospital or institution or by any other
person for it, and on its behalf, with two good and sufficient sureties, upon like condi
tions, and to be approved as by said section is provided .
Applications and bonds filed under the provisions of this amenda

tory act will be in the form prescribed in regulations published as
T. D. 1731 and T. D. 1969, and such regulations , so far as applicable,
are hereby extended to cases arising under this statute.
W. G. McADO0, Secretary of the Treasury.
(T. D. 2352.)
Emergency revenue law- Section 2.
T. D. 2078 of November 28, 1914, modified to provide for the stamping of jugs from
which bar bottles are filled .
Washington, D. C., July 27, 1916.
SIR: This office is in receipt of your letter of the 24th instant re
questing to be advised whether a jug of cordial, which a retailer keeps
beneath his counter, not exposed to view, and from which he fills bar
bottles , the said bar bottles being properly stamped at each refilling,
must be stamped under the act of October 22 , 1914 .
In reply, you are advised that in the opinion of this office the jug
in question should have proper stamps affixed at each refilling for
107
use and sale. The bar bottles filled therefrom, however, need not be
stamped. T. D. 2078 is modified accordingly.
Respectfully,
W. H. OSBORN ,
Mr.
(T. D. 2353.)
Income tax.
Extension of the provisions of T. D. 2344 to include the acceptance by debtor cor

porations and withholding agents of ownership certificates on Form 1060 prior
to October 1 , 1916, when properly executed and stamped before presentation .
Washington, D. C. , August 2, 1916.
The provisions of T. D. 2344 relative to the acceptance by debtor
corporations and withholding agents prior to October 1 , 1916 , of
income tax ownership certificates , Form 1004 , Revised , if the words
"not exempt " are stamped in large type across the face of certifi
cates before presentation , are hereby extended to apply to ownership
certificates, Form 1060 , executed by foreign banks or bankers to
accompany coupons detached from bonds or other obligations of
domestic corporations, and debtor corporations and withholding
agents will be held liable for the normal tax of 1 per cent on income
represented by said certificates.
DAVID A. GATES ,
Approved:
WM. G. MCADOO ,
(T. D. 2354.)
Temperance beer.
Scope of T. D. 1360 extended.
Washington, D. C., August 2, 1916.
The following excerpt from an official letter emanating from this
office on this date is published for the information of all concerned :
Referring to your letter of May 15 last and to office reply thereto under date of
May 24 in regard to a nonalcoholic beverage * * * you are informed that upon
108
reconsideration of this matter I have decided to extend the scope of T. D. 1360 so

as to make the question of the taxability of the so-called temperance beer produced
on brewery premises concurrently with fermented liquors depend upon the alco
holic content at the time when the same is finished and ready for sale, without regard
to the quantity of alcohol which it may have contained at previous stages of its manu
facture. In other words, if the so-called temperance beer, when finished and ready
for sale, does not contain more than one-half of 1 per cent of alcohol by volume, it
will be regarded as a nontaxable article, even though it may have contained a greater
percentage of alcohol during the process of its manufacture .
This ruling will take effect August 15, 1916, and in no case will it be retroactive .
It will apply exclusively to beverages sold or removed on and after the 15th instant.
W. H. OSBORN,
(T. D. 2355.)
Narcotic law.
Amending T. D. 2292 of January 31 , 1916 , as amended by T. D. 2323, dated April

24, 1916, to permit the quantity of liquid preparations or remedies to be stated
in pints, quarts, or gallons on official order forms.
The first paragraph of T. D. 2292 , of January 31 , 1916 , as amended
by T. D. 2323 , dated April 24 , 1916 , amending T. D. 2244 , of Sep
tember 20 , 1915, is hereby modified and amended as follows:
In entering items calling for narcotic preparations on the order
forms issued by the Commissioner of Internal Revenue, in accordance
with the provisions of section 2 of the act of December 17, 1914,
the quantity of narcotic drug to the fluid ounce, where put up in
packages of 15 ounces or less, shall be indicated in ounces , and
where put up in packages containing 16 ounces or more, may be
entered in pints , quarts, or gallons, provided the number of each,
and not the aggregate quantity of these units in a higher unit is
entered on these order forms.
Where these order forms call for preparations or remedies in solid ,
powder, or other than liquid form, the quantity in ounces should
be entered thereon, or if in tablet , pill, ampule, or suppository
form , the units or totals thereof need only be stated. The name
of the particular narcotic drug in such preparations or remedies,
tablets, pills, ampules, or suppositories should be entered on these
forms.
109
The other provisions of T. D. 2292 remain unchanged and in full

force and effect.
This amendment is effective on and after this date.
G. E. FLETCHER,
Approved :
WM. P. MALBURN,
(T. D. 2356.)
Denatured alcohol.
Modification of the denaturant to be used in special denatured alcohol No. 4.
Washington, D. C. , August 14 , 1916.
This office is in receipt of complaints that it has been impossible
to secure the dyes necessary to make special denaturant No. 4 used
in denaturing spirits for the use of manufacturers of tobacco .
It has therefore been decided to authorize the use of the following
formula until such time when the dyes called for by the original
formula are available :
No. 4. One gallon of the following solution : Five gallons of an aqueous solution
containing 40 per cent nicotine; 3.6 ounces, more or less, of methylene blue ; water
to make 100 gallons.
The nicotine to be determined as heretofore .
To determine the intensity of color, 1 cubic centimeter of the denaturing material is
diluted with 100 cubic centimeters of water and 50 cubic centimeters of this solution
is compared in a 50 cubic centimeter Nessler tube with 50 cubic centimeters of a
solution containing 5 grams of CuSO4, 5H2O , C. P. , in 100 cubic centimeters of water.
Caution. It has been found that the above modified denaturing

material when kept in closely stoppered containers loses its color, but
when agitated in the presence of air the color returns. Therefore,
officers before adding this material to the alcohol to be denatured
should see that the vessel containing the same is thoroughly agitated
in the presence of air.
If the officer is in doubt a standard color sample will be sent on
request.
The above is effective from date.
G. E. FLETCHER,
110
(T. D. 2357.)
Claims for lost stamps.
Claims for indemnity for stamps lost in the mail will not be allowed unless postage
and registry fees are prepaid.
The attention of this office has been called to paragraph 3 (b) of
section 973 of the Postal Laws and Regulations , edition of 1913 , which
provides that "no indemnity shall be paid for the loss of any registered
matter upon which both postage and registry fee have not been paid. "
Persons ordering stamps to be sent by mail and furnishing the
registry fee to cover registration thereof should be advised of the above
provision that no claim for indemnity will be allowed unless the post
age is also prepaid .
G. E. FLETCHER,
Assistant Commissioner of Internal Revenue.
(T. D. 2358.)
United States cotton futures act.
Law and regulations relating to contracts of sale of cotton for future delivery made
on an exchange, board of trade, or similar institution , or place of business .
[Regulations No. 36, revised . ] a
LAW .
By an act of Congress approved August 11 , 1916 , entitled “ An act

making appropriations for the Department of Agriculture for the
fiscal year ending June thirtieth, nineteen hundred and seventeen ,
and for other purposes , " it is provided :
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled:
PART A.
That this part, to be known as the United States cotton futures act, be, and hereby
is, enacted to read and be effective hereafter as follows:
"That this act shall be known by the short title of the ' United States cotton futures
act.'
"SEC. 2. That, for the purposes of this act, the term ' contract of sale ' shall be held
to include sales, agreements of sale, and agreements to sell . That the word ' person, '
aErroneously printed in weekly Treasury Decisions as " Regulation: No. 27."
111
wherever used in this act, shall be construed to import the plural or singular, as the
case demands, and shall include individuals, associations, partnerships, and corpora
tions. When construing and inforcing the provisions of this act, the act, omission,
or failure of any official, agent , or other person acting for or employed by any associa
tion, partnership, or corporation within the scope of his employment or office, shall,
in every case, also be deemed the act, omission , or failure of such association, partner
ship, or corporation as well as that of the person.
"SEC. 3. That upon each contract of sale of any cotton for future deliverv made at,
on, or in any exchange, board of trade, or similar institution or place of business, there
is hereby levied a tax in the nature of an excise of 2 cents for each pound of the cotton
involved in any such contract.
"SEC. 4. That each contract of sale of cotton for future delivery mentioned in
section three of this act shall be in writing plainly stating, or evidenced by written
memorandum showing, the terms of such contract, including the quantity of the cotton
involved and the names and addresses of the seller and buyer in such contract, and
shall be signed by the party to be charged , or by his agent in his behalf. If the contract
or memorandum specify in bales the quantity of the cotton involved , without giving
the weight, each bale shall, for the purposes of this act, be deemed to weigh five hundred
pounds.
"SEC. 5. That no tax shall be levied under this act on any contract of sale mentioned
in section three hereof if the contract comply with each of the following conditions:
"First . Conform to the requirements of section four of, and the rules and regulations
made pursuant to , this act.
"Second . Specify the basis grade for the cotton involved in the contract, which
shall be one of the grades for which standards are established by the Secretary of
Agriculture, except grades prohibited from being delivered on a contract made under
this section by the fifth subdivision of this section, the price per pound at which the
cotton of such basis grade is contracted to be bought or sold , the date when the purchase
or sale was made, and the month or months in which the contract is to be fulfilled or
settled : Provided, That middling shall be deemed the basis grade incorporated into the
contract if no other basis grade be specified either in the contract or in the memo
randum evidencing the same.
"Third. Provide that the cotton dealt with therein or delivered thereunder shall be
of or within the grades for which standards are established by the Secretary of Agricul
ture except grades prohibited from being delivered on a contract made under this
section by the fifth subdivision of this section and no other grade or grades .
"Fourth. Provide that in case cotton of grade other than the basis grade be tendered
or delivered in settlement of such contract, the differences above or below the con
tract price which the receiver shall pay for such grades other than the basis grade shall
be the actual commercial differences, determined as hereinafter provided.
"Fifth . Provide that cotton that, because of the presence of extraneous matter of
any character or irregularities or defects , is reduced in value below that of Good
Ordinary, or cotton that is below the grade of Good Ordinary, or, if tinged, cotton
that is below the grade of Low Middling, or , if stained, cotton that is below the grade
of Middling, the grades mentioned being of the official cotton standards of the United
States, or cotton that is less than seven-eighths of an inch in length of staple, or cotton
of perished staple or of immature staple, or cotton that is ' gin cut ' or reginned , or
cotton that is ' repacked ' or ' false packed ' or ' mixed packed ' or ' water packed ,'
shall not be delivered on, under, or in settlement of such contract.
" Sixth. Provide that all tenders of cotton under such contract shall be the full
number of bales involved therein, except that such variations of the number of bales
may be permitted as is necessary to bring the total weight of the cotton tendered
within the provisions of the contract as to weight; that, on the fifth business day
prior to delivery, the person making the tender shall give to the person receiving the
112
same written notice of the date of delivery, and that, on or prior to the date so fixed
for delivery, and in advance of final settlement of the contract, the person making
the tender shall furnish to the person receiving the same a written notice or cer
tificate stating the grade of each individual bale to be delivered and , by means of
marks or numbers, identifying each bale with its grade.
"Seventh. Provide that, in case a dispute arises between the person making the
tender and the person receiving the same, as to the classification of any cotton ten
dered under the contract, either party may refer the question of the true classification
of said cotton to the Secretary of Agriculture for determination , and that such dispute
shall be referred and determined , and the costs thereof fixed , assessed , collected ,
and paid in such manner and in accordance with such rules and regulations as may
be prescribed by the Secretary of Agriculture.
"The provisions of the third , fourth, fifth, sixth, and seventh subdivisions of this
section shall be deemed fully incorporated into any such contract if there be written
or printed thereon, or on the memorandum evidencing the same, at or prior to the time
the same is signed , the phrase ' subject to United States cotton futures act, section
five.'
"The Secretary of Agriculture is authorized to prescribe rules and regulations for
carrying out the purposes of the seventh subdivision of this section , and his findings,
upon any dispute referred to him under said seventh subdivision , made after the
parties in interest have had an opportunity to be heard by him or such officer, officers,
agent, or agents, of the Department of Agriculture as he may designate, shall be
accepted in the courts of the United States in all suits between such parties, or their
privies, as prima facie evidence of the true classification of the cotton involved.
"SEC. 6. That for the purposes of section five of this act the differences above or
below the contract price which the receiver shall pay for cotton of grades above or below
the basis grade in the settlement of a contract of sale for the future delivery of cotton
shall be determined by the actual commercial differences in value thereof upon the
sixth business day prior to the day fixed , in accordance with the sixth subdivision
of section five, for the delivery of cotton on the contract, established by the sale of
spot cotton in the market where the future transaction involved occurs and is con
summated if such market be a bona fide spot market; and in the event there be no
bona fide spot market at or in the place in which such future transaction occurs, then,
and in that case, the said differences above or below the contract price which the
receiver shall pay for cotton above or below the basis grade shall be determined by
the average actual commercial differences in value thereof, upon the sixth business day
prior to the day fixed , in accordance with the sixth subdivision of section five, for the
delivery of cotton on the contract, in the spot markets of not less than five places
designated for the purpose from time to time by the Secretary of Agriculture, as
such values were established by the sales of spot cotton, in such designated five or
more markets: Provided, That for the purposes of this section such values in the said
spot markets be based upon the standards for grades of cotton established by the
Secretary of Agriculture: And provided further, That whenever the value of one grade
is to be determined from the sale or sales of spot cotton of another grade or grades,
such value shall be fixed in accordance with rules and regulations which shall be
prescribed for the purpose by the Secretary of Agriculture.
"SEC. 6A. That no tax shall be levied under this act on any contract of sale men
tioned in section three hereof if the contract provide that, in case cotton of grade or
grades other than the basis grade specified in the contract shall be tendered in per
formance of the contract, the parties to such contract may agree, at the time of the
tender, as to the price of the grade or grades so tendered , and that if they shall not
then agree as to such price, then, and in that event, the buyer of said contract shall
have the right to demand the specific fulfillment of such contract by the actual deliv
ery of cotton of the basis grade named therein, and at the price specified for such basis
113
grade in said contract, and if the contract also comply with all the terms and con
ditions of section five hereof not inconsistent with this section : Provided, That nothing
in this section shall be so construed as to relieve from the tax levied by section three
of this act any contract in which, or in the settlement of or in respect to which, any
device or arrangement whatever is resorted to, or any agreement is made, for the
determination or adjustment of the price of the grade or grades tendered other than
the basis grade specified in the contract by any ' fixed difference ' system, or by
arbitration, or by any other method not provided for by this act.
"Contracts made in compliance with this section shall be known as ' Section six A
Contracts. The provisions of this section shall be deemed fully incorporated into
any such contract if there be written or printed thereon, or on the memorandum
evidencing the same, at or prior to the time the same is signed, the phrase ' Subject
to United States cotton futures act, section six A. '
"Section ten of this act shall not be construed to apply to any contract of sale
made in compliance with section six A hereof.
"SEC. 7. That for the purposes of this act the only markets which shall be con
sidered bona fide spot markets shall be those which the Secretary of Agriculture
shall , from time to time, after investigation, determine and designate to be such,
and of which he shall give public notice.
"SEC. 8. That in determining, pursuant to the provisions of this act, what markets
are bona fide spot markets, the Secretary of Agriculture is directed to consider only
markets in which spot cotton is sold in such volume and under such conditions as
customarily to reflect accurately the value of middling cotton and the differences
between the prices or values of middling cotton and of other grades of cotton for
which standards shall have been established by the Secretary of Agriculture: Pro
vided, That if there be not sufficient places, in the markets of which are made bona
fide sales of spot cotton of grades for which standards are established by the Secretary
of Agriculture, to enable him to designate at least five spot markets in accordance
with section six of this act, he shall , from data as to spot sales collected by him, make
rules and regulations for determining the actual commercial differences in the value
of spot cotton of the grades established by him as reflected by bona fide sales of spot
cotton, of the same or different grades, in the markets selected and designated by
him, from time to time, for that purpose, and in that event, differences in value of
cotton of various grades involved in contracts made pursuant to section five of this
act shall be determined in compliance with such rules and regulations .
"SEC. 9. That the Secretary of Agriculture is authorized , from time to time, to
establish and promulgate standards of cotton by which its quality or value may be
judged or determined , including its grade, length of staple, strength of staple, color,
and such other qualities, properties, and conditions as may be standardized in prac
tical form, which, for the purposes of this act, shall be known as the ' Official cotton
standards of the United States, ' and to adopt, change, or replace the standard for
any grade of cotton established under the act making appropriations for the Depart
ment of Agriculture for the fiscal year ending June thirtieth , nineteen hundred and
nine (Thirty-fifth Statutes at Large, page two hundred and fifty-one) , and acts sup
plementary thereto: Provided, That any standard of any cotton established and pro
mulgated under this act by the Secretary of Agriculture shall not be changed or
replaced within a period less than one year from and after the date of the promulga
tion thereof by the Secretary of Agriculture: Provided further, That, subsequent to
six months after the date section three of this act becomes effective, no change or
replacement of any standard of any cotton established and promulgated under this
act by the Secretary of Agriculture shall become effective until after one year's public
notice thereof, which notice shall specify the date when the same is to become effec
tive. The Secretary of Agriculture is authorized and directed to prepare practical
forms of the official cotton standards which shall be established by him, and to furnish
24433°- -VOL 18-168
114
such practical forms from time to time, upon request, to any person, the cost thereof,
as determined by the Secretary of Agriculture, to be paid by the person requesting
the same, and to certify such practical forms under the seal of the Department of
Agriculture and under the signature of the said Secretary, thereto affixed by himself
or by some official or employee of the Department of Agriculture thereunto duly
authorized by the said Secretary.
"SEC. 10. That no tax shall be levied under this act on any contract of sale men
tioned in section three hereof if the contract comply with each of the following con
ditions:
"First. Conform to the rules and regulations made pursuant to this act.
"Second. Specify the grade, type, sample, or description of the cotton involved
in the contract, the price per pound at which such cotton is contracted to be bought
or sold, the date of the purchase or sale, and the time when shipment or delivery of
such cotton is to be made.
"Third. Provide that cotton of or within the grade or of the type, or according to
the sample or description specified in the contract shall be delivered thereunder,
and that no cotton which does not conform to the type, sample, or description, or
which is not of or within the grade specified in the contract shall be tendered or
delivered thereunder.
"Fourth. Provide that the delivery of cotton under the contract shall not be effected
by means of ' set-off ' or ' ring ' settlement, but only by the actual transfer of the speci
fied cotton mentioned in the contract.
"The provisions of the first, third , and fourth subdivisions of this section shall be
deemed fully incorporated into any such contract if there be written or printed
thereon, or on the document or memorandum evidencing the same, at or prior to
the time the same is entered into, the words ' subject to United States cotton futures
act, section ten.'
"This act shall not be construed to impose a tax on any sale of spot cotton.
"This section shall not be construed to apply to any contract of sale made in com
pliance with section five of this act.
"SEC . 11. That the tax imposed by section three of this act shall be paid by the
seller of the cotton involved in the contract of sale, by means of stamps, which shall
be affixed to such contracts or to the memoranda evidencing the same, and canceled
in compliance with rules and regulations which shall be prescribed by the Secretary
of the Treasury .
" SEC. 12. That no contract of sale of cotton for future delivery mentioned in sec
tion three of this act which does not conform to the requirements of section four
hereof and has not the necessary stamps affixed thereto, as required by section eleven
hereof, shall be enforceable in any court of the United States by or on behalf of any
party to such contract or his privies.
“ SEC . 13. That the Secretary of the Treasury is authorized to make and promul
gate such rules and regulations as he may deem necessary to collect the tax imposed
by this act and otherwise to enforce its provisions . Further to effect this purpose, he
shall require all persons coming within its provisions to keep such records and state
ments of account, and may require such persons to make such returns, verified under
oath or otherwise, as will fully and correctly disclose all transactions mentioned in
section three of this act, including the making, execution , settlement, and fulfill
ment thereof ; he may require all persons who act in the capacity of a clearing house,
clearing association , or similar institution for the purpose of clearing, settling, or
adjusting transactions mentioned in section three of this act to keep such records and
to make such returns as will fully and correctly disclose all facts in their possession
relating to such transactions ; and he may appoint agents to conduct the inspection
necessary to collect said tax and otherwise to enforce this act and all rules and regu
lations made by him in pursuance hereof, and may fix the compensation of such agents.
115
The provisions of the internal-revenue laws of the United States, so far as applicable,
including sections thirty-one hundred and seventy-three, thirty-one hundred and
seventy-four, and thirty-one hundred and seventy-five of the Revised Statutes, as
amended , are hereby extended and made to apply to this act.
"SEC. 14. That any person liable to the payment of any tax imposed by this act
who fails to pay or evades or attempts to evade the payment of such tax , and any person
who otherwise violates any provision of this act, or any rule or regulation made in
pursuance hereof, shall be deemed guilty of a misdemeanor , and , upon conviction
thereof, shall be fined not less than $ 100 nor more than $20,000 , in the discretion of
the court ; and , in case of natural persons, may, in addition, be punished by imprison
ment for not less than sixty days nor more than three years, in the discretion of the
court.
"SEC. 15. That in addition to the foregoing punishment there is hereby imposed,
on account of each violation of this act, a penalty of $2,000 , to be recovered in an
action founded on this act in the name of the United States as plaintiff, and when so
recovered one-half of said amount shall be paid over to the person giving the informa
tion upon which such recovery was based . It shall be the duty of United States
attorneys, to whom satisfactory evidence of violations of this act is furnished, to
institute and prosecute actions for the recovery of the penalties prescribed by this
section.
" SEC . 16. That no person whose evidence is deemed material by the officer prosecut
ing on behalf of the United States in any case brought under any provision of this act
shall withhold his testimony because of complicity by him in any violation of this
act or of any regulation made pursuant to this act, but any such person called by such
officer who testifies in such case shall be exempt from prosecution for any offense to
to which his testimony relates .
"SEC. 17. That the payment of any tax levied by this act shall not exempt any
person from any penalty or punishment now or hereafter provided by the laws of any
State for entering into contracts of sale of cotton for future delivery, nor shall the pay
ment of any tax imposed by this act be held to prohibit any State or municipality
from imposing a tax on the same transaction.
"SEC . 18. That there is hereby appropriated , out of any moneys in the Treasury
not otherwise appropriated , for the fiscal year ending June thirtieth , nineteen hundred
and sixteen , the unexpended balance of the sum appropriated by the act of March
fourth, nineteen hundred and fifteen (Thirty-eighth Statutes at Large , page one thou
sand and seventeen) , for collecting ' the cotton futures tax ,' or so much thereof as may
be necessary , to enable the Secretary of the Treasury to carry out the provisions of
this act and any duties remaining to be performed by him under the United States
cotton futures act of August eighteenth , nineteen hundred and fourteen (Thirty-eighth
Statutes at Large, page six hundred and ninety-three).
"SEC . 19. That there are hereby appropriated out of any moneys in the Treasury
not otherwise appropriated , available until expended , the unexpended balance of
the sum of$150,000 appropriated by section twenty of the said act of August eighteenth,
nineteen hundred and fourteen, and for the fiscal year ending June thirtieth, nineteen
hundred and sixteen, the unexpended balance of the sum of $75,000 appropriated
for the ' Enforcement of the United States cotton futures act , ' by the act making
appropriations for the Department of Agriculture for the fiscal year ending June
thirtieth, nineteen hundred and sixteen (Thirty-eighth Statutes at Large , page one
thousand and eighty-six), or so much of each of said unexpended balances as may
be necessary, to be used by the Secretary of Agriculture for the same purposes , in
carrying out the provisions of this act, as those for which said sums , respectively,
were originally appropriated , and to enable the Secretary of Agriculture to carry
out any duties remaining to be performed by him under the said act of August
eighteenth, nineteen hundred and fourteen . The Secretary of Agriculture is hereby
116
directed to publish from time to time the results of investigations made in pursuance
of this act. All sums collected by the Secretary of Agriculture as costs under section
five, or for furnishing practical forms under section nine, of this act, shall be deposited
and covered into the Treasury as miscellaneous receipts.
" SEC . 20. That sections nine, eighteen, and nineteen of this act and all pro
visions of this act authorizing rules and regulations to be prescribed shall be effective
immediately. All other sections of this act shall become and be effective on and after
the first day of the calendar month next succeeding the date of the passage of this act :
Provided, That nothing in this act shall be construed to apply to any contract of sale
of any cotton for future delivery mentioned in section three of this act which shall
have been made prior to the first day of the calendar month next succ cceeding the date
of the passage of this act.
"SEC. 21. That the act entitled ' An act to tax the privilege of dealing on exchanges,
boards of trade, and similar places in contracts of sale of cotton for future delivery,
and for other purposes, ' approved August eighteenth, nineteen hundred and four
teen (Thirty-eighth Statutes at Large, page six hundred and ninety-three) , is
hereby repealed , effective on and after the first day of the calendar month next
succeeding the date of the passage of this act : Provided, That nothing in this act shall
be construed to affect any right or privilege accrued , any penalty or liability incurred ,
or any proceeding commenced under said act of August eighteenth, nineteen hun
dred and fourteen , or to diminish any authority conferred by said act on any official
of the United States necessary to enable him to carry out any duties remaining to
be performed by him under the said act, or to impair the effect of the findings of the
Secretary of Agriculture upon any dispute referred to him under said act, or to affect
any right in respect to or arising out of any contract mentioned in section three of said
act, made on or subsequent to February eighteenth, nineteen hundred and fifteen, and
prior to the first day of the calendar month next succeeding the date of the passage of
this act, but so far as concerns any such contract said act of August eighteenth, nine
teen hundred and fourteen, shall remain in force with the same effect as if this act had
not been passed .
" SEC . 22. That if any clause, sentence , paragraph , or part of this act shall for any
reason be adjudged by any court of competent jurisdiction to be invalid , such judg
ment shall not affect, impair, or invalidate the remainder thereof, but shall be con
fined in its operation to the clause, sentence, paragraph, or part thereof directly
involved in the controversy in which such judgment shall have been rendered ."
Approved, August 11 , 1916 .
REGULATIONS .
Under Part A of the act of Congress entitled " An act making ap

propriations for the Department of Agriculture for the fiscal year
ending June thirtieth, nineteen hundred and seventeen , and for other
purposes," approved August 11 , 1916, known as the " United States
cotton futures act," section 11 provides :
That the tax imposed by section three of this act shall be paid by the seller of the
cotton involved in the contract of sale, by means of stamps which shall be affixed to
such contracts, or to the memoranda evidencing the same, and canceled in compli
ance with rules and regulations which shall be prescribed by the Secretary of the
Treasury.
And section 13 provides :
That the Secretary of the Treasury is authorized to make and promulgate such rules
and regulations as he may deem necessary to collect the tax imposed by this act and
otherwise to enforce its provisions. Further to effect this purpose, he shall require
117
all persons coming within its provisions to keep such records and statements ofaccount,
and may require such persons to make such returns verified under oath or otherwise,
as will fully and correctly disclose all transactions mentioned in section three of this
act, including the making, execution, settlement, and fulfillment thereof; he may re
quire all persons who act in the capacity of a clearing house, clearing association, or
similar institution for the purpose of clearing, settling, or adjusting transactions men
tioned in section three of this act to keep such records and to make such returns as
will fully and correctly disclose all facts in their possession relating to such transac
tions; and he may appoint agents to conduct the inspection necessary to collect said .
tax and otherwise to enforce this act and all rules and regulations made by him in
persuance hereof, and may fix the compensation of such agents. The provisions of
the internal-revenue laws of the United States, so far as applicable , including sections
thirty-one hundred and seventy-three, thirty-one hundred and seventy-four, and
thirty-one hundred and seventy-five of the Revised Statutes, as amended , are hereby
extended and made to apply to this act.
In pursuance thereof, the following regulations are hereby made,
prescribed, and promulgated :
EXECUTION OF THE LAW BY COMMISSIONER OF INTERNAL REVENUE.
Art. 1. The execution of the law as far as relates to the Treasury

Department is delegated to the Commissioner of Internal Revenue
subject to the supervision of the Secretary of the Treasury.
DESIGNATION OF CONTRACTS .
Art. 2. Contracts made in compliance with section 5 of the act

shall be known as " Section five contracts ;" contracts made in com
pliance with section 6A of the act shall be known as "section 6A con
tracts, " and contracts made in compliance with section 10 of the
act shall be known as " Section 10 contracts."
SALES OF SPOT COTTON EXEMPT FROM TAX .
Art. 3. No tax is imposed on any sale of spot cotton, but contracts

of sale of specific cotton for future delivery made at, on, or in any
exchange, board of trade, or similar institution or place of business
must comply with section 5 , section 6A, or section 10 of the act to
be exempt from tax.
ALL TENDERS OF COTTON MUST BE FOR FULL NUMBER OF BALES.
Art. 4. The contract must provide that all tenders of cotton shall
be the full number of bales involved therein . (Such variations of the
number of bales may be permitted as is necessary to bring the total
weight of the cotton tendered within the provisions of the contract
as to weight, and necessary variations in the weight of the cotton
tendered may be permitted , not to exceed 1 per cent of the total
weight specified in the contract. )
118
EXCHANGE RULES AND OTHER MATTERS NOT TO AFFECT CONTRACTS

EXEMPT FROM TAX UNDER SECTION 5, SECTION 6A, OR SECTION 10.
Art . 5. No contract shall be deemed to comply with the conditions

of section 5, section 6A, or section 10 of the United States cotton
futures act so as to exempt it from taxation if it contain or incor
porate therein by reference or otherwise any provision or any by-law,
rule, or custom of any exchange, board of trade, or similar institu
tion or place of business, which is inconsistent or in conflict with any
requirement of section 5 , section 6A, or section 10 of the said act,
as the case may be, nor if the parties enter into any collateral or
additional agreement or understanding, either verbal or written ,
respecting the subject matter of such contract which is inconsistent
or in conflict with any requirement of said sections.
PROVISIONS DEEMED INCONSISTENT AND IN CONFLICT WITH REQUIRE

MENTS .
Art. 6. Any such provision, by-law, rule, custom, agreement, or

understanding which in any manner takes away or impairs the right
of the person obligated to deliver cotton, to tender any cotton which
is of or within the grades, of the quality, and of the length of staple
deliverable under a contract made in compliance with section 5 ,
section 6A, or section 10 of said act ; or which takes away or impairs
his right to prepare for himself, or to have prepared by anyone at his
direction, the written notice or certificate stating the grade of cotton
pursuant to section 5 of the act ; or which takes away or impairs the
right of either party to submit a dispute as to the classification of
the cotton tendered to the Secretary of Agriculture, under a section 5
or section 6A contract; or which contains any device, arrangement,
or agreement for the adjustment of the price of the grade or grades
of cotton tendered under a section 6A contract, other than the basis
grade specified in the contract, by any " fixed difference " system, or
by arbitration, shall be deemed inconsistent and in conflict with the
requirements of said sections, as the case may be.
DISPUTES AS TO CLASSIFICATION TO BE REFERRED TO SECRETARY OF

AGRICULTURE .
Art. 7. Section 5 contracts and section 6A contracts shall provide

that, in case a dispute arises between the person making the tender
and the person receiving the same as to the classification of any cot
ton tendered under the contract , either party may refer the question
of the true classification of said cotton to the Secretary of Agriculture
for determination, and that such dispute shall be referred and deter
mined, and the cost thereof fixed , assessed , collected and paid in such
manner and in accordance with such rules and regulations as may be
prescribed by the Secretary of Agriculture.
119
RECORDS OF CONTRACTS OF SALE OF COTTON FOR FUTURE DELIVERY.
Art . 8. All persons who make contracts of sale of cotton for

future delivery at, on, or in any exchange, board of trade, or similar
institution or place of business , whether said contracts shall be
cleared and adjusted through a clearing association , or direct between
seller and buyer, or otherwise , shall keep a record thereof showing :
(a) Name and address of contracting person keeping record.
(b) Name and address of other party to contract .
(c) Date contract was made.
(d) Quantity of cotton involved , in bales or pounds.
(e) Time specified in contract for delivery.
(f) Whether transaction is a purchase or a sale .
Whether the contract is (1 ) section 5 contract, (2 ) section
6A contract, and the basis grade.
(h) Grade, type, sample, or description of cotton, if not basis
contract .
(i) Specified price per pound .
(j) Date of delivery or settlement.
(k) Method of actual fulfillment or settlement.
(7) Amount of tax paid (or, if exempt, so state) .
RECORDS TO BE KEPT BY COTTON CLEARING ASSOCIATIONS.
Art. 9. All persons who act in the capacity of a clearing house or

clearing association for the purpose of clearing, settling, or adjusting
transactions mentioned in section 3 of the act shall keep a record
thereof showing :
(a ) Name and address of clearing house or clearing association
keeping record .
(b) Name and address of person for whom contract is cleared .
(c) Date contract was made .
(d) Quantity of cotton involved, in bales or pounds.
(e) Time specified in contract for delivery.
(f) Whether transaction is a purchase or a sale .
(g) Whether the contract is ( 1 ) section 5 contract, ( 2 ) section 6A
contract, and the basis grade.
(h) Grade, type, sample , or description of cotton, if not basis con
tract.
(i) Specified price per pound .
(j) Date of delivery or settlement.
(k) Method of actual fulfillment or settlement .
FORM OF RECORD .
Art. 10. For the purpose of uniformity and to enable United States
cotton futures agent to check up readily such information , the follow
ing forms of record are prescribed .
120
RECORD NO. 1.- Section 5 contracts.

……………… ....
(Name and address of firm keeping the record.)
Purchases for..... ....delivery.
The following transactions are made on the basis of middling and subject to United
States cotton futures act, section 5 , unless otherwise stated :
Party or Settlement.
Date. firm from Address. Refer
ence Bales.2 Price. Cus Tax, if
whom number.1 tomer.¹ any.
bought. Date. Method.
OBVERSE PAGE.
Sales for........ ...delivery .
The following transactions are made on the basis of middling and subject to United
States cotton futures act, section 5, unless otherwise stated :
Date. firm to Address. Refer
ence Bales.❜ Price. Cus Tax, if
whom number.1 tomer.¹ any .
sold. Date. Method.
1 Filling in of these columns optional.

Transactions can be entered in 100-bale lots to a line; 50 lines to the page; 100 may be printed in on
each line, if so desired.
RECORD No. 2. - Section 6A contracts.

Purchases for .... ...delivery.
The following transactions are made on the basis of grade specified and subject to
United States cotton futures act, section 6A, unless otherwise stated :
Date. firm from Address. Refer Basis
ence Bales.2 grade. Price. Cus Tax, if
whom number.1 tomer.1 any.
bought. Date. Method.
OBVERSE PAGE.

Sales for.. ...delivery.
The following transactions are made on the basis of grade specified and subject to
United States cotton futures act, section 6A, unless otherwise stated :
Party or Settlement.3
Date. firm to Address. Refer
ence Bales.2 Basis Price. Cus Tax, if
whom number.1 grade. tomer.1 any.
sold. Date. Method.
1 Filling in of these columns optional.

Transactions can be entered in 100-bale lots to a line; 50 lines to the page; 100 may be printed in on each
line, ifso desired.
In case of actual delivery, state whether basis grade or what grade is delivered.
121
RECORD NO. 3.-Section 10, contracts.

The following transactions are made on the basis of grade, type, sample, or descrip
tion and subject to the United States cotton futures act, section 10, unless otherwise
stated:
(Name and address of firm keeping records.)
Bought from- Time of

Bales Descrip Price. ship- Delivery Tax paid
Date. cotton. tion. Terms. ment or reference. or if
Name. Address. delivery. exempt.
OBVERSE PAGE.
The following transactions are made on the basis of grade, type , sample, or descrip
tion and subject to the United States cotton futures act, section 10, unless otherwise
stated :
(Name and address of firm keeping records.)
Sold to Time of
Bales Descrip ship Delivery Tax paid
Date. cotton. tion. Price. Terms. ment or reference . or if
Name. Address. delivery. exempt.
RECORD No. 4.- Section 5, contracts.¹
(Name and address of association keeping record.)

The following contracts were cleared or adjusted for members of the
Cotton Exchange under the United States cotton futures act, approved August 11,
1916:
member
.delivery
Brought
delivery
Brought
forward
forward
forward
forward
Carried
Carried
Month
Name
Month
Contracts
100 cts
Method of Method of
of
of
Contra
.of
Purchase
settle settle
,
,
,
,
bale
bale
lots
lots
short
short
100
ment. ment.
long
in
long
in
notices
notices
Passed
Passed
.
.
Grade
Grade
.
.
.
.
Price
Price
Sales
Set
.
.Set
.o- ff
-off
.
.
,
.
.
.
.
1 If section 6A contract or section 10 contract, so state.
The use of record No. 1 is required to give information regarding

all contracts made upon an exchange subject to the United States
cotton futures act, section 5 , unless otherwise stated ; the use of
record No. 2 is required to cover contracts subject to the United
States cotton futures act, section 6A, unless otherwise stated ; the
use of record No. 3 is required to cover contracts subject to the
United States cotton futures act, section 10, unless otherwise stated ;
and the use of record No. 4 is required by persons who act in the
capacity of a clearing house or clearing association for the purpose
122
of clearing, settling or adjusting transactions mentioned in section 3

of this act. Records Nos . 1 , 2, and 3 shall contain 50 lines to a page,
unless otherwise permitted by the Commissioner of Internal Rev
enue ; and record No. 4 shall contain a sufficient number of lines on
one page to show all facts required to be disclosed under the act,
unless otherwise permitted by the Commissioner of Internal Revenue.
Persons who use such forms may incorporate additional columns
which would be of use to them, such columns to be placed in such
positions as not to interfere with the continuity of the columns and
headings prescribed . Such records will not be supplied by the
department, but must be procured elsewhere.
RECORDS TO BE KEPT IN SEPARATE BOOKS AND OPEN FOR INSPECTION .
Art. 11. All records required by these regulations shall be kept in

separate books, and not mixed with records of other accounts or
transactions , and shall be open to inspection, when demand is made
therefor by officers and agents of internal revenue or of the Treasury
Department . All entries therein must be in writing, and the books
preserved for a period of not less than two years.
RETURNS TO BE MADE BY PERSONS DEALING IN FUTURE CONTRACTS .
Art. 12. All persons who make contracts of sale of cotton for
future delivery at, on, or in any exchange, board of trade, or similar
institution or place of business, whether said contracts shall be
cleared and adjusted through a clearing association , or direct be
tween the seller and buyer, or otherwise, shall on or before the
fifteenth day of each month render a return, in writing, for the
preceding month, verified before some officer authorized to adminis
ter oaths, to the Commissioner of Internal Revenue through the
United States cotton futures attorney, showing the number of con
tracts brought forward from the preceding month ; the number of
contracts bought or sold ; the number of bales of cotton involved in
said contracts ; the month in which said cotton is to be delivered ;
the method of settlement of said contract- i . e. , whether by " ring,"
"direct," "notice," " actual delivery," " transfer," through a cotton
exchange clearing association, if any, or otherwise ; and the number
of contracts left open at the end of the month.
Said return shall be made upon forms to be furnished, upon appli
cation by the Commissioner of Internal Revenue.
RETURNS TO BE MADE BY CLEARING ASSOCIATIONS.
Art. 13. All persons who act in the capacity of a clearing house,
clearing association or similar institution for the purpose of clearing,
settling, or adjusting transactions mentioned in section 3 of the act,
shall on or before the fifteenth day of each month render a return,
123
in writing, for the preceding month, duly verified by the president,

vice president, secretary or treasurer of said association before some
person authorized to administer oaths, to the Commissioner of Inter
nal Revenue through the United States cotton futures attorney,
showing all facts in their possession relating to such transactions,
including the number of contracts bought or sold by each member of
the association ; the number of bales of cotton involved in said con
tracts ; the month in which said cotton is to be delivered ; the num
ber of contracts cleared for each member of the association ; the
method of settlement of said contracts -i. e. , whether by " notice,"
"set-off," or by any other method ; also the monthly average closing
price of cotton for each month dealt in, named in said return.
Said return shall be made upon forms to be furnished, upon applica
tion, by the Commissioner of Internal Revenue.
PERSONS FAILING TO MAKE RETURN, UNITED STATES COTTON FUTURES

AGENT AUTHORIZED TO DO SO.
Art. 14. If any person required to make the return by the United
States cotton futures act or the regulations promulgated by the
Secretary of the Treasury in accordance therewith, shall fail or
refuse to make said return within the time specified in these regula
tions, then said return shall be made by a United States cotton futures
agent upon inspection of the books and records of the person so
required ; provided that the making of said return by a United States
cotton futures agent shall not be construed to relieve the person so
required from any penalty incurred by reason of his failure to make
such return.
AGENTS.
Art . 15. Agents duly appointed by the Secretary of the Treasury

shall have authority to examine the books and records kept in pursu
ance to articles 8 , 9, and 10 of these regulations and may require the
production of any other books , papers, records , or statements of
account necessary to determine any liability to the tax provided by
the act.
STAMPS.
Art. 16. Documentary stamps , issued under the internal-revenue

laws may be used for payment of the taxes imposed and may be
obtained from collectors of internal revenue.
Collectors shall make requisition on the Commissioner of Internal
Revenue for the necessary supply.
AFFIXING STAMPS.
Art. 17. Stamps representing the tax due are to be affixed by the
seller, at the time of signing, to each contract of sale of cotton for
124
future delivery mentioned in section 3, or to the memorandum evi ·

dencing the same, unless said contract under the law and regulations
is not subject to tax.
CANCELING STAMPS .
Art. 18. The person using or affixing a stamp shall write or stamp
thereon with ink the initials of his name and the date, including the
year, on which the same shall be attached or used, or shall, by cutting
and canceling said stamps with a machine or punch, which will affix
the initials and date aforesaid, so deface the stamp as to render it
unfit for reuse . In addition to the foregoing, stamps of the value of
ten cents or more shall have three parallel incisions made by some
sharp instrument lengthwise through the stamp after the stamp has
been attached to the document : Provided, This will not be required
where stamps are canceled by perforation. The cancellation by either
method should not so deface the stamp as to prevent its denomina
tion and genuineness from being readily determined.
PENALTIES.
Art. 19. The penalty for evasion of the tax or violation of any pro
vision of the act , or of any rule or regulation made in pursuance thereof
is a fine of not less than $ 100 nor more than $20,000 , and, in the case
of natural persons, in addition, imprisonment for not less than sixty
days nor more than three years, in the discretion of the court.
ADDITIONAL PENALTY.
Art. 20. The act provides an additional penalty of $2,000 for each
violation, to be recovered by civil action in the name of the United
States as plaintiff, one-half of the amount so recovered to be paid
to the informer.
No right accrues or is vested in any informer until the penalty has
been collected and paid into the registry of the court. The informer's
share will be paid by the Secretary of the Treasury to the person
ascertained by the court which imposed the penalty to have been
the informer entitled to the moiety. The share allotted to the in
former shall be subject to a proportionate deduction for costs and
charges properly payable from the penalty. No officer or employee
of the United States will be entitled to the moiety.
UNITED STATES ATTORNEYS TO PROSECUTE .
Art. 21. It is the duty of United States attorneys to whom satis

factory evidence of violations of the act is furnished to institute and
prosecute actions for the recovery of the penalties prescribed in
article 19 of these regulations . Reports will be made to the Com
125
missioner of Internal Revenue of prosecutions under this act by

United States attorneys the same as in other internal revenue cases ,
and the same forms will be used.
CONTRACTS MADE PRIOR TO ACT GOING INTO EFFECT.
Art. 22. The act does not apply to any contract of sale of any cotton
for future delivery mentioned in section 3 of the act made prior to
the date when said section becomes effective . Nor is any right or
privilege accrued, any penalty or liability incurred , or any proceeding
commenced under the act of August 18, 1914, affected by the repeal
of the United States cotton futures act approved August 18, 1914 .
PROCEDURE FOR DISCLOSURE OF EVIDENCE .
Art. 23. Whenever any person who is required to deliver a monthly

or other return of transactions , required by the United States cotton
futures act or the regulations in accordance therewith, shall fail to
do so within the time required , or shall deliver any return which, in
the opinion of the Commissioner of Internal Revenue, or the United
States cotton futures attorney, is false or fraudulent, or contains any
erroneous statement, or shall refuse to permit an inspection of his
books and records as provided in these regulations and in said act,
it shall be the duty of the collector of internal revenue of the district
in which the place of business of the person required to make such
return lies, upon the request of the Commissioner of Internal Revenue,
or of the United States cotton futures attorney, to summon such
person, or any other person having possession , custody or care of
books of account containing entries relating to the business of such
person, or any other person he may deem proper, to appear before
such collector of internal revenue and produce such books, at a time
and place named in the summons, and to give testimony or answer
interrogatories, under oath, respecting all transactions and dealings
of said party either directly or through others, on any cotton ex
change, board of trade, or similar institution or place of business, and
in regard to the monthly returns required to be made by said party.
The collector may summon any person residing or found within the
State in which his district lies ; and when the person intended to be
summoned does not reside and can not be found within such State,
he may enter any collection district where such person may be found,
and there make the examination herein authorized . And to this end
he may there exercise all the authority which he might lawfully
exercise in the district for which he was commissioned . Upon the
conclusion of the hearing of evidence before said collector, he shall
certify to the Commissioner of Internal Revenue his finding of facts,
accompanied by the evidence of witnesses taken before him.
126
PROVISIONS OF INTERNAL REVENUE LAWS APPLICABLE.
Art. 24. The provisions of the internal revenue laws of the United
States, so far as applicable, including sections 3173 , 3174 , and 3175
of the Revised Statutes, as amended , shall apply to the United States
cotton futures act and the regulations promulgated by the Secretary
of the Treasury.
REGULATIONS OF THE SECRETARY OF AGRICULTURE.
Art. 25. A tax of 2 cents for each pound of cotton involved is

imposed on each contract of sale of cotton for future delivery men
tioned in section 3 of the act which does not conform to the rules
and regulations of the Secretary of Agriculture made pursuant to
the act.
BYRON R. NEWTON,
(T. D. 2359. )
Temperance beer-Removal to bottling house by pipe line.
Washington, D. C. , September 9, 1916.
By the act of September 8, 1916 , section 3354 , Revised Statutes, as
amended by the act of June 18 , 1890 , has been so amended as to per
mit the transfer by pipe line to a bottling house of liquors manufac
tured on the brewery premises containing not to exceed one-half
of 1 per cent of alcohol by volume, which are held to be nontaxable
under the internal-revenue laws.
Such transfer is to be made under rules and regulations to be
from time to time prescribed by the Commissioner of Internal
Revenue, subject to the approval of the Secretary of the Treasury.
Until the promulgation of such rules and regulations more in
detail it is hereby prescribed that until further notice brewers having
an established pipe line for the transfer of fermented liquors may
set aside and utilize one or more cisterns pertaining thereto for con
taining the nontaxable liquor above referred to for transfer through
the pipe line for the sole purpose of bottling under the same condi
tions and restrictions as now apply to the transfer of fermented
liquor, except that the deputy collector in attendance shall first
satisfy himself that the liquid about to be transferred is of the non
taxable kind, in which case it will not be necessary for him to note
the quantity or to require payment of tax thereon. He will, how
127
ever, be required to see that the inlets and outlets of the various
cisterns are so controlled by the Slaight seal locks provided therefor
that there shall be no opportunity to utilize the pipe line for the
transfer of fermented liquors except such as have been duly covered
by the cancellation and delivery to him of the appropriate stamps.
W. H. OSBORN ,
Approved :
B. R. NEWTON,
(T. D. 2360. )
Income tax- Act of September 8, 1916.
Effective September 9, 1916, except as otherwise provided.
Washington, D. C., September 11, 1916.
The appended extract from act of Congress , approved September
8, 1916 , is published for the information of internal-revenue officers
and others concerned.
W. H. OSBORN ,
[Public No. 271, 64th Congress-H. R. 16763. ]

An Act To increase the revenue, and for other purposes.
TITLE I.- INCOME TAX.
PART I.-ON INDIVIDUALS.
SEC. 1. (a ) That there shall be levied , assessed , collected , and paid annually
upon the entire net income received in the preceding calendar year from all
sources by every individual, a citizen or resident of the United States, a tax of
two per centum upon such income ; and a like tax shall be levied , assessed,
collected, and paid annually upon the entire net income received in the preced
ing calendar year from all sources within the United States by every individual,
a nonresident alien, including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise.
(b) In addition to the income tax imposed by subdivision ( a ) of this section
(herein referred to as the normal tax ) there shall be levied, assessed , collected,
and paid upon the total net income of every individual, or, in the case of a non
resident alien, the total net income received from all sources within the United
States, an additional income tax (herein referred to as the additional tax ) of
one per centum per annum upon the amount by which such total net income
exceeds $20,000 and does not exceed $40,000, two per centum per annum upon
128
the amount by which such total net income exceeds $40,000 and does not
exceed $60,000, three per centum per annum upon the amount by which such
total net income exceeds $ 60,000 and does not exceed $80,000, four per centum
per annum upon the amount by which such total net income exceeds $80,000
and does not exceed $100,000, five per centum per annum upon the amount by
which such total net income exceeds $100,000 and does not exceed $150,000,
six per centum per annum upon the amount by which such total net income
exceeds $150,000 and does not exceed $200,000, seven per centum per annum
upon the amount by which such total net income exceeds $200,000 and does not
exceed $250,000, eight per centum per annum upon the amount by which such
total net income exceeds $250,000 and does not exceed $300,000, nine per centum
per annum upon the amount by which such total net income exceeds $300,000
and does not exceed $500,000, ten per centum per annum upon the amount by
which such total net income exceeds $500,000, and does not exceed $1,000,000,
eleven per centum per annum upon the amount by which such total net income
exceeds $1,000,000 and does not exceed $1,500,000, twelve per centum per
annum upon the amount by which such total net income exceeds $1,500,000 and
does not exceed $2,000,000, and thirteen per centum per annum upon the
amount by which such total net in come exceeds $2,000,000.
For the purpose of the additional tax there shall be included as income the
income derived from dividends on the capital stock or from the net earnings
of any corporation , joint-stock company or association, or insurance company,
except that in the case of nonresident aliens such income derived from sources
without the United States shall not be included.
All the provisions of this title relating to the normal tax on individuals, so
far as they are applicable and are not inconsistent with this subdivision and
section three, shall apply to the imposition, levy, assessment, and collection of
the additional tax imposed under this subdivision .
(c) The foregoing normal and additional tax rates shall apply to the entire
net income, except as hereinafter provided, received by every taxable person in
the calendar year nineteen hundred and sixteen and in each calendar year
thereafter.
INCOME DEFINED.
SEC. 2. (a) That, subject only to such exemptions and deductions as are here
inafter allowed, the net income of a taxable person shall include gains, profits
and income derived from salaries, wages, or compensation for personal service
of whatever kind and in whatever form paid, or from professions, vocations,
businesses, trade, commerce, or sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in real or personal
property, also from interest, rent, dividends, securities, or the transaction of
any business carried on for gain or profit, or gains or profits and income
derived from any source whatever : Provided, That the term " dividends " as
used in this title shall be held to mean any distribution made or ordered to be
made by a corporation, joint-stock company, association, or insurance com
pany, out of its earnings or profits accrued since March first, nineteen hundred
and thirteen, and payable to its shareholders, whether in cash or in stock of the
corporation, joint-stock company, association, or insurance company, which
stock dividend shall be considered income, to the amount of its cash value.
(b) Income received by estates of deceased persons during the period of
administration or settlement of the estate, shall be subject to the normal and
additional tax and taxed to their estates, and also such income of estates or
any kind of property held in trust, including such income accumulated in trust
for the benefit of unborn or unascertained persons, or persons with contingent
129
interests, and income held for future distribution under the terms of the will or
trust shall be likewise taxed, the tax in each instance, except when the income
is returned for the purpose of the tax by the beneficiary, to be assessed to the
executor, administrator, or trustee, as the case may be : Provided, That where
the income is to be distributed annually or regularly between existing heirs or
legatees, or beneficiaries the rate of tax and method of computing the same shall
be based in each case upon the amount of the individual share to be distributed.
Such trustees, executors, administrators, and other fiduciaries are hereby
indemnified against the claims or demands of every beneficiary for all payments
of taxes which they shall be required to make under the provisions of this title,
and they shall have credit for the amount of such payments against the bene
ficiary or principle in any accounting which they make as such trustees or other
fiduciaries.
( c ) For the purpose of ascertaining the gain derived from the sale or other
disposition of property, real, personal, or mixed, acquired before March first,
nineteen hundred and thirteen, the fair market price or value of such property
as of March first, nineteen hundred and thirteen, shall be the basis for deter
mining the amount of such gain derived .
ADDITIONAL TAX INCLUDES UNDISTRIBUTED PROFITS.
SEC. 3. For the purpose of the additional tax, the taxable income of any indi
vidual shall include the share to which he would be entitled of the gains and
profits, if divided or distributed, whether divided or distributed or not, of all
corporations, joint-stock companies or associations, or insurance companies,
however created or organized, formed or fraudulently availed of for the purpose
of preventing the imposition of such tax through the medium of permitting such
gains and profits to accumulate instead of being divided or distributed ; and the
fact that any such corporation, joint-stock company or association , or insurance
company, is a mere holding company, or that the gains and profits are permitted
to accumulate beyond the reasonable needs of the business, shall be prima facie
evidence of a fraudulent purpose to escape such tax ; but the fact that the gains
and profits are in any case permitted to accumulate and become surplus shall
not be construed as evidence of a purpose to escape the said tax in such case
unless the Secretary of the Treasury shall certify that in his opinion such ac
cumulation is unreasonable for the purposes of the business. When requested
by the Commissioner of Internal Revenue, or any district collector of internal
revenue, such corporation, joint-stock company or association, or insurance com
pany shall forward to him a correct statement of such gains and profits and
the names and addresses of the individuals or shareholders who would be
entitled to the same if divided or distributed .
INCOME EXEMPT FROM LAW.
SEC. 4. The following income shall be exempt from the provisions of this title :
The proceeds of life insurance policies paid to individual beneficiaries upon
the death of the insured ; the amount received by the insured , as a return of
premium or premiums paid by him under life insurance, endowment, or annuity
contracts, either during the term or at the maturity of the term mentioned in
the contract or upon the surrender of the contract ; the value of property ac
quired by gift, bequest, devise, or descent (but the income from such property
shall be included as income) ; interest upon the obligations of a State or any
political subdivision thereof or upon the obligations of the United States or its
possessions or securities issued under the provisions of the Federal farm loan
24433 °-VOL 18-16 -9
130
Act of July seventeenth, nineteen hundred and sixteen ; the compensation of the
present President of the United States during the term for which he has been
elected, and the judges of the Supreme and inferior courts of the United States
now in office, and the compensation of all officers and employees of a State, or
any political subdivision thereof, except when such compensation is paid by the
United States Government.
DEDUCTIONS ALLOWED.
SEC. 5. That in computing net income in the case of a citizen or resident of

the United States
(a) For the purpose of the tax there shall be allowed as deductions—
First. The necessary expenses actually paid in carrying on any business or
trade, not including personal, living, or family expenses ;
Second. All interest paid within the year on his indebtedness ;
Third. Taxes paid within the year imposed by the authority of the United
States, or its Territories, or possessions, or any foreign country, or under the
authority of any State, county, school district, or municipality, or other taxing
subdivision of any State, not including those assessed against local benefits ;
Fourth. Losses actually sustained during the year, incurred in his business
or trade, or arising from fires, storms, shipwreck, or other casualty, and from
theft, when such losses are not compensated for by insurance or otherwise :
Provided, That for the purpose of ascertaining the loss sustained from the
sale or other disposition of property, real, personal, or mixed, acquired before
March first, nineteen hundred and thirteen, the fair market price or value of
such property as of March first, nineteen hundred and thirteen, shall be the
basis for determining the amount of such loss sustained ;
Fifth. In transactions entered into for profit but not connected with his busi
ness or trade, the losses actually sustained therein during the year to an amount
not exceeding the profits arising therefrom ;
Sixth. Debts due to the taxpayer actually ascertained to be worthless and
charged off within the year ;
Seventh. A reasonable allowance for the exhaustion, wear and tear of prop
erty arising out of its use or employment in the business or trade ;
Eighth. ( a ) In the case of oil and gas wells a reasonable allowance for
actual reduction in flow and production to be ascertained not by the flush flow,
but by the settled production or regular flow ; ( b ) in the case of mines a rea
sonable allowance for depletion thereof not to exceed the market value in the
mine of the product thereof, which has been mined and sold during the year
for which the return and computation are made, such reasonable allowance to
be made in the case of both ( a ) and ( b ) under rules and regulations to be
prescribed by the Secretary of the Treasury : Provided, That when the allow
ances authorized in ( a ) and (b ) shall equal the capital originally invested, or
in case of purchase made prior to March first, nineteen hundred and thirteen,
the fair market value as of that date, no further allowance shall be made. No
deduction shall be allowed for any amount paid out for new buildings, perma
nent improvements, or betterments, made to increase the value of any property
or estate, and no deduction shall be made for any amount of expense of restor
ing property or making good the exhaustion thereof for which an allowance is
or has been made.
CREDITS ALLOWED.
(b ) For the purpose of the normal tax only, the income embraced in a per
sonal return shall be credited with the amount received as dividends upon the
stock or from the net earnings of any corporation, joint-stock company or asso
ciation, trustee, or insurance company, which is taxable upon its net income
as hereinafter provided ;
131
(c ) A like credit shall be allowed as to the amount of income, the normal

tax upon which has been paid or withheld for payment at the source of the
income under the provisions of this title.
NONRESIDENT ALIENS.
SEC. 6. That in computing net income in the case of a nonresident alien

(a ) For the purpose of the tax there shall be allowed as deductions
First. The necessary expenses actually paid in carrying on any business or
trade conducted by him within the United States, not including personal, living,
or family expenses ;
Second. The proportion of all interest paid within the year by such person
on his indebtedness which the gross amount of his income for the year derived
from sources within the United States bears to the gross amount of his in
come for the year derived from all sources within and without the United
States, but this deduction shall be allowed only if such person includes in the
return required by section eight all the information necessary for its calcula
tion ;
Third. Taxes paid within the year imposed by the authority of the United
States, or its Territories, or possessions, or under the authority of any State,
county, school district, or municipality, or other taxing subdivision of any
State, paid within the United States, not including those assessed against local
benefits ;
Fourth. Losses actually sustained during the year, incurred in business or
trade conducted by him within the United States, and losses of property within
the United States arising from fires, storms, shipwreck, or other casualty, and
from theft, when such losses are not compensated for by insurance or other
wise : Provided, That for the purpose of ascertaining the amount of such loss
or losses sustained in trade, or speculative transactions not in trade, from the
same or any kind of property acquired before March first, nineteen hundred
and thirteen, the fair market price or value of such property as of March
first, nineteen hundred and thirteen, shall be the basis for determining the
amount of such loss or losses sustained ;
Fifth. In transactions entered into for profit but not connected with his
business or trade, the losses actually sustained therein during the year to an
amount not exceeding the profits arising therefrom in the United States ;
Sixth. Debts arising in the course of business or trade conducted by him
within the United States due to the taxpayer actually ascertained to be worth
less and charged off within the year ;
Seventh. A reasonable allowance for the exhaustion, wear and tear of
property within the United States arising out of its use or employment in the
business or trade ; ( a ) in the case of oil and gas wells a reasonable allowance
for actual reduction in flow and production to be ascertain not by the flush
flow, but by the settled production or regular flow ; (b ) in the case of mines a
reasonable allowance for depletion thereof not to exceed the market value in the
mine of the product thereof which has been mined and sold during the year
for which the return and computation are made, such reasonable allowance to
be made in the case of both ( a ) and (b ) under rules and regulations to be
ance authorized in ( a ) and ( b ) shall equal the capital originally invested, or
the fair market value as of that date, no further allowance shall be made. No
deduction shall be allowed for any amount paid out for new buildings, per
manent improvements, or betterments, made to increase the value of any prop
erty or estate, and no deduction shall be made for any amount of expense of
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restoring property or making good the exhaustion thereof for which un allow
ance is or has been made.
(b ) There shall also be allowed the credits specified by subdivisions (b ) and
(c) of section five.
PERSONAL EXEMPTION.
SEC. 7. ( a ) That for the purpose of the normal tax only, there shall be al
lowed as an exemption in the nature of a deduction from the amount of the net
income of each of said persons, ascertained as provided herein, the sum of
$3,000, plus $1,000 additional if the person making the return be a head of a
family or a married man with a wife living with him, or plus the sum of $1,000
additional if the person making the return be a married woman with a husband
living with her ; but in no event shall this additional exemption of $1,000 be
deducted by both a husband and a wife : Provided , That only one deduction of
$4,000 shall be made from the aggregate income of both husband and wife when
living together : Provided further, That guardians or trustees shall be allowed
to make this personal exemption as to income derived from the property of
which such guardian or trustee has charge in favor of each ward or cestui que
trust : Provided further, That in no event shall a ward or cestui que trust be
allowed a greater personal exemption than $3,000, or , if married, $4,000, as pro
vided in this paragraph, from the amount of net income received from all
sources. There shall also be allowed an exemption from the amount of the
net income of estates of deceased persons during the period of administration
or settlement, and of trust or other estates the income of which is not distributed
annually or regularly under the provisions of paragraph (b ) , section two, the
sum of $3,000, including such deductions as are allowed under section five.
(b) A nonresident alien individual may receive the benefit of the exemption
provided for in this section only by filing or causing to be filed with the col
lector of internal revenue a true and accurate return of his total income, re
ceived from all sources, corporate or otherwise, in the United States, in the
manner prescribed by this title ; and in case of his failure to file such return
the collector shall collect the tax on such income, and all property belonging to
such nonresident alien individual shall be liable to distraint for the tax.
RETURNS.
SEC. 8. ( a ) The tax shall be computed upon the net income, as thus ascer
tained , of each person subject thereto, received in each preceding calendar year
ending December thirty-first.
(b) on or before the first day of March, nineteen hundred and seventeen, and
the first day of March in each year thereafter, a true and accurate return under
oath shall be made by each person of lawful age, except as hereinafter provided,
having a net income of $3,000 or over for the taxable year to the collector of
internal revenue for the district in which such person has his legal residence or
principal place of business, or if there be no legal residence or place of business
in the United States, then with the collector of internal revenue at Baltimore,
Maryland, in such form as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, shall prescribe, setting forth spe
cifically the gross amount of income from all separate sources, and from the
total thereof deducting the aggregate items of allowances herein authorized :
Provided, That the Commissioner of Internal Revenue shall have authority to
grant a reasonable extension of time, in meritorious cases, for filing returns of
income by persons residing or traveling abroad who are required to make and
file returns of income and who are unable to file said returns on or before
March first of each year : Provided further, That the aforesaid return may be
made by an agent when by reason of illness, absence, or nonresidence the
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person liable for said return is unable to make and render the same, the agent
assuming the responsibility of making the return and incurring penalties pro
vided for erroneous, false, or fraudulent return.
( c ) Guardians, trustees, executors, administrators, receivers, conservators,
and all persons, corporations, or associations acting in any fiduciary capacity,
shall make and render a return of the income of the person, trust, or estate for
whom or which they act, and be subject to all the provisions of this title which
apply to individuals. Such fiduciary shall make oath that he has sufficient
knowledge of the affairs of such person, trust, or estate to enable him to make
such return and that the same is, to the best of his knowledge and belief, true
and correct, and be subject to all the provisions of this title which apply to
individuals : Provided, That a return made by one of two or more joint
fiduciaries filed in the district where such fiduciary resides, under such regula
tions as the Secretary of the Treasury may prescribe, shall be a sufficient com
pliance with the requirements of this paragraph.
(d ) All persons, firms, companies, copartnerships, corporations, joint-stock
companies, or associations, and insurance companies, except as hereinafter
provided, in whatever capacity acting, having the control, receipt, disposal, or
payment of fixed or determinable annual or periodical gains, profits, and income
of another individual subject to tax, shall in behalf of such person deduct and
withhold from the payment an amount equivalent to the normal tax upon the
same and make and render a return, as aforesaid, but separate and distinct,
of the portion of the income of each person from which the normal tax has
been thus withheld, and containing also the name and address of such person
or stating that the name and address or the address, as the case may be, are
unknown : Provided, That he provision requiring the ormal tax of individuals
to be deducted and withheld at the source of the income shall not be construed
to require the withholding of such tax according to the two per centum normal
tax rate herein prescribed until on and after January first, nineteen hundred
and seventeen, and the law existing at the time of the passage of this Act shall
govern the amount withheld or to be withheld at the source until January first,
nineteen hundred and seventeen.
That in either case mentioned in subdivisions ( c ) and ( d ) of this section
no return of income not exceeding $3,000 shall be required , except as in this
title provided.
( e ) Persons carrying on business in partnership shall be liable for income
tax only in their individual capacity, and the share of the profits of the part
nership to which any taxable partner would be entitled if the same were
divided , whether divided or otherwise, shall be returned for taxation and the
tax paid under the provisions of this title : Provided , That from the net dis
tributive interests on which the individual members shall be liable for tax,
normal and additional, there shall be excluded their proportionate shares re
ceived from interest on the obligations of a State or any political or taxing
subdivision thereof, and upon the obligations of the United States and its pos
sessions, and all taxes paid to the United States or to any possession thereof,
or to any State, county, or taxing subdivison of a State, and that for the pur
pose of computing the normal tax there shall be allowed a credit, as provided
by section five, subdivision (b ) , for their proportionate share of the profits
derived from dividends. And such partnership, when requested by the Com
missioner of Internal Revenue, or any district collector, shall render a correct
return of the earnings, profits, and income of the partnership, except income
exempt under section four of this act, setting forth the item of the gross in
come and the deductions and credits allowed by this title, and the names and
addresses of the individuals who would be entitled to the net earnings, profits,
and income, if distributed.
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(f) In every return shall be included the income derived from dividends on
the capital stock or from the net earnings of any corporation, joint-stock com
pany or association , or insurance company, except that in the case of nonresi
dent aliens such income derived from sources without the United States shall
not be included.
(g) An individual keeping accounts upon any basis other than that of actual
receipts and disbursements, unless such other basis does not clearly reflect
his income, may, subject to regulations made by the Commissioner of Internal
Revenue, with the approval of the Secretary of the Treaury, make his return
upon the basis upon which his accounts are kept, in which case the tax shall be
computed upon his income as so returned..
ASSESSMENT AND ADMINISTRATION.
SEC. 9. ( a ) That all assessments shall be made by the Commissioner of

Internal Revenue and all persons shall be notified of the amount for which
they are respectively liable on or before the first day of June of each successive
year, and said amounts shall be paid on or before the fifteenth day of June,
except in cases of refusal or neglect to make such return and in cases or errone
ous, false, or fraudulent returns, in which cases the Commissioner of Internal
Revenue shall, upon the discovery thereof, at any time within three years
after said return is due, or has been made, make a return upon information
obtained as provided for in this title or by existing law, or require the neces
sary corrections to be made, and the assessment made by the Commissioner of
Internal Revenue thereon shall be paid by such person or persons immediately
upon notification of the amount of such assessment ; and to any sum or sums
due and unpaid after the fifteenth day of June in any year, and for ten days
after notice and demand thereof by the collector, there shall be added the sum
of five per centum on the amount of tax unpaid, and interest at the rate of one
per centum per month upon said tax from the time the same became due, except
from the estates of insane, deceased, or insolvent persons.
(b) All persons, firms, copartnerships, companies, corporations, joint-stock
companies, or associations, and insurance companies, in whatever capacity act
ing, including lessees or mortgagors of real or personal property, trustees act
ing in any trust capacity, executors, administrators, receivers, conservators,
employers, and all officers and employees of the United States having the con
trol, receipt, custody, disposal, or payment of interest, rent, salaries , wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed
or determinable annual or periodical gains, profits , and income of another
person, exceeding $3,000 for any taxable year, other than income derived from
dividends on capital stock, or from the net earnings of corporations and joint
stock companies or associations, or insurance companies, the income of which
is taxable under this title, who are required to make and render a return in
behalf of another, as provided herein, to the collector of his, her, or its district,
are hereby authorized and required to deduct and withhold from such annual
or periodical gains, profits, and income such sum as will be sufficient to pay
the normal tax imposed thereon by this title, and shall pay the amount with
held to the officer of the United States Government authorized to receive the
same ; and they are each hereby made personally liable for such tax, and they
are each hereby indemnified against every person, corporation, association, or
demand whatsoever for all payments which they shall make in pursuance and
by virtue of this title.
In all cases where the income tax of a person is withheld and deducted and
paid or to be paid at the source, such person shall not receive the benefit of
the personal exemption allowed in section seven of this title except by an appli
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cation for refund of the tax unless he shall, not less than thirty days prior to
the day on which the return of his income is due, file with the person who is
required to withhold and pay tax for him a signed notice in writing claiming
the benefit of such exemption, and thereupon no tax shall be withheld upon the
amount of such exemption : Provided, That if any person for the purpose of
obtaining any allowance or reduction by virtue of a claim for such exemption,
either for himself or for any other person, knowingly makes any false state
ment or false or fraudulent representation, he shall be liable to a penalty of
not exceeding $300.
And where the income tax is paid or to be paid at the source, no person shall
be allowed the benefit of any deduction provided for in sections five or six of
this title unless he shall, not less than thirty days prior to the day on which
the return of his income is due, either ( 1 ) file with the person who is required
to withhold and pay tax for him a true and correct return of his gains, profits,
and income from all other sources, and also the deductions asked for, and the
showing thus made shall then become a part of the return to be made in his
behalf by the person required to withhold and pay the tax, or ( 2 ) likewise
make application for deductions to the collector of the district in which return
is made or to be made for him : Provided , That when any amount allowable
as a deduction is known at the time of receipt of fixed annual or periodical
income by an individual subject to tax, he may file with the person, firm, or
corporation making the payment a certificate, under penalty for false claim ,
and in such form as shall be prescribed by the Commissioner of Internal
Revenue, stating the amount of such deduction and making a claim for an
allowance of the same against the amount of tax otherwise required to be
deducted and withheld at the source of the income, and such certificate shall
likewise become a part of the return to be made in his behalf.
If such person is absent from the United States, or is unable owing to serious
illness to make the return and application above provided for, the return and
application may be made by an agent, he making oath that he has sufficient
knowledge of the affairs and property of his principal to enable him to make
a full and complete return , and that the return and application made by him
are full and complete.
(c) The amount of the normal tax hereinbefore imposed shall be deducted
and withheld from fixed or determinable annual or periodical gains, profits,
and income derived from interest upon bonds and mortgages, or deeds of trust
or other similar obligations of corporations, joint-stock companies, associations,
and insurance companies, whether payable annually or at shorter or longer
periods, although such interest does not amount to $3,000, subject to the provi
sions of this title requiring the tax to be withheld at the source and deducted
from annual income and returned and paid to the Government.
(d ) And likewise the amount of such tax shall be deducted and withheld
from coupons, checks, or bills of exchange for or in payment of interest upon
bonds of foreign countries and upon foreign mortgages or like obligations ( not
payable in the United States ) , and also from coupons, checks, or bills of ex
change for or in payment of any dividends upon the stock or interest upon the
obligations of foreign corporations, associations, and insurance companies en
gaged in business in foreign countries.
And the tax in such cases shall be withheld , deducted , and returned for and
in behalf of any person subject to the tax hereinbefore imposed, although such
interest or dividends do not exceed $3,000, by ( 1 ) any banker or person who
shall sell or otherwise realize coupons, checks , or bills of exchange drawn or
made in payment of any such interest or dividends ( not payable in the United
States) , and (2 ) any person who shall obtain payment ( not in the United
136
States ) , in behalf of another of such dividends and interest by means of

coupons, checks, or bills of exchange, and also (3 ) any dealer in such coupons
who shall purchase the same for any such dividends or interest ( not payable in
the United States ) , otherwise than from a banker or another dealer in such
coupons.
(e ) Where the tax is withheld at the source, the benefit of the exemption and
the deductions allowable under this title may be had by complying with the
foregoing provisions of this section.
(f) All persons, firms, or corporations undertaking as a matter of business
or for profit the collection of foreign payments of such interest or dividends by
means of coupons, checks, or bills of exchange shall obtain a license from the
Commissioner of Internal Revenue, and shall be subject to such regulations en
abling the Government to ascertain and verify the due withholding and payment
of the income tax required to be withheld and paid as the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treasury, shall
prescribe ; and any person who shall knowingly undertake to collect such pay
ments as aforesaid without having obtained a license therefor, or without com
plying with such regulations, shall be deemed guilty of a misdemeanor and for
each offense be fined in a sum not exceeding $5,000, or imprisoned for a term
not exceeding one year, or both, in the discretion of the court.
(g) The tax herein imposed upon gains, profits, and income not falling under
the foregoing and not returned and paid by virtue of the foregoing shall be
assessed by personal return under rules and regulations to be prescribed by
the Commissioner of Internal Revenue and approved by the Secretary of the
Treasury. The intent and purpose of this title is that all gains, profits, and
income of a taxable class, as defined by this title, shall be charged and assessed
with the corresponding tax, normal and additional, prescribed by this title, and
said tax shall be paid by the owner of such income, or the proper representative
having the receipt, custody, control, or disposal of the same. For the purpose
of this title ownership or liability shall be determined as of the year for which
a return is required to be rendered.
The provisions of this title relating to the deduction and payment of the tax
at the source of income shall only apply to the normal tax hereinbefore imposed
upon individuals.
PART II.- ON CORPORATIONS.
SEC. 10. That there shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company or association, or insurance
company, organized in the United States, no matter how created or organized
but not including partnerships, a tax of two per centum upon such income ; and
a like tax shall be levied , assessed, collected, and paid annually upon the total
net income received in the preceding calendar year from all sources within the
United States by every corporation, joint-stock company or association, or insur
ance company organized, authorized , or existing under the laws of any foreign
country, including the interest on bonds, notes, or other interest-bearing obliga
tions of residents, corporate or otherwise, and including the income derived
from dividends on capital stock or from net earnings of resident corporations,
joint-stock companies or associations, or insurance companies whose net income
is taxable under this title : Provided, That the term " dividends " as used in
this title shall be held to mean any distribution made or ordered to be made by
a corporation, joint-stock company, association, or insurance company, out of
its earnings or profits accrued since March first, nineteen hundred and thirteen,
and payable to its shareholders, whether in cash or in stock of the corporation,
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joint-stock company, association, or insurance company, which stock dividend

shall be considered income, to the amount of its cash value.
The foregoing tax rate shall apply to the total net income received by every
taxable corporation, joint-stock company or association, or insurance company
in the calendar year nineteen hundred and sixteen and in each year thereafter,
except that if it has fixed its own fiscal year under the provisions of existing
law, the foregoing rate shall apply to the proportion of the total net income
returned for the fiscal year ending prior to December thirty-first, nineteen
hundred and sixteen, which the period between January first, nineteen hun
dred and sixteen, and the end of such fiscal year bears to the whole of such
fiscal year, and the rate fixed in Section II of the Act approved October third,
nineteen hundred and thirteen, entitled "An Act to reduce tariff duties and to
provide revenue for the Government, and for other purposes," shall apply to
the remaining portion of the total net income returned for such fiscal year.
For the purpose of ascertaining the gain derived or loss sustained from the
sale or other disposition by a corporation , joint-stock company or association,
or insurance company, of property, real, personal, or mixed , acquired before
March first, nineteen hundred and thirteen, the fair market price or value of
such property as of March first, nineteen hundred and thirteen, shall be the
basis for determining the amount of such gain derived or loss sustained.
CONDITIONAL AND OTHER EXEMPTIONS.
SEC. 11. ( a ) That there shall not be taxed under this title any income
received by any
First. Labor, agricultural, or horticultural organization ;
Second. Mutual savings bank not having a capital stock represented by
shares ;
Third. Fraternal beneficiary society , order, or association, operating under
the lodge system or for the exclusive benefit of the members of a fraternity
itself operating under the lodge system, and providing for the payment of life,
sick, accident, or other benefits to the members of such society, order, or asso
ciation or their dependents ;
Fourth. Domestic building and loan association and cooperative banks with
out capital stock organized and operated for mutual purposes and without
profit ;
Fifth. Cemetery company owned and operated exclusively for the benefit of
its members ;
Sixth. Corporation or association organized and operated exclusively for
religious, charitable, scientific, or educational purposes, no part of the net
income of which inures to the benefit of any private stockholder or individual ;
Seventh. Business league, chamber of commerce, or board of trade, not
organized for profit and no part of the net income of which inures to the benefit
of any private stockholder or individual ;
Eighth. Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare ;
Ninth. Club organized and operated exclusively for pleasure, recreation, and
other nonprofitable purposes , no part of the net income of which inures to the
benefit of any private stockholder or member ;
Tenth. Farmers' or other mutual hail, cyclone, or fire insurance company,
mutual ditch or irrigation company, mutual or cooperative telephone company,
or like organization of a purely local character, the income of which consists
solely of assessments, dues , and fees collected from members for the sole pur
pose of meeting its expenses ;
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Eleventh. Farmers', fruit growers' , or like association, organized and op

erated as a sales agent for the purpose of marketing the products of its mem
bers and turning back to them the proceeds of sales, less the necessary selling
expenses, on the basis of the quantity of produce furnished by them ;
Twelfth. Corporation or association organized for the exclusive purpose of
holding title to property, collecting income therefrom, and turning over the
entire amount thereof, less expenses, to an organization which itself is exempt
from the tax imposed by this title ; or
Thirteenth. Federal land banks and national farm-loan associations as pro
vided in section twenty-six of the Act approved July seventeenth, nineteen
hundred and sixteen, entitled "An Act to provide capital for agricultural de
velopment, to create standard forms of investment based upon farm mortgage,
to equalize rates of interest upon farm loans, to furnish a market for United
States bonds, to create Government depositaries and financial agents for the
United States, and for other purposes."
Fourteenth . Joint stock land banks as to income derived from bonds or
debentures of other joint stock land banks or any Federal land bank belonging
to such joint stock land bank.
(b ) There shall not be taxed under this title any income derived from any
public utility or from the exercise of any essential governmental function accru
ing to any State, Territory, or the District of Columbia, or any political sub
division of a State or Territory, nor any income accruing to the government of
the Philippine Islands or Porto Rico, or of any political subdivision of the
Philippine Islands or Porto Rico : Provided, That whenever any State, Terri
tory, or the District of Columbia, or any political subdivision of a State or
Territory, has, prior to the passage of this title, entered in good faith into a
contract with any person or corporation, the object and purpose of which is to
acquire, construct, operate, or maintain a public utility, no tax shall be levied
under the provisions of this title upon the income derived from the operation
of such public utility, so far as the payment thereof will impose a loss or
burden upon such State, Territory, or the District of Columbia, or a political
subdivision of a State or Territory ; but this provision is not intended to confer
upon such person or corporation any financial gain or exemption or to relieve
such person or corporation from the payment of a tax as provided for in this
title upon the part or portion of the said income to which such person or cor
poration shall be entitled under such contract.
DEDUCTIONS.
SEC. 12. ( a) In the case of a corporation, joint-stock company or association,

or insurance company, organized in the United States, such net income shall be
ascertained by deducting from the gross amount of its income received within
the year from all sources
First. All the ordinary and necessary expenses paid within the year in the
maintenance and operation of its business and properties, including rentals or
other payments required to be made as a condition to the continued use or
possession of property to which the corporation has not taken or is not taking
title, or in which it has no equity.
Second. All losses actually sustained and charged off within the year and not
compensated by insurance or otherwise, including a reasonable allowance for
the exhaustion, wear and tear of property arising out of its use or employment
in the business or trade ; ( a ) in the case of oil and gas wells a reasonable
allowance for actual reduction in flow and production to be ascertained not by
the flush flow, but by the settled production or regular flow ; ( b ) in the case of
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mines a reasonable allowance for depletion thereof not to exceed the market
value in the mine of the product thereof which has been mined and sold during
the year for which the return and computation are made, such reasonable
allowance to be made in the case of both ( a ) and (b ) under rules and regula
tions to be prescribed by the Secretary of the Treasury : Provided, That when
the allowance authorized in ( a ) and (b ) shall equal the capital originally in
vested, or in case of purchase made prior to March first, nineteen hundred and
thirteen, the fair market value as of that date, no further allowance shall be
made ; and ( c ) in the case of insurance companies, the net addition, if any,
required by law to be made within the year to reserve funds and the sums
other than dividends paid within the year on policy and annuity contracts :
Provided, That no deduction shall be allowed for any amount paid out for new
buildings, permanent improvements, or betterments made to increase the value
of any property or estate, and no deduction shall be made for any amount of
expense of restoring property or making good the exhaustion thereof for which
an allowance is or has been made : Provided further, That mutual fire and
mutual employers' liability and mutual workmen's compensation and mutual
casualty insurance companies requiring their members to make premium de
posits to provide for losses and expenses shall not return as income any portion
of the premium deposits returned to their policyholders, but shall return as
taxable income all income received by them from all other sources plus such por
tions of the premium deposits as are retained by the companies for purposes
other than the payment of losses and expenses and reinsurance reserves : Pro
vided further, That mutual marine insurance companies shall include in their
return of gross income gross premiums collected and received by them less
amounts paid for reinsurance, but shall be entitle to include in deductions from
gross income amounts repaid to policyholders on account of premiums pre
viously paid by them and interest paid upon such amounts between the ascer
tainment thereof and the payment thereof, and life insurance companies shall
not include as income in any year such portion of any actual premium re
ceived from any individual policyholder as shall have been paid back or credited
to such individual policyholder, or treated as an abatement of premium of such
individual policyholder, within such year ;
Third. The amount of interest paid within the year on its indebtedness to
an amount of such indebtedness not in excess of the sum of ( a ) the entire
amount of the paid-up capital stock outstanding at the close of the year, or,
if no capital stock, the entire amount of capital employed in the business at the
close of the year, and ( b ) one-half of its interest-bearing indebtedness then
outstanding : Provided, That for the purpose of this title preferred capital
stock shall not be considered interest-bearing indebtedness , and interest or
dividends paid upon this stock shall not be deductible from gross income :
Provided further, That in cases wherein shares of capital stock are issued with
out par or nominal value, the amount of paid-up capital stock, within the
meaning of this section, as represented by such shares, will be the amount of
cash, or its equivalent, paid or transferred to the corporation as a considera
tion for such shares : Provided further, That in the case of indebtedness wholly
secured by property collateral, tangible or intangible, the subject of sale or
hypothecation in the ordinary business of such corporation, joint-stock company
or association as a dealer only in the property constituting such collateral, or
in loaning the funds thereby procured , the total interest paid by such corpora
tion, company, or association within the year on any such indebtedness may
be deducted as a part of its expenses of doing business, but interest on such
Indebtedness shall only be deductible on an amount of such indebtedness not in
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excess of the actual value of such property collateral : Provided further, That
in the case of bonds or other indebtedness, which have been issued with a
guaranty that the interest payable thereon shall be free from taxation, no
deduction for the payment of the tax herein imposed, or any other tax paid
pursuant to such guaranty, shall be allowed ; and in the case of a bank, bank
ing association, loan or trust company, interest paid within the year on
deposits or on moneys received for investment and secured by interest-bearing
certificates of indebtedness issued by such bank, banking association, loan or
trust company ;
Fourth. Taxes paid within the year imposed by the authority of the United
States, or its Territories, or possessions, or any foreign country, or under the
authority of any State, county, school district, or municipality, or other taxing
subdivision of any State, not including those assessed against local benefits.
( b) In the case of a corporation, joint-stock company or association , cr
Insurance company, organized , authorized , or existing under the laws of any
foreign country, such net income shall be ascertained by deducting from the
gross amount of its income received within the year from all sources within
the United States
First. All the ordinary and necessary expenses actually paid within the
year out of earnings in the maintenance and operation of its business and
property within the United States, including rentals or other payments re
quired to be made as a condition to the continued use or possession of prop
erty to which the corporation has not taken or is not taking title, or in which
it has no equity.
Second. All losses actually sustained within the year in business or trade
conducted by it within the United States and not compensated by insurance
or otherwise, including a reasonable allowance for the exhaustion, wear and
tear of property arising out of its use or employment in the business or trade ;
(a ) and in the case ( a ) of oil and gas wells a reasonable allowance for actual
reduction in flow and production to be ascertained not by the flush flow, but
by the settled production or regular flow ; ( b ) in the case of mines a reason
able allowance for depletion thereof not to exceed the market value in the
mine of the product thereof which has been mined and sold during the year
for which the return and computation are made, such reasonable allowance
to be made in the case of both ( a ) and (b ) under rules and regulations to be
ance authorized in ( a ) and ( b ) shall equal the capital originally invested, or
the fair market value as of that date, no further allowance shall be made ;
and ( c ) in the case of insurance companies, the net addition, if any, required
by law to be made within the year to reserve funds and the sums other than
dividends paid within the year on policy and annuity contracts : Provided,
That no deduction shall be allowed for any amount paid out for new buildings,
permanent improvements, or betterments, made to increase the value of any
property or estate, and no deduction shall be made for any amount of expense
of restoring property or making good the exhaustion thereof for which an
allowance is or has been made : Provided further, That mutual fire and mutual
employers' liability and mutual workmen's compensation and mutual casualty
insurance companies requiring their members to make premium deposits to
provide for losses and expenses shall not return as income any portion of the
premium deposits returned to their policyholders, but shall return as taxable
income all income received by them from all other sources plus such portions
of the premium deposits as are retained by the companies for purposes other
than the payment of losses and expenses and reinsurance reserves : Provided
141
further, That mutual marine insurance companies shall include in their return
of gross income gross premiums collected and received by them less amounts
paid for reinsurance, but shall be entitled to include in deductions from gross
income amounts repaid to policyholders on account of premiums previously
paid by them, and interest paid upon such amounts between the ascertainment
thereof and the payment thereof, and life insurance companies shall not
include as income in any year such portion of any actual premium received
from any individual policyholder as shall have been paid back or credited to
such individual policyholder, or treated as an abatement of premium of such
individual policyholder, within such year ;
Third. The amount of interest paid within the year on its indebtedness to an
amount of such indebtedness not in excess of the proportion of the sum of ( a ) the
entire amount of the paid-up capital stock outstanding at the close of the year,
or, if no capital stock, the entire amount of the capital employed in the business
at the close of the year, and (b ) one-half of its interest-bearing indebtedness
then outstanding, which the gross amount of its income for the year from
business transacted and capital invested within the United States bears to the
gross amount of its income derived from all sources within and without the
United States : Provided, That in the case of bonds or other indebtedness which
have been issued with a guaranty that the interest payable thereon shall be
free from taxation, no deduction for the payment of the tax herein imposed or
any other tax paid pursuant to such guaranty shall be allowed ; and in case of
a bank, banking association, loan or trust company, or branch thereof, interest
paid within the year on deposits by or on moneys received for investment from
either citizens or residents of the United States and secured by interest-bearing
certificates of indebtedness issued by such bank, banking association, loan or
trust company, or branch thereof ;
Fourth. Taxes paid within the year imposed by the authority of the United
States, or its Territories, or possessions, or under the authority of any State,
county, school district, or municipality, or other taxing subdivision of any State,
paid within the United States, not including those assessed against local
benefits ;
( c) In the case of assessment insurance companies, whether domestic or
foreign, the actual deposit of sums with State or Territorial officers, pursuant
to law, as additions to guarantee or reserve funds shall be treated as being
payments required by law to reserve funds.
RETURNS .
SEC. 13. ( a ) The tax shall be computed upon the net income, as thus ascer
tained, received within each preceding calendar year ending December thirty
first : Provided, That any corporation, joint-stock company or association, or
insurance company, subject to this tax, may designate the last day of any
month in the year as the day of the closing of its fiscal year and shall be
entitled to have the tax payable by it computed upon the basis of the net
income ascertained as herein provided for the year ending on the day so desig
nated in the year preceding the date of assessment instead of upon the basis
of the net income for the calendar year preceding the date of assessment ; and
it shall give notice of the day it has thus designated as the closing of its fiscal
year to the collector of the district in which its principal business office is
located at any time not less than thirty days prior to the first day of March
of the year in which its return would be filed if made upon the basis of the
calendar year ;
142
(b) Every corporation, joint-stock company or association, or insurance com

pany, subject to the tax herein imposed , shall, on or before the first day of
March, nineteen hundred and seventeen, and the first day of March in each
year thereafter, or, if it has designated a fiscal year for the computation of its
tax, then within sixty days after the close of such fiscal year ending prior to De
cember thirty-first, nineteen hundred and sixteen, and the close of each such fiscal
year thereafter, render a true and accurate return of its annual net income in
the manner and form to be prescribed by the Commissioner of Internal Revenue,
with the approval of the Secretary of the Treasury, and containing such facts,
data, and information as are appropriate and in the opinion of the commissioner
necessary to determine the correctness of the net income returned and to carry
out the provisions of this title. The return shall be sworn to by the president,
vice president, or other principal officer, and by the treasurer or assistant
treasurer. The return shall be made to the collector of the district in which is
located the principal office of the corporation, company, or association, where
are kept its books of account and other data from which the return is prepared,
or in the case of a foreign corporation, company, or association, to the collector
of the district in which is located its principal place of business in the United
States, or if it have no principal place of business, office, or agency in the
United States, then to the collector of internal revenue at Baltimore , Maryland .
All such returns shall as received be transmitted forthwith by the collector to
the Commissioner of Internal Revenue ;
(c) In cases wherein receivers, trustees in bankruptcy, or assignees are op
erating the property or business of corporations, joint-stock companies or
associations, or insurance companies, subject to tax imposed by this title,
such receivers, trustees, or assignees shall make returns of net income as and
for such corporations , joint-stock companies or associations , and insurance
companies, in the same manner and form as such organizations are herein
before required to make returns, and any income tax due on the basis of such
returns made by receivers, trustees, or assignees shall be assessed and collected
in the same manner as if assessed directly against the organizations of whose
businesses or properties they have custody and control ;
(d ) A corporation, joint-stock company or association, or insurance com
pany, keeping account upon any basis other than that of actual receipts and
disbursements, unless such other basis does not clearly reflect its income, may,
subject to regulations made by the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, make its return upon the
basis upon which its accounts are kept, in which case the tax shall be com
puted upon its income as so returned ;
(e ) All the provisions of this title relating to the tax authorized and re
quired to be deducted and withheld and paid to the officer of the United States
Government authorized to receive the same from the income of nonresident alien
T individuals from sources within the United States shall be made applicable to
incomes derived from interest upon bonds and mortgages or deeds of trust or
similar obligations of domestic or other resident corporations, joint-stock com
panies or associations, and insurance companies by nonresident alien firms, co
partnerships, companies, corporations, joint-stock companies or associations,
and insurance companies not engaged in business or trade within the United
States and not having any office or place of business therein ;
( f) Likewise, all the provisions of this title relating to the tax authorized
and required to be deducted and withheld and paid to the officer of the United
States Government authorized to receive the same from the income of non
resident alien individuals from sources within the United States shall be made
143
applicable to income derived from dividends upon the capital stock or from the
net earnings of domestic or other resident corporations, joint-stock companies
or associations, and insurance companies by nonresident alien companies, cor
porations, joint-stock companies or associations , and insurance companies not
engaged in business or trade within the United States and not having any office
or place of business therein.
ASSESSMENT AND ADMINISTRATION.
SEC. 14. (a ) All assessments shall be made and the several corporations, joint
stock companies or associations, and insurance companies shall be notified of
the amount for which they are respectively liable on or before the first day of
June of each successive year, and said assessment shall be paid on or before
the fifteenth day of June : Provided, That every corporation, joint-stock com
pany or association, and insurance company, computing taxes upon the income
of the fiscal year which it may designate in the manner hereinbefore provided,
shall pay the taxes due under its assessment within one hundred and five days
after the date upon which it is required to file its list or return of income for
assessment ; except in cases of refusal or neglect to make such return, and in
cases of erroneous, false, or fraudulent returns, in which cases the Commis
sioner of Internal Revenue shall, upon the discovery thereof, at any time within
three years after said return is due, make a return upon information obtained
as provided for in this title or by existing law ; and the assessment made by
the Commissioner of Internal Revenue thereon shall be paid by such corpora
tion, joint-stock company or association, or insurance company immediately
upon notification of the amount of such assessment ; and to any sum or sums due
and unpaid after the fifteenth day of June in any year, or after one hundred
and five days from the date on which the return of income is required to be
made by the taxpayer, and after ten days' notice and demand thereof by the
collector, there shall be added the sum of five per centum on the amount of
tax unpaid and interest at the rate of one per centum per month upon said tax
from the time the same becomes due : Provided, That upon the examination of
any return of income made pursuant to this title, the Act of August fifth, nine
teen hundred and nine, entitled, "An Act to provide revenue, equalize duties
and encourage the industries of the United States, and for other purposes ", and
the Act of October third, nineteen hundred and thirteen, entitled , "An Act to
reduce tariff duties and to provide revenue for the Government, and for other
purposes " , if it shall appear that amounts of tax have been paid in excess of
those properly due, the taxpayer shall be permitted to present a claim for re
fund thereof notwithstanding the provisions of section thirty-two hundred and
twenty-eight of the Revised Statutes ;
(b ) When the assessment shall be made, as provided in this title, the returns
together with any corrections thereof which may have been made by the com
missioner , shall be filed in the office of the Commissioner of Internal Revenue
and shall constitute public records and be open to inspection as such : Provided,
That any and all such returns shall be open to inspection only upon the order
of the President, under rules and regulations to be prescribed by the Secretary
of the Treasury and approved by the President : Provided further, That the
proper officers of any State imposing a general income tax may, upon the re
quest of the governor thereof, have access to said returns or to an abstract
thereof, showing the name and income of each such corporation, joint-stock
company or association, or insurance company, at such times and in such manner
as the Secretary of the Treasury may prescribe ;
144
( c ) If any of the corporations, joint-stock companies or associations, or

lusurance companies aforesaid shall refuse or neglect to make a return at
the time or times hereinbefore specified in each year, or shall render a false
or fraudulent return, such corporation, joint-stock company or association, or
insurance company shall be liable to a penalty of not exceeding $10,000 : Pro
vided, That the Commissioner of Internal Revenue shall have authority, in the
case of either corporations or individuals, to grant a reasonable extension of
time in meritorious cases, as he may deem proper.
(d ) That section thirty-two hundred and twenty-five of the Revised Statutes
of the United States be, and the same is hereby, amended so as to read as
follows :
66
' SEC. 3225. When a second assessment is made in case of any list, statement,
or return, which in the opinion of the collector or deputy collector was false
or fraudulent, or contained any understatement or undervaluation, no tax col
lected under such assessment shall be recovered by any suit unless it is
proved that the said list, statement, or return was not false nor fraudulent
and did not contain any understatement or undervaluation ; but this section
shall not apply to statements or returns made or to be made in good faith under
the laws of the United States regarding annual depreciation of oil or gas
wells and mines."
PART III.-GENERAL ADMINISTRATIVE PROVISIONS.
SEC. 15. That the word " State " or " United States " when used in this title
shall be construed to include any Territory, the District of Columbia, Porto
Rico, and the Philippine Islands, when such construction is necessary to carry
out its provisions.
SEC. 16. That sections thirty-one hundred and sixty-seven, thirty-one hundred
and seventy-two, thirty-one hundred and seventy-three and thirty-one hundred
and seventy-six of the Revised Statutes of the United States as amended are
hereby amended so as to read as follows :
" SEC. 3167. It shall be unlawful for any collector, deputy collector, agent,
clerk, or other officer or employee of the United States to divulge or to make
known in any manner whatever not provided by law to any person the opera
tions, style of work, or apparatus of any manufacturer or producer visited
by him in the discharge of his official duties, or the amount or source of
income, profits, losses, expenditures, or any particular thereof, set forth or
disclosed in any income return, or to permit any income return or copy thereof
or any book containing any abstract or particulars thereof to be seen or ex;
amined by any person except as provided by law ; and it shall be unlawful for
any person to print or publish in any manner whatever not provided by law
any income return or any part thereof or source of income, profits , losses, or
expenditures appearing in any income return ; and any offense against the fore
going provision shall be a misdemeanor and be punished by a fine not ex
ceeding $1,000 or by imprisonment not exceeding one year, or both, at the dis
cretion of the court ; and if the offender be an officer or employee of the United
States he shall be dismissed from office or discharged from employment.
" SEC. 3172. Every collector shall, from time to time, cause his deputies to
proceed through every part of his district and inquire after and concerning
all persons therein who are liable to pay any internal-revenue tax, and all per
sons owning or having the care and management of any objects liable to pay
any tax, and to make a list of such persons and enumerate said objects.
" SEC. 3173. It shall be the duty of any person, partnership, firm, association ,
or corporation, made liable to any duty, special tax, or other tax imposed by
law, when not otherwise provided for, ( 1 ) in case of a special tax, on or before
145
the thirty-first day of July in each year, ( 2 ) in case of income tax on or before
the first day of March in each year, or on or before the last day of the sixty
day period next following the closing date of the fiscal year for which it makes
a return of its income, and ( 3 ) in other cases before the day on which the taxes
accrue, to make a list or return, verified by oath, to the collector or a deputy
collector of the district where located , of the articles or objects, including the
amount of annual income charged with a duty or tax, the quantity of goods,
wares, and merchandise, made or sold and charged with a tax, the several
rates and aggregate amount, according to the forms and regulations to be pre
scribed by the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, for which such person, partnership, firm, asso
ciation, or corporation is liable : Provided, That if any person liable to pay
any duty or tax, or owning, possessing, or having the care or management of
property, goods, wares, and merchandise, article or objects liable to pay any
duty, tax, or license, shall fail to make and exhibit a list or return required
by law, but shall consent to disclose the particulars of any and all the property,
goods, wares, and merchandise, articles, and objects liable to pay any duty
or tax, or any business or occupation liable to pay any tax as aforesaid, then,
and in that case, it shall be the duty of the collector or deputy collector to make
such list or return, which, being distinctly read, consented to, and signed and
verified by oath by the person so owning, possessing, or having the care and
management as aforesaid, may be received as the list of such person : Pro
vided further, That in case no annual list or return has been rendered by such
person to the collector or deputy collector as required by law, and the person
shall be absent from his or her residence or place of business at the time the
collector or a deputy collector shall call for the annual list or return, it shall be
the duty of such collector or deputy collector to leave at such place of resi
dence or business, with some one of suitable age and discretion, if such be
present, otherwise to deposit in the nearest post office, a note or memorandum
addressed to such person, requiring him or her to render to such collector or
deputy collector the list or return required by law within ten days from the
date of such note or memorandum, verified by oath. And if any person, on
being notified or required as aforesaid, shall refuse or neglect to render such
list or return within the time required as aforesaid , or whenever any person
who is required to deliver a monthly or other return of objects subject to tax
fails to do so at the time required, or delivers any return which, in the opinion
of the collector, is erroneous, false, or fraudulent, or contains any undervalua
tion or understatement, or refuses to allow any regularly authorized Govern
ment officer to examine the books of such person, firm, or corporation, it shall
be lawful for the collector to summon such person, or any other person having
possession, custody, or care of books of account containing entries relating to
the business of such person, or any other person he may deem proper, to
appear before him and produce such books at a time and place named in the
summons, and to give testimony or answer interrogatories, under oath, re
specting any objects or income liable to tax or the returns thereof. The col
lector may summon any person residing or found within the State or Territory
in which his district lies ; and when the person intended to be summoned does
not reside and can not be found within such State or Territory, he may enter
any collection district where such person may be found and there make the
examination herein authorized. And to this end he may there exercise all the
authority which he might lawfully exercise in the district for which he was
commissioned : Provided, That ' person,' as used in this section, shall be con
strued to include any corporation, joint-stock company or association, or in
24433°-VOL 18-16 -10
146
surance company when such construction is necessary to carry out its pro
visions.
" SEC. 3176. If any person, corporation, company, or association fails to make
and file a return or list at the time prescribed by law, or makes, willfully or
otherwise, a false or fraudulent return or list, the collector or deputy collector
shall make the return or list from his own knowledge and from such information
as he can obtain through testimony or otherwise. Any return or list so made
and subscribed by a collector or deputy collector shall be prima facie good
and sufficient for all legal purposes.
" If the failure to file a return or list is due to sickness or absence the col
lector may allow such further time, not exceeding thirty days, for making and
filing the return or list as he deems proper.
" The Commissioner of Internal Revenue shall assess all taxes , other than
stamp taxes, as to which returns or lists are so made by a collector or deputy
collector. In case of any failure to make and file a return or list within the
time prescribed by law or by the collector, the Commissioner of Internal Reve
nue shall add to the tax fifty per centum of its amount except that, when a
return is voluntarily and without notice from the collector filed after such
time and it is shown that the failure to file it was due to a reasonable cause
and not to willful neglect, no such addition shall be made to the tax. In case a
false or fraudulent return or list is willfully made, the Commissioner of Inter
nal Revenue shall add to the tax one hundred per centum of its amount.
" The amount so added to any tax shall be collected at the same time and in
the same manner and as part of the tax unless the tax has been paid before
the discovery of the neglect, falsity, or fraud, in which case the amount so
added shall be collected in the same manner as the tax."
SEC. 17. That it shall be the duty of every collector of internal revenue, to
whom any payment of any taxes is made under the provisions of this title , to give
to the person making such payment a full written or printed receipt, expressing
the amount paid and the particular account for which such payment was made ;
and whenever such payment is made such collector shall, if required, give
a separate receipt for each tax paid by any debtor, on account of payments made
to or to be made by him to separate creditors in such form that such debtor
can conveniently produce the same separately to his several creditors in satis
faction of their respective demands to the amounts specified in such receipts ;
and such receipts shall be sufficient evidence in favor of such debtor to justify
him in withholding the amount therein expressed from his next payment to his
creditor ; but such creditor may, upon giving to his debtor a full written receipt,
acknowledging the payment to him of whatever sum may be actually paid , and
accepting the amount of tax paid as aforesaid ( specifying the same ) as a further
satisfaction of the debt to that amount, require the surrender to him of such
collector's receipt.
SEC. 18. That if any individual liable to make the return or pay the tax
aforesaid shall refuse or neglect to make such return at the time or times
hereinbefore specified in each year, he shall be liable to a penalty of not less
than $20 nor more than $1,000 . Any individual or any officer of any corpora
tion, joint-stock company or association, or insurance company required by law
to make, render, sign, or verify any return who makes any false or fraudulent
return or statement with intent to defeat or evade the assessment required by
this title to be made shall be guilty of a misdemeanor, and shall be fined not ex
ceeding $2,000 or be imprisoned not exceeding one year, or both, in the discretion
of the court, with the costs of prosecution : Provided, That where any tax hereto
fore due and payable has been duly paid by the taxpayer, it shall not be re
collected from any person or corporation required to retain it at its source,
147
nor shall any penalty be imposed or collected in such cases from the taxpayer,
or such person or corporation whose duty it was to retain it, for failure to
return or pay the same, unless such failure was fraudulent and for the purpose
of evading payment.
SEC. 19. That the collector or deputy collector shall require every return to be
verified by the oath of the party rendering it. If the collector or deputy col
lector have reason to believe that the amount of any income returned is under
stated, he shall give due notice to the person making the return to show cause
why the amount of the return should not be increased, and upon proof of the
amount understated may increase the same accordingly. Such person may
furnish sworn testimony to prove any relevant facts, and , if dissatisfied with
the decision of the collector, may appeal to the Commissioner of Internal Rev
enue for his decision under such rules of procedure as may be prescribed by
regulation.
SEC. 20. That jurisdiction is hereby conferred upon the district courts of the
United States for the district within which any person summoned under this
title to appear to testify or to produce books shall reside, to compel such at
tendance, production of books, and testimony by appropriate process.
SEC. 21. That the preparation and publication of statistics reasonably avail
able with respect to the operation of the income tax law and containing classi
fications of taxpayers and of income, the amounts allowed as deductions and
exemptions, and any other facts deemed pertinent and valuable, shall be made
annually by the Commissioner of Internal Revenue with the approval of the
SEC. 22. That all administrative, special, and general provisions of law, in
cluding the laws in relation to the assessment, remission, collection, and refund
of internal-revenue taxes not heretofore specifically repealed and not incon
sistent with the provisions of this title, are hereby extended and made appli
cable to all the provisions of this title and to the tax herein imposed.
SEC. 23. That the provisions of this title shall extend to Porto Rico and the
Philippine Islands : Provided , That the administration of the law and the col
lection of the taxes imposed in Porto Rico and the Philippine Islands shall be
by the appropriate internal-revenue officers of those governments, and all rev
enues collected in Porto Rico and the Philippine Islands thereunder shall accrue
intact to the general Governments thereof, respectively : Provided further,
That the jurisdiction in this title conferred upon the district courts of the
United States shall, so far as the Philippine Islands are concerned , be vested
in the courts of the first instance of said islands : And provided further, That
nothing in this title shall be held to exclude from the computation of the net
income the compensation paid any official by the governments of the District
of Columbia, Porto Rico, and the Philippine Islands, or the political subdi
visions thereof.
SEC. 24. That Section II of the Act approved October third, nineteen hundred
and thirteen, entitled "An Act to reduce tariff duties and to provide revenue
for the Government, and for other purposes, " is hereby repealed , except as
herein otherwise provided, and except that it shall remain in force for the
assessment and collection of all taxes which have accrued thereunder, and for
the imposition and collection of all penalties or forfeitures which have accrued
or may accrue in relation to any of such taxes, and except that the unexpended
balance of any appropriation heretofore made and now available for the ad
ministration of such section or any provision thereof shall be available for the
administration of this title or the corresponding provision thereof.
SEC. 25. That income on which has been assessed the tax imposed by Section
II of the Act entitled "An Act to reduce tariff duties and to provide revenue
148
for the Government, and for other purposes," approved October third, nineteen
hundred and thirteen, shall not be considered as income within the meaning
of this title : Provided, That this section shall not conflict with that portion of
section ten, of this title, under which a taxpayer has fixed its own fiscal year.
* * * * * *
SEC. 902. That unless otherwise herein specially provided, this Act shall take
effect on the day following its ssage, and all provisions of any Act or Acts
inconsistent with the provisions of this Act are hereby repealed.
Approved, September 8, 1916.
(T. D. 2361.)
Estate tax- Act of September 8, 1916.

The appended extract from Act of Congress, approved September
8, 1916, is published for the information of internal-revenue officers
W. H. OSBORN,
TITLE II.-ESTATE TAX.

SEC. 200. That when used in this title
The term 66 person 99 includes partnerships, corporations, and associations ;
The term " United States "" means only the States, the Territories of Alaska
and Hawaii, and the District of Columbia ;
The term " executor " means the executor or administrator of the decedent,
or, if there is no executor or administrator, any person who takes possession of
any property of the decedent ; and
The term " collector "" means the collector of internal revenue of the district
in which was the domicile of the decedent at the time of his death, or, if there
was no such domicile in the United States, then the collector of the district in
which is situated the part of the gross estate of the decedent in the United
States, or, if such part of the gross estate is situated in more than one district,
then the collector of internal revenue at Baltimore, Maryland.
SEC. 201. That a tax ( hereinafter in this title referred to as the tax) , equal to
the following percentages of the value of the net estate to be determined as
provided in section two hundred and three, is hereby imposed upon the transfer
of the net estate of every decedent dying after the passage of this Act, whether
a resident or nonresident of the United States :
One per centum of the amount of such net estate not in excess of $50,000 ;
Two per centum of the amount by which such net estate exceeds $50,000
and does not exceed $150,000 ;
Three per centum of the amount by which such net estate exceeds $150,000
Four per centum of the amount by which sush net estate exceeds $250,000
Five per centum of the amount by which such net estate exceeds $450,000
and does not exceed $1,000,000 ;
149
Six per centum of the amount by which such net estate exceeds $1,000,000
Seven per centum of the amount by which such net estate exceeds $2,000,000
Eight per centum of the amount by which such net estate exceeds $3,000,000
Nine per centum of the amount by which such net estate exceeds $4,000,000
and does not exceed $5,000,000 ; and
Ten per centum of the amount by which such net estate exceeds $5,000,000.
SEC. 202. That the value of the gross estate of the decedent shall be deter
mined by including the value at the time of his death of all property, real or
personal, tangible or intangible, wherever situated :
(a ) To the extent of the interest therein of the decedent at the time of his
death which after his death is subject to the payment of the charges against
his estate and the expenses of its administration and is subject to distribution
as part of his estate.
(b ) To the extent of any interest therein of which the decedent has at any
time made a transfer, or with respect to which he has created a trust, in
contemplation of or intended to take effect in possession or enjoyment at or
after his death, except in case of a bona fide sale for a fair consideration in
money or money's worth. Any transfer of a material part of his property in
the nature of a final disposition or distribution thereof, made by the decedent
within two years prior to his death without such a consideration, shall, unless
shown to the contrary, be deemed to have been made in contemplation of death
within the meaning of this title ; and
(c) To the extent of the interest herein held jointly or as tenants in the
entirety by the decedent and any other person, or deposited in banks or other
institutions in their joint names and payable to either or the survivor, except
such part thereof as may be shown to have originally belonged to such other
person and never to have belonged to the decedent.
For the purpose of this title stock in a domestic corporation owned and held
by a nonresident decedent shall be deemed property within the United States,
and any property of which the decedent has made a transfer or with respect
to which he has created a trust, within the meaning of subdivision (b ) of
this section, shall be deemed to be situated in the United States, if so situated
either at the time of the transfer or the creation of the trust, or at the time of
the decedent's death.
SEC. 203. That for the purpose of the tax the value of the net estate shall
be determined
(a ) In the case of a resident, by deducting from the value of the gross
estate
( 1 ) Such amounts for funeral expenses, administration expenses, claims
against the estate, unpaid mortgages, losses incurred during the settlement of
the estate arising from fires, storms, shipwreck, or other casualty, and from
theft, when such losses are not compensated for by insurance or otherwise,
support during the settlement of the estate of those dependent upon the dece
dent, and such other charges against the estate, as are allowed by he laws of the
jurisdiction, whether within or without the United States, under which the
estate is being administered ; and
(2) An exemption of $50,000 ;
(b) In the case of a nonresident, by deducting from the value of that part
of his gross estate which at the time of his death is situated in the United
States that proportion of the deductions specified in paragraph ( 1 ) of sub
division ( a ) of this section which the value of such part bears to the value
150
of his entire gross estate, wherever situated. But no deductions shall be

allowed in the case of a nonresident unless the executor includes in the return
required to be filed under section two hundred and five the value at the time
of his death of that part of the gross estate of the nonresident not situated
in the United States.
SEC. 204. That the tax shall be due one year after the decedent's death. If
the tax is paid before it is due a discount at the rate of five per centum per
annum , calculated from the time payment is made to the date when the tax
is due, shall be deducted . If the tax is not paid within ninety days after it
is due interest at the rate of ten per centum per annum from the time of the
decedent's death shall be added as part of the tax, unless because of claims
against the estate, necessary litigation, or other unavoidable delay the col
lector finds that the tax can not be determined, in which case the interest
shall be at the rate of six per centum per annum from the time of the dece
dent's death until the cause of such delay is removed, and thereafter at the
rate of ten per centum per annum. Litigation to defeat the payment of the
tax shall not be deemed necessary litigation.
SEC. 205. That the executor, within thirty days after qualifying as such, or
after coming into possession of any property of the decedent, whichever event
first occurs, shall give written notice thereof to the collector. The executor ,
shall also, at such times and in such manner as may be required by the regu
lations made under this title, file with the collector a return under oath in
duplicate, setting forth ( a ) the value of the gross estate of the decedent at
the time of his death, or, in case of a nonresident, of that part of his gross
estate situated in the United States ; ( b ) the deductions allowed under section
two hundred and three ; ( c ) the value of the net estate of the decedent as
defined in section two hundred and three ; and ( d ) the tax paid or payable
thereon ; or such part of such information as may at the time be ascertainable
and such supplemental data as may be necessary to establish the correct tax.
Return shall be made in all cases of estates subject to the tax or where the
gross estate at the death of the decedent exceeds $60,000, and in the case of the
estate of every nonresident any part of whose gross estate is situated in the
United States. If the executor is unable to make a complete return as to any
part of the gross estate of the decedent, he shall include in his return a descrip
tion of such part and the name of every person holding a legal or beneficial
interest therein, and upon notice from the collector such person shall in like
manner make a return as to such part of the gross estate. The Commissioner
of Internal Revenue shall make all assessments of the tax under the authority
of existing administrative special and general provisions of law relating to the
assessment and collection of taxes.
SEC. 206. That if no administration is granted upon the estate of a decedent,
or if no return is filed as provided in section two hundred and five, or if a
return contains a false or incorrect statement of a material fact, the collector
or deputy collector shall make a return and the Commissioner of Internal
Revenue shall assess the tax thereon.
SEC. 207. That the executor shall pay the tax to the collector or deputy col
lector. If for any reason the amount of the tax can not be determined, the
payment of a sum of money sufficient, in the opinion of the collector, to dis
charge the tax shall be deemed payment in full of the tax, except as in this
section otherwise provided. If the amount so paid exceeds the amount of the
tax as finally determined, the Commissioner of Internal Revenue shall refund
such excess to the executor. If the amount of the tax as finally determined
exceeds the amount so paid the commissioner shall notify the executor of the
amount of such excess. From the time of such notification to the time of the
151
final payment of such excess part of the tax, interest shall be added thereto at
the rate of ten per centum per annum, and the amount of such excess shall be
a lien upon the entire gross estate, except such part thereof as may have been
sold to a bona fide purchaser for a fair consideration in money or money's
worth.
The collector shall grant to the person paying the tax duplicate receipts,
either of which shall be sufficient evidence of such payment, and shall entitle
the executor to be credited and allowed the amount thereof by any court having
jurisdiction to audit or settle his accounts.
SEC. 208. That if the tax herein imposed is not paid within sixty days after
it is due, the collector shall, unless there is reasonable cause for further delay,
commence appropriate proceedings in any court of the United States, in the
name of the United States, to subject the property of the decedent to be sold
under the judgment or decree of the court. From the proceeds of such sale
the amount of the tax, together with the costs and expenses of every description
to be allowed by the court, shall be first paid, and the balance shall be deposited
according to the order of the court, to be paid under its direction to the person
entitled thereto. If the tax or any part thereof is paid by, or collected out of
that part of the estate passing to or in the possession of, any person other than
the executor in his capacity as such, such person shall be entitled to reimburse
ment out of any part of the estate still undistributed or by a just and equitable
contribution by the persons whose interest in the estate of the decedent would
have been reduced if the tax had been paid before the distribution of the estate
or whose interest is subject to equal or prior liability for the payment of taxes,
debts, or other charges against the estate, it being the purpose and intent of
this title that so far as is practicable and unless otherwise directed by the will
of the decedent the tax shall be paid out of the estate before its distribution.
SEC. 209. That unless the tax is sooner paid in full, it shall be a lien for ten
years upon the gross estate of the decedent, except that such part of the gross
estate as is used for the payment of charges against the estate and expenses of
its administration, allowed by any court having jurisdiction thereof, shall be
divested of such lien.
If the decedent makes a transfer of, or creates a trust with respect to, any
property in contemplation of or intended to take effect in possession or enjoy
ment at or after his death (except in the case of a bona fide sale for a fair
consideration in money or money's worth ) and if the tax in respect thereto is
not paid when due, the transferee or trustee shall be personally liable for
such tax, and such property, to the extent of the decedent's interest therein at
the time of such transfer, shall be subject to a like lien equal to the amount of
such tax. Any part of such property sold by such transferee or trustee to a
bona fide purchaser for a fair consideration in money or money's worth shall
be divested of the lien and a like lien shall then attach to all the property of
such transferee or trustee, except any part sold to a bona fide purchaser for a
fair consideration in money or money's worth.
SEC. 210. That whoever knowingly makes any false statement in any notice
or return required to be filed by this title shall be liable to a penalty of not
exceeding $5,000, or imprisonment not exceeding one year, or both, in the dis
cretion of the court.
Whoever fails to comply with any duty imposed upon him by section two
hundred and five, or, having in his possession or control any record , file, or
paper, containing or supposed to contain any information concerning the estate
of the decedent, fails to exhibit the same upon request to the Commissioner of
Internal Revenue or any collector or law officer of the United States, or his
duly authorized deputy or agent, who desires to examine the same in the per
152
formance of his duties under this title, shall be liable to a penalty of not ex
ceeding $500, to be recovered, with costs of suit, in a civil action in the name
of the United States.
SEC. 211. That all administrative, special, and general provisions of law, in
cluding the laws in relation to the assessment and collection of taxes, not here
tofore specifically repealed are hereby made to apply to this title so far as
applicable and not inconsistent with its provisions.
SEC. 212. That the Commissioner of Internal Revenue, with the approval of
the Secretary of the Treasury, shall make such regulations, and prescribe and
require the use of such books and forms, as he may deem necessary to carry
out the provisions of this title.
* *
SEC. 902. That unless otherwise herein specifically provided , this
act shall take effect on the day following its passage, and all provi
sions of any act or acts inconsistent with the provisions of this act
are hereby repealed.
(T. D. 2362. )
Munition manufacturer's tax- Act of September 8, 1916.
The appended extract from act of Congress, approved September
W. H. OSBORN,
Commissioner of Internal Revenue
TITLE III.-MUNITION MANUFACTURER'S TAX.

SEC. 300. That when used in this title
The term 66 person 99 includes partnerships, corporations, and associations ;
99
The term " taxable year means the twelve months ending December thirty
first. The first taxable year shall be the twelve months ending December
thirty-first, nineteen hundred and sixteen ; and
""
The term " United States ' means only the States, the Territories of Alaska
and Hawaii, and the District of Columbia.
SEC. 301. ( 1 ) That every person manufacturing ( a ) gunpowder and other
explosives, excepting blasting powder and dynamite used for industrial purposes ;
(b ) cartridges, loaded and unloaded, caps or primers , exclusive of those used
for industrial purposes ; ( c ) projectiles, shells , or torpedoes of any kind, in
cluding shrapnel, loaded or unloaded, or fuses, or complete rounds of ammu
nition ; ( d ) firearms of any kind and appendages, including small arms,
cannon, machine guns, rifles, and bayonets ; ( e ) electric motor boats, sub
marine or submersible vessels or boats ; or ( f) any part of any of the articles
mentioned in ( b ) , ( c ) , ( d ) , or ( e ) ; shall pay for each taxable year, in addi
tion to the income tax imposed by Title I, an excise tax of twelve and one
half per centum upon the entire net profits actually received or accrued for
153
said year from the sale or disposition of such articles manufactured within the
United States : Provided, however, That no person shall pay such tax upon
net profits received during the year nineteen hundred and sixteen derived from
the sale and delivery of the articles enumerated in this section under con
tracts executed and fully performed by such person prior to January first,
nineteen hundred and sixteen.
(2 ) This section shall cease to be of effect at the end of one year after
the termination of the present European war, which shall be evidenced by the
proclamation of the President of the United States declaring such war to
have ended.
SEC. 302. That in computing net profits under the provisions of this title,
for the purpose of the tax there shall be allowed as deductions from the gross
amount received or accrued for the taxable year from the sale or disposition
of such articles manufactured within the United States, the following items :
(a ) The cost of raw materials entering into the manufacture ;
(b) Running expenses, including rentals, cost of repairs and maintenance,
heat, power, insurance, management, salaries, and wages ;
(c ) Interest paid within the taxable year on debts or loans contracted to
meet the needs of the business, and the proceeds of which have been actually
used to meet such needs ;
(d ) Taxes of all kinds paid during the taxable year with respect to the
business or property relating to the manufacture ;
(e) Losses actually sustained within the taxable year in connection with the
business of manufacturing such articles, including losses from fire, flood,
storm , or other casualty, and not compensated for by insurance or otherwise ;
and
(f) A reasonable allowance according to the conditions peculiar to each
concern, for amortization of the values of buildings and machinery, account
being taken of the exceptional depreciation of special plants.
SEC. 303. If any person manufactures any article specified in section three
hundred and one and, during any taxable year or part thereof, whether under
any agreement, arrangement, or understanding, or otherwise, sells or disposes of
any such article at less than the fair market price obtainable therefor, either
(a) in such manner as directly or indirectly to benefit such person or any
person directly or indirectly interested in the business of such person, or ( b )
with intent to cause such benefit, the gross amount received or accrued for
such year or part thereof from the sale or disposition of such article shall be
taken to be the amount which would have been received or accrued from the
sale or disposition of such article if sold at the fair market price.
SEC. 304. On or before the first day of March, nineteen hundred and seventeen,
and the first day of March in each year thereafter, a true and accurate return
under oath shall be made by each person manufacturing articles specified in
section three hundred and one to the collector of internal revenue for the dis
trict in which such person has his principal office or place of business, in such
form as the Commissioner of Internal Revenue, with the approval of the Secre
tary of the Treasury, shall prescribe, setting forth specifically the gross amount
of income received or accrued from the sale or disposition of the articles speci
fied in section three hundred and one, and from the total thereof deducting the
aggregate items of allowance authorized in section three hundred and two, anc
such other particulars as to the gross receipts and items of allowance as the
Commissioner of Internal Revenue, with the approval of the Secretary of the
Treasury, may require.
SEC. 305. All such returns shall be transmitted forthwith by the collector to
the Commissioner of Internal Revenue, who shall, as soon as practicable, assess
154
the tax found due and notify the person making such return of the amount of
tax for which such person is liable, and such person shall pay the tax to the
collector on or before thirty days from the date of such notice.
SEC. 306. If the Secretary of the Treasury or the Commissioner of Internal
Revenue shall have reason to be dissatisfied with the return as made, or if no
return is made, the commissioner is authorized to make an investigation and to
determine the amount of net profits and may assess the proper tax accordingly.
He shall notify the person making, or who should have made, such return and
shall proceed to collect the tax in the same manner as provided in this title,
unless the person so notified shall file a written request for a hearing with the
commissioner within thirty days after the date of such notice ; and on such
hearing the burden of establishing to the satisfaction of the commissioner that
the gross amount received or accrued or the amount of net profits, as deter
mined by the commissioner, is incorrect, shall devolve upon such person.
SEC. 307. The tax may be assessed on any person for the time being owning
or carrying on the business, or on any person acting as agent for that person in
carrying on the business, or where a business has ceased, on the person who
owned or carried on the business, or acted as agent in carrying on the business
immediately before the time at which the business ceased.
SEC. 308. For the purpose of carrying out the provisions of this title the
Commissioner of Internal Revenue is authorized , personally or by his agent,
to examine the books, accounts, and records of any person subject to this tax.
SEC. 309. No person employed by the United States shall communicate, er
allow to be communicated to any person not legally entitled thereto , any infor
mation obtained under the provisions of this title, or allow any such person to
inspect or have access to any return furnished under the provisions of this title.
SEC. 310. Whoever violates any of the provisions of this title or the regula
tions made thereunder, or who knowingly makes false statements in any return,
or refuses to give such information as may be called for, is guilty of a mis
demeanor, and upon conviction shall, in addition to paying any tax to which
he is liable, be fined not more than $10,000, or imprisoned not exceeding one
year, or both, in the discretion of the court.
SEC. 311. All administrative, special , and general provisions of law, relating
to the assessment and collection of taxes not specifically repealed, are hereby
made to apply to this title so far as applicable and not inconsistent with its
provisions.
SEC. 312. The Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, shall make all necessary regulations for carrying
out the provisions of this title, and may require any person subject to such
provisions to furnish him with further information whenever in his judgment
the same is necessary to collect the tax provided for herein.
(T. D. 2363. )
Title IV.-Miscellaneous taxes- Wines - Approved September 8,

1916.
The appended extracts from act of Congress, entitled " An act to
increase the revenue, and for other purposes," approved September
155

W. H. OSBORN,
Comissioner of Internal Revenue.
TITLE IV.
* *
SEC. 401. That natural wipe within the meaning of this Act shall be deemed
to be the product made from the normal alcoholic fermentation of the juice
of sound, ripe grapes, without addition or abstraction, except such as may
occur in the usual cellar treatment of clarifying and aging : Provided, however,
That the product made from the juice of sound, ripe grapes by complete fer
mentation of the must under proper cellar treatment and corrected by the
addition ( under the supervision of a gauger or storekeeper-gauger in the ca
pacity of gauger ) of a solution of water and pure cane, beet, or dextrose sugar
(containing, respectively, not less than ninety-five per centum of actual sugar,
calculated on a dry basis ) to the must or to the wine, to correct natural de
ficiencies, when such addition shall not increase the volume of the resultant
product more than thirty-five per centum, and the resultant product does not
contain less than five parts per thousand of acid before fermentation and
not more than thirteen per centum of alcohol after complete fermentation,
shall be deemed to be wine within the meaning of this Act, and may be labeled,
66
transported, and sold as wine," qualified by the name of the locality where
produced, and may be further qualified by the name of its own particular type
or variety : And provided further, That wine as defined in this section may be
sweetened with cane sugar or beet sugar or pure condensed grape must and
fortified under the provisions of this Act, and wines so sweetened or fortified
shall be considered sweet wine within the meaning of this Act.
SEC. 402. (a ) That upon all still wines, including vermuth, and upon all
artificial or imitation wines or compound sold as wine hereafter produced in
or imported into the United States, and upon all like wines which on the
date this section takes effect shall be in the possession or under the control of
the producer, holder, dealer, or compounder there shall be levied, collected, and
paid taxes at rates as follows :
On wines containing not more than fourteen per centum of absolute alcohol,
4 cents per wine gallon, the per centum of alcohol taxable under this section
to be reckoned by volume and not by weight.
On wines containing more than fourteen per centum and not exceeding
twenty-one per centum of absolute alcohol , 10 cents per wine gallon.
On wines containing more than twenty-one per centum and not exceeding
twenty-four per centum of absolute alcohol, 25 cents per wine gallon.
All such wines containing more than twenty-four per centum of absolute
alcohol by volume shall be classed as distilled spirits and shall pay tax accord
ingly : Provided, That on all unsold still wines in the actual possession of the
producer at the time this title takes effect, upon which the tax imposed by the
Act, approved October twenty-second, nineteen hundred and fourteen, en
titled "An Act to increase the internal revenue and for other purposes," and
the joint resolution approved December seventeenth, nineteen hundred and
fifteen, entitled " Joint resolution extending the provisions of the Act en
titled 'An Act to increase the internal revenue, and for other purposes,' ap
proved October twenty-second , nineteen hundred and fourteen, to December
thirty-first, nineteen hundred and sixteen," has been assessed, the tax so as
156
sessed shall be abated, or, if paid, refunded under such regulations as the
Treasury, may prescribe.
(b) That the taxes imposed by this section shall be paid by stamp on
removal of the wines from the customhouse, winery, or other bonded place
of storage for consumption or sale, and every person hereafter producing, or
having in his possession or under his control when this section takes effect,
any wines subject to the tax imposed in this section shall file such notice, de
scribing the premises on which such wines are produced or stored ; shall
execute a bond in such form ; shall make such inventories under oath ; and
shall, prior to sale or removal for consumption, affix to each cask or vessel
containing such wine such marks, labels, or stamps as the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treasury, may
from time to time prescribe ; and the premises described in such notice shall,
for the purpose of this section, be regarded as bonded premises. But the
provisions of this subdivision of this section, except as to payment of tax
and the affixing of the required stamps or labels, shall not apply to wines held
by retail dealers, as defined in section thirty-two hundred and forty-four of
the Revised Statutes of the United States, nor, subject to regulations pre
scribed by the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, shall the tax imposed by this section apply to
wines produced for the family use of the producer thereof and not sold or
otherwise removed from the place of manufacture and not exceeding in any
case two hundred gallons per year. The Commissioner of Internal Revenue
is hereby authorized to have prepared and issue such stamps denoting pay
ment of the tax imposed by this section as he may deem requisite and neces
sary ; and until such stamps are provided the taxes imposed by this section
shall be assessed and collected as other taxes are assessed and collected , and
all provisions of law relating to assessment and collection of taxes, so far as
applicable, are hereby extended to the taxes imposed by this section.
( c ) That under such regulations and official supervision and upon the giving
of such notices, entries, bonds, and other security as the Commissioner of In
ternal Revenue, with the approval of the Secretary of the Treasury, may pre
scribe, any producer of wines defined under the provisions of this section or
section four hundred and one of this Act, may withdraw from any fruit distil
lery or special bonded warehouse grape brandy, or wine spirits, for the fortifica
tion of such wines on the premises where actually made : Provided , That there
shall be levied and assessed against the producer of such wines a tax of 10 cents
per proof gallon of grape brandy or wine spirits so used by him in the fortifi
cation of such wines during the preceding month, which assessment shall be
paid by him within six months from the date of notice thereof : Provided fur
ther, That nothing herein contained shall be construed as exempting any wines,
cordials, liqueurs, or similar compounds from the payment of any tax provided
for in this section.
That sections forty-two, forty-three, and forty-five of the Act of October first,
eighteen hundred and ninety, as amended by section sixty-eight of the Act of
August twenty-seventh, eighteen hundred and ninety-four, are further amended
to read as follows :
" SEC. 42. That any producer of pure sweet wines may use in the preparation
of such sweet wines, under such regulations and after the filing of such notices
and bonds, together with the keeping of such records and the rendition of such
reports as to materials and products as the Commissioner of Internal Revenue,
with the approval of the Secretary of the Treasury, may prescribe, wine spirits
produced by and duly authorized distiller, and the Commissioner of Internal
Revenue, in determining the liability of any distiller of wine spirits to assess
157
ment under section thirty-three hundred and nine of the Revised Statutes, is
authorized to allow such distiller credit in his computations for the wine spirits
withdrawn to be used in fortifying sweet wines under this Act.
" SEC. 43. That the wine spirits mentioned in section forty-two herein men
tioned is the product resulting from the distillation of fermented grape juice,
to which water may have been added prior to, during, or after fermentation, for
the sole purpose of facilitating the fermentation and economical distillation
thereof, and shall be held to include the product from grapes or their residues
commonly known as grape brandy, and shall include commercial grape brandy
which may have been colored with burnt sugar or caramel ; and the pure sweet
wine which may be fortified with wine spirits under the provisions of this Act is
fermented or partially fermented grape juice only, with the usual cellar treat
ment, and shall contain no other substance whatever introduced before, at the
time of, or after fermentation , except as herein expressly provided : Provided,
That the addition of pure boiled or condensed grape must or pure crystallized
cane or beet sugar , or pure dextrose sugar containing, respectively, not less than
ninety-five per centum of actual sugar calculated on a dry basis, or water, or any
or all of them, to the pure grape juice before fermentation, or to the fermented
product of such grape juice, or to both, prior to the fortification herein provided
for, either for the purpose of perfecting sweet wines according to commercial
standards or for mechanical purposes, shall not be excluded by the definition
of pure sweet wine aforesaid : Provided, however, That the cane or beet sugar,
or pure dextrose sugar added for sweetening purposes shall not be in excess
of eleven per centum of the weight of the wine to be fortified : And provided
further, That the addition of water herein authorized shall be under such regu
lations as the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, may from time to time prescribe : Provided, however,
That records kept in accordance with such regulations as to the percentage of
saccharine, acid , alcoholic, and added water content of the wine offered for
fortification shall be open to inspection by any official of the Department of
Agriculture thereto duly authorized by the Secretary of Agriculture ; but in
no case shall such wines to which water has been added be eligible for fortifi
cation under the provisions of this Act, where the same, after fermentation and
before fortification , have an alcoholic strength of less than five per centum of
their volume.
" SEC. 45. That under such regulations and official supervision, and upon
the execution of such entries and the giving of such bonds, bills of lading, and
other security as the Commissioner of Internal Revenue, with the approval of
the Secretary of the Treasury, shall prescribe, any producer of pure sweet
wines as defined by this Act may withdraw wine spirits from any special bonded
warehouse in original packages or from any registered distillery in any quantity
not less than eighty wine gallons, and may use so much of the same as may be
required by him under such regulations, and after the filing of such notices and
bonds and the keeping of such records and the rendition of such reports as to
materials and products and the disposition of the same as the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treasury, shall
prescribe, in fortifying the pure sweet wines made by him, and for no other
purpose, in accordance with the foregoing limitations and provisions ; and the
Treasury, is authorized whenever he shall deem it to be necessary for the pre
vention of violations of this law to prescribe that wine spirits withdrawn under
this section shall not be used to fortify wines except at a certain distance pre
scribed by him from any distillery, rectifying house, winery, or other establish
ment used for producing or storing distilled spirits, or for making or storing
wines other than wines which are so fortified, and that in the building in which
158
such fortification of wines is practiced no wines or spirits other than those

permitted by this regulation shall be stored in any room or part of the building
in which fortification of wines is practiced . The use of wine spirits for the
fortification of sweet wines under this Act shall be under the immediate super
vision of an officer of internal revenue, who shall make returns describing the
kinds and quantities of wine so fortified, and shall affix such stamps and seals
to the packages containing such wines as may be prescribed by the Commissioner
of Internal Revenue, with the approval of the Secretary of the Treasury ; and
the Commissioner of Internal Revenue, with the approval of the Secretary of
the Treasury, shall provide by regulations the time within which wines so
fortified with the wine spirits so withdrawn may be subject to inspection, and
for final accounting for the use of such wine spirits and for rewarehousing or
for payment of the tax on any portion of such wine spirits which remain not
used in fortifying pure sweet wines."
(d ) That under such regulations and upon the execution of such notices,
entries, bonds, and other security as the Commissioner of Internal Revenue,
with the approval of the Secretary of the Treasury, may prescribe, domestic
wines subject to the tax imposed by this section may be removed from the
winery where produced , free of tax, for storage on other bonded premises or
from said premises to other bonded premises : Provided, That not more than one
such additional removal shall be allowed, or for exportation from the United
States or for use as distilling material at any regularly registered distillery :
Provided, however, That the distiller using any such wine as material shall,
subject to the provisions of section thirty-three hundred and nine of the Re
vised Statutes of the United States, as amended, be held to pay the tax on the
product of such wines as will include both the alcoholic strength therein pro
duced by fermentation and that obtained from the brandy or wine spirits
added to such wines at the time of fortification.
(e ) That upon all domestic and imported sparkling wines, liqueurs, cordials,
and similar compounds remaining in the hands of dealers when this section
takes effect, or thereafter removed from the place of manufacture or storage
for sale or consumption, there shall be levied and paid, by stamp, taxes as
follows :
On each bottle or other container of champagne or sparkling wine, 3 cents
on each one-half pint or fraction thereof.
On each bottle or other container of artificially carbonated wine, 1 cents
on each one-half pint or fraction thereof.
On each bottle or other container of liqueurs , cordials, or similar com
pounds, by whatever name sold or offered for sale, containing sweet wine,
fortified with grape brandy under the provisions of paragraph ( c ) of this
section, 1 cents on each one-half pint or fraction thereof.
The taxes imposed by this section shall not apply to wines, liqueurs, or
cordials on which the tax imposed by the Act approved October twenty-second,
nineteen hundred and fourteen, entitled "An Act to increase the internal rev
"9
enue, and for other purposes,' and the joint resolution approved December
seventeenth, nineteen hundred and fifteen, entitled " Joint resolution extending
the provisions of the Act entitled ' An Act to increase the internal revenue, and
for othr purposes,' approved October twenty-second, nineteen hundred and
fourteen, to December thirty-first, nineteen hundred and sixteen," has been
paid by stamp.
The Commissioner of Internal Revenue, with the approval of the Secretary
of the Treasury, is hereby authorized to have prepared suitable revenue
stamps denoting the payment of the taxes imposed by this section ; and all
provisions of law relating to internal-revenue stamps, so far as applicable,
159
are hereby extended to the taxes imposed by this section : Provided, That the
collection of the tax herein prescribed on imported still wines, including ver
mouth, and sparkling wines , including champagne, and on imported liqueurs,
cordials, and similar compounds, may be made within the discretion of the
Treasury, by assessment instead of by stamps.
( f) That any person who shall evade or attempt to evade the tax imposed
by this section, or any requirement of this section or regulation issued pursuant
thereof, or who shall, otherwise than provided in this section, recover or attempt
to recover any spirits from domestic or imported wine, or who shall rectify,
mix, or compound with distilled spirits any domestic wines, other than in the
manufacture of liqueurs, cordials, or similar compounds taxable under the pro
visions of this section , shall, on conviction, be punished for each such offense
by a fine of not exceeding $ 5,000, or imprisonment for not more than five years,
or both, and all wines , spirits, liqueurs , cordials, or similar compounds as to
which such violation occurs shall be forfeited to the United States. But the
provision of this subdivision of this section and the provision of section thirty
two hundred and forty-four of the Revised Statutes of the United States, as
amended, relating to rectification, or other internal-revenue laws of the United
States, shall not be held to apply to or prohibit the mixing or blending of wines
subject to tax under the provisions of this section with each other or with
other wines for the sole purpose of perfecting such wines according to com
mercial standards : Provided, That nothing herein contained shall be construed
as prohibiting the use of tax-paid grain or other ethyl alcohol in the fortification
of sweet wines as defined in section fifty-three of this Act.
(g) That the Commissioner of Internal Revenue, by regulations to be ap
proved by the Secretary of the Treasury, may require the use at each fruit
distillery of such spirit meters, and such locks and seals to be affixed to fer
menters, tanks, or other vessels and to such pipe connections as may in his judg
ment be necessary or expedient ; and the said commissioner is hereby author
ized to assign to any such distillery and to each winery where wines are to be
fortified such number of gaugers or storekeeper-gaugers in the capacity of
gaugers as may be necessary for the proper supervision of the manufacture of
brandy or the making or fortifying of wines subject to tax imposed by this
section ; and the compensation of such officers shall not exceed $5 per diem
while so assigned, together with their actual and necessary traveling expenses,
and also a reasonable allowance for their board bills, to be fixed by the Com
missioner of Internal Revenue, with the approval of the Secretary of the
Treasury, but not to exceed $2.50 per diem for said board bills.
(h ) That the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, is hereby authorized to make such allowances for
unavoidable loss of wines while on storage or during cellar treatment as in his
judgment may be just and proper, and to prepare all necessary regulations for
carrying into effect the provisions of this section.
* *
SEC. 409. That all administrative or special provisions of law, including the
law relating to the assessment of taxes, so far as applicable, are hereby
extended to and made a part of this title, and every person, firm, company,
corporation, or association liable to any tax imposed by this title, shall keep
such records and render, under oath, such statements and returns, and shall
comply with such regulations as the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, may from time to time prescribe.
160
SEC. 902. That unless otherwise herein specially provided, this Act shall take
effect on the day following its passage, and all provisions of any Act or Acts
inconsistent with the provisions of this Act, are hereby repealed.
(T. D. 2364. )
Title IV.-Miscellaneous taxes- Special taxes-Approved Septem
ber 8, 1916.
The appended extract from act of Congress, approved September
8, 1916, is published for the information of internal -revenue officers
and others concerned .
W. H. OSBORN,
SPECIAL TAXES.
SEC. 407. That on and after January first, nineteen hundred and seventeen,
special taxes shall be, and hereby are, imposed annually, as follows, that is to
say :
Every corporation, joint-stock company or association, now or hereafter
organized in the United States for profit and having a capital stock represented
by shares, and every insurance company, now or hereafter organized under the
laws of the United States, or any State or Territory of the United States, shall
pay annually a special excise tax with respect to the carrying on or doing busi
ness by such corporation, joint-stock company or association, or insurance com
pany, equivalent to 50 cents for each $1,000 of the fair value of its capital
stock and in estimating the value of capital stock the surplus and undivided
profits shall be included : Provided, That in the case of insurance companies
such deposits and reserve funds as they are required by law or contract to main
tain or hold for the protection of or payment to or apportionment among policy
holders shall not be included. The amount of such annual tax shall in all cases
be computed on the basis of the fair average value of the capital stock for the
preceding year : Provided, That for the purpose of this tax an exemption of
$99,000 shall be allowed from the capital stock as defined in this paragraph of
each corporation, joint-stock company or association, or insurance company :
Provided further, That a corporation, joint-stock company or association, or
insurance company, actually paying the tax imposed by section three hundred
and one of Title III of this Act shall be entitled to a credit as against the tax
imposed by this paragraph equal to the amount of the tax so actually paid :
And provided further, That this tax shall not be imposed upon any corporation ,
joint-stock company or association, or insurance company not engaged in busi
ness during the preceding taxable year, or which is exempt under the provisions
of section eleven, Title I, of this Act.
Every corporation, joint-stock company or association, or insurance company,
now or hereafter organized for profit under the laws of any foreign country and
engaged in business in the United States shall pay annually a special excise
tax with respect to the carrying on or doing business in the United States by
161
such corporation, joint-stock company or association, or insurance company,

equivalent to 50 cents for each $1,000 of the capital´actually invested in the
transaction of its business in the United States : Provided, That in the case of
insurance companies such deposits or reserve funds as they are required by
law or contract to maintain or hold in the Unitted States for the protection of
or payment to or apportionment among policyholders, shall not be included.
The amount of such annual tax shall in all cases be computed on the basis of
the average amount of capital so invested during the preceding year : Provided,
That for the purpose of this tax an exemption from the amount of capital so
invested shall be allowed equal to such proportion of $99,000 as the amount so
invested bears to the total amount invested in the transaction of business in
the United States or elsewhere : Provided, further, That this exemption shall
be allowed only if such corporation, joint-stock company or association, or in
surance company makes return to the Commissioner of Internal Revenue, under
regulations prescribed by him, with the approval of the Secretary of the Treas
ury, of the amount of capital invested in the transaction of business outside the
United States : And provided further, That a corporation, joint-stock company or
association, or insurance company actually paying the tax imposed by section
three hundred and one of Title III of this act, shall be entitled to a credit as
against the tax imposed by this paragraph equal to the amount of the tax so
actually paid : And provided further, That this tax shall not be imposed upon
any corporation, joint-stock company or association, or insurance company not
engaged in business during the preceding taxable year, or which is exempt under
the provisions of section eleven, Title I, of this Act.
Second. Brokers shall pay $30. Every person, firm, or company, whose busi
ness it is to negotiate purchases or sales of stocks, bonds, exchange, bullion,
coined money, bank notes, promissory notes , or other securities, for others, shall
be regarded as a broker.
Third. Pawnbrokers shall pay $50. Every person, firm, or company whose
business or occupation it is to take or receive, by way of pledge, pawn, or ex
change, any goods, wares, or merchandise, or any kind of personal property
whatever, as security for the repayment of money loaned thereon, shall be
deemed a pawnbroker.
Fourth. Ship brokers shall pay $20. Every person, firm, or company whose
business it is as a broker to negotiate freights and other business for the owners
of vessels, or for the shippers or consignors or consignees of freight carried by
vessels, shall be regarded as a ship broker under this section.
Fifth. Customhouse brokers shall pay $10. Every person, firm, or company
whose occupation it is, as the agent of others, to arrange entries and other
customhouse papers, or transact business at any port of entry relating to the
importation or exportation of goods, wares, or merchandise, shall be regarded
as a customhouse broker.
Sixth. Proprietors of theaters, museums, and concert halls, where a charge
for admission is made, having a seating capacity of not more than two hundred
and fifty, shall pay $25 ; having a seating capacity of more than two hundred
and fifty and not exceeding five hundred, shall pay $50 ; having a seating capacity
exceeding five hundred and not exceeding eight hundred, shall pay $75 ; having
a seating capacity of more than eight hundred , shall pay $100. Every edifice
used for the purpose of dramatic or operatic or other representations, plays,
or performances, for admission to which entrance money is received, not in
cluding halls or armories rented or used occasionally for concerts or theatrical
representations, shall be regarded as a theater : Provided, That in cities, towns,
or villages of five thousand inhabitants or less the amount of such payment shall
be one-half of that above stated : Provided further, That whenever any such
24433°-VOL 18-16 -11
162
edifice is under lease at the passage of this Act, the tax shall be paid by the
lessee, unless otherwise stipulated between the parties to said lease.
Seventh. The proprietor or proprietors of circuses shall pay $100 . Every
building, space, tent, or area where feats of horsemanship or acrobatic sports
or theatrical performances not otherwise provided for in this section are exhib
ited shall be regarded as a circus : Provided , That no special tax paid in one
State, Territory, or the District of Columbia shall exempt exhibitions from the
tax in another State, Territory , or the District of Columbia, and but one special
tax shall be imposed for exhibitions within any one State, Territory, or District.
Eighth. Proprietors or agents of all other public exhibitions or shows for
money not enumerated in this section shall pay $ 10 : Provided , That a special
tax paid in one State, Territory, or the District of Columbia shall not exempt
exhibitions from the tax in another State, Territory, or the District of Colum
bia, and but one special tax shall be required for exhibitions within any one
State, Territory, or the District of Columbia : Provided further, That this para
graph shall not apply to Chautauquas, lecture lyceums, agricultural or indus
trial fairs, or exhibitions held under the auspices of religious or charitable asso
ciations : Provided further, That an aggregation of entertainments, known as a
street fair, shall not pay a larger tax than $100 in any State, Territory, or in
the District of Columbia.
Ninth. Proprietors of bowling alleys and billiard rooms shall pay $5 for each
alley or table. Every building or place where bowls are thrown or where
games of billiards or pool are played, except in private homes, shall be regarded
as a bowling alley or a billiard room, respectively.
SEC. 408. That on and after January first, nineteen hundred and seventeen,
special taxes on tobacco, cigar, and cigarette manufacturers shall be, and
hereby are, imposed annually as follows, the amount of such annual taxes to
be computed in all cases on the basis of the annual sales for the preceding fiscal
year :
Manufacturers of tobacco whose annual sales do not exceed fifty thousand
pounds shall each pay $3 ;
Manufacturers of tobacco whose annual sales exceed fifty thousand and do
not exceed one hundred thousand pounds shall each pay $ 6 ;
Manufacturers of tobacco whose annual sales exceed one hundred thousand
and do not exceed two hundred thousand pounds shall each pay $12 ;
Manufacturers of tobacco whose annual sales exceed two hundred thousand
pounds shall each pay at the rate of 8 cents per thousand pounds, or fraction
thereof ;
Manufacturers of cigars whose annual sales do not exceed fifty thousand
cigars shall each pay $2 ;
Manufacturers of cigars whose annual sales exceed fifty thousand and do not
exceed one hundred thousand cigars shall each pay $3 ;
Manufacturers of cigars whose annual sales exceed one hundred thousand
and do not exceed two hundred thousand cigars shall each pay $6 ;
Manufacturers of cigars whose annual sales exceed two hundred thousand
and do not exceed four hundred thousand cigars shall each pay $12 ;
Manufacturers of cigars whose annual sales exceed four hundred thousand
cigars shall each pay at the rate of 5 cents per thousand cigars, or fraction
thereof ;
Manufacturers of cigarettes, including small cigars weighing not more than
three pounds per thousand, shall each pay at the rate of 3 cents for every ten
thousand cigarettes, or fraction thereof.
In arriving at the amount of special tax to be paid under this section, and in
the levy and collection of such tax, each person, firm, or corporation engaged
163
in the manufacture of more than one of the classes of articles specified in this
section shall be considered and deemed a manufacturer of each class separately.
Every person who carries on any business or occupation for which special
taxes are imposed by this title, without having paid the special tax therein
provided, shall, besides being liable to the payment of such special tax, be deemed
guilty of a misdemeanor, and upon conviction thereof shall pay a fine of not
more than $500, or be imprisoned not more than six months, or both, in the
discretion of the court.
law relating to the assessment of taxes, so far as applicable, are hereby ex
tended to and made a part of this title, and every person, firm, company,
corporation, or association liable to any tax imposed by this title, shall keep
such records and render, under oath, such statements and returns, and shall
comply with such regulations as the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, may from time to time prescribe.
SEC. 410. That the Act approved October twenty-second, nineteen hundred
and fourteen, entitled "An act to increase the internal revenue, and for other
purposes," and the joint resolution approved December seventeenth, nineteen
hundred and fifteen, entitled " Joint resolution extending the provisions of the
Act entitled ' An Act to increase the internal revenue, and for other purposes,'
approved October twenty-second, nineteen hundred and fourteen, to December
thirty-first, nineteen hundred and sixteen," are hereby repealed , except sec
tions three and four of such Act as so extended, which sections shall remain in
force till January first, nineteen hundred and seventeen, and except that the
provisions of the said Act shall remain in force for the assessment and collec
tion of all special taxes imposed by sections three and four thereof, or by such
sections as extended by said joint resolution, for any year or part thereof
ending prior to January first, nineteen hundred and seventeen, and of all
other taxes imposed by such Act, or by such Act as so extended, accrued prior
to the taking effect of this title, and for the imposition and collection of all
penalties or forfeitures which have accrued or may accrue in relation to any
of such taxes.
* *
NOTE .- Stamp taxes under Schedules A and B, act of October 22,

1914, extended by joint resolution of December 17, 1915 , were re
pealed by the act of September 8, 1916, the repeal taking effect Sep
tember 9, 1916.
(T. D. 2365.)
Miscellaneous provisions -Act of September 8, 1916.

Effective September 9, 1916, except as otherwise provided.
The appended extracts from an act of Congress approved Septem
ber 8, 1916 , are published for the information of internal -revenue
officers and others concerned.
W. H. OSBORN,
164
TITLE IV.-MISCELLANEOUS TAXES.
FERMENTED LIQUORS .
SEC. 400. That there shall be levied, collected, and paid a tax of $1.50 on all
beer, lager beer, ale, porter, and other similar fermented liquor, brewed or
manufactured and sold , or stored in warehouse, or removed for consumption or
sale, within the United States, by whatever name such liquors may be called,
for every barrel containing not more than thirty-one gallons ; and at a like rate
for any other quantity or for the fractional parts of a barrel authorized and
defined by law. And section thirty-three hundred and thirty-nine of the Re
vised Statutes is hereby amended accordingly.
DISTILLED SPIRITS.
SEC. 402. * ( i ) That the second paragraph of section thirty-two hun

dred and sixty-four, Revised Statutes of the United States of America, as
amended by section five of the Act of March first, eighteen hundred and sev
enty-nine, and as further amended by the Act of Congress approved June
twenty-second, nineteen hundred and ten, be amended so as to read as follows :
" In all surveys forty-five gallons of mash or beer brewed or fermented from
grain shall represent not less than one bushel of grain, and seven gallons of
mash or beer brewed or fermented from molasses shall represent not less than
one gallon of molasses, except in distilleries operated on the sour-mash prin
ciple, in which distilleries sixty gallons of beer brewed or fermented from grain
shall represent not less than one bushel of grain , and except that in distilleries
where the filtration-aeration process is used, with the approval of the Com
missioner of Internal Revenue ; that is, where the mash after it leaves the mash
tub is passed through a filtering machine before it is run into the fermenting
tub, and only the filtered liquor passes into the fermenting tube, there shall
hereafter be no limitation upon the number of gallons of water which may be
used in the process of mashing or filtration for fermentation ; but the Commis
sioner of Internal Revenue, with the approval of the Secretary of the Treas
ury, in order to protect the revenue, shall be authorized to prescribe by regu
lation, to be made by him, such character of survey as he may find suitable
for distilleries using such filtration-aeration process. The provisions hereof
relating to filtration-aeration process shall apply only to sweet-mash dis
tilleries."
SEC. 403. That under such regulations as the Commissioner of Internal Rev.
enue, with the approval of the Secretary of the Treasury, may prescribe,
alcohol or other distilled spirits of a proof strength of not less than one hun
dred and eighty degrees intended for export free of tax may be drawn from
receiving cisterns at any distillery, or from storage tanks in any distillery ware
house, for transfer to tanks or tank cars for export from the United States, and
all provisions of existing law relating to the exportation of distilled spirits not
inconsistent herewith shall apply to spirits removed for export under the pro
visions of this Act.
SEC. 404. That section thirty-two hundred and fifty-five of the Revised Stat
utes as amended by Act of June third, eighteen hundred and ninety-six, and
as further amended by Act of March second, nineteen hundred and eleven, be
further amended so as to read as follows :
" SEC. 3255. The Commissioner of Internal Revenue, with the approval of
the Secretary of the Treasury, may exempt distillers of brandy made exclusively
165
from apples, peaches, grapes, pears, pineapples, oranges, apricots, berries, plums,
pawpaws, persimmons, prunes, figs, or cherries from any provision of this title
relating to the manufacture of spirits, except as to the tax thereon, when
in his judgment it may seem expedient to do so : Provided, That where, in manu
facture of wine, artificial sweetening has been used the wine or the fruit
pomace residuum may be used in the distillation of brandy, as such use shall
not prevent the Commissioner of Internal Revenue, with the approval of the
Secretary of the Treasury, from exempting such distiller from any provision of
this title relating to the manufacture of spirits, except as to the tax thereon,
when in his judgment it may seem expedient to do so : And provided further,
That the distillers mentioned in this section may add to not less than five
hundred gallons ( or ten barrels ) of grape cheese not more than five hundred
gallons of a sugar solution made from cane, beet, starch, or corn sugar, ninety
five per centum pure, such solution to have a saccharine strength of not to
exceed ten per centum, and may ferment the resultant mixture on a winery
or distillery premises, and such fermented product shall be regarded as dis
tilling material."
SEC. 405. That distilled spirits known commercially as gin of not less than
eighty per centum proof may at any time within eight years after entry in
bond at any distillery be bottled in bond at such distillery for export without
the payment of tax, under such rules and regulations as the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treasury, may
prescribe.
FERMENTED LIQUORS .
SEC. 406. That section thirty-three hundred and fifty-four of the Revised
Statutes of the United States as amended by the Act approved June eighteenth,
eighteen hundred and ninety, be, and is hereby, amended to read as follows :
" SEC. 3354. Every person who withdraws any fermented liquor from any
hogshead, barrel, keg, or other vessel upon which the proper stamp has not
been affixed for the purpose of bottling the same, or who carries on or attempts
to carry on the business of bottling fermented liquor in any brewery or other
place in which fermented liquor is made, or upon any premises having com
munication with such brewery, or any warehouse, shall be liable to a fine
of $500, and the property used in such bottling or business shall be liable to
forfeiture : Provided, however, That this section shall not be construed to
prevent the withdrawal and transfer of unfermented , partially fermented, or
fermented liquors from any of the vats in any brewery by way of a pipe line
or other conduit to another building or place for the sole purpose of bottling
the same, such pipe line or conduit to be constructed and operated in such
manner and with such cisterns, vats, tanks, valves, cocks, faucets, and gauges,
or other utensils or apparatus, either on the premises of the brewery or the
bottling house, and with such changes of or additions thereto, and such locks,
seals, or other fastenings, and under such rules and regulations as shall be
from time to time prescribed by the Commissioner of Internal Revenue, sub
ject to the approval of the Secretary of the Treasury, and all locks and seals
prescribed shall be provided by the Commissioner of Internal Revenue at the
expense of the United States : Provided further, That the tax imposed in sec
tion thirty-three hundred and thirty-nine of the Revised Statutes of the United
States shall be paid on all fermented liquor removed from a brewery to a
bottling house by means of a pipe or conduit, at the time of such removal, by
the cancellation and defacement, by the collector of the district or his deputy,
166
in the presence of the brewer, of the number of stamps denoting the tax on
the fermented liquor thus removed. The stamps thus canceled and defaced
shall be disposed of and accounted for in the manner directed by the Com
Treasury. And any violation of the rules and regulations hereafter prescribed
by the Commissioner of Internal Revenue, with the approval of the Secretary
of the Treasury, in pursuance of these provisions, shall be subject to the
penalties above provided by this section. Every owner, agent, or superintendent
of any brewery or bottling house who removes, or connives at the removal of,
any fermented liquor through a pipe line or conduit, without payment of the
tax thereon, or who attempts in any manner to defraud the revenue as above,
shall forfeit all the liquors made by and for him, and all the vessels, utensils,
and apparatus used in making the same."
GENERAL PROVISIONS MADE APPLICABLE.
law relating to the assessment of taxes, so far as applicable, are hereby ex
tended to and made a part of this title, and every person, firm, company, corpo
ration, or association liable to any tax imposed by this title, shall keep such
records and render, under oath, such statements and returns, and shall comply
with such regulations as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, may from time to time prescribe.
REPEAL OF EMERGENCY REVENUE ACT.
SEC. 410. That the Act approved October twenty-second, nineteen hundred and
fourteen, entitled "An Act to increase the internal revenue, and for other pur
poses," and the joint resolution approved December seventeenth, nineteen hun
dred and fifteen, entitled "Joint resolution extending the provisions of the Act
entitled ' An Act to increase the internal revenue, and for other purposes,'
approved October twenty-second, nineteen hundred and fourteen, to December
thirty-first, nineteen hundred and sixteen, " are hereby repealed, except sections
three and four of such Act as so extended , which sections shall remain in force
till January first, nineteen hundred and seventeen, and except that the pro
visions of the said Act shall remain in force for the assessment and collection
of all special taxes imposed by sections three and four thereof, or by such
sections as extended by said joint resolution, for any year or part thereof end
ing prior to January first, nineteen hundred and seventeen, and of all other
taxes imposed by such Act, or by such Act as so extended, accrued prior to
the taking effect of this title, and for the imposition and collection of all pen
alties or forfeitures which have accrued or may accrue in relation to any of
such taxes.
REDEMPTION OF STAMPS.
SEC. 411. That the Commissioner of Internal Revenue, subject to regulation

prescribed by the Secretary of the Treasury, may make allowance for or redeem
stamps, issued, under authority of the Act approved October twenty-second,
nineteen hundred and fourteen, entitled "An Act to increase the internal revenue,
and for other purposes," and the joint resolution approved December seven
teenth, nineteen hundred and fifteen, entitled "Joint resolution extending the
provisions of the Act entitled ' An Act to increase the internal revenue, and for
other purposes,' approved October twenty-second, nineteen hundred and four
167
1
teen, to December thirty-first, nineteen hundred and sixteen," to denote the pay
ment of internal revenue tax, and which have not been used, if presented
within two years after the purchase of such stamps.
SEC. 412. That the provisions of this title shall take effect on the day follow
ing the passage of this Act, except where otherwise in this title provided.
LEAVE OF ABSENCE OF AGENTS AND INSPECTORS.
SEC. 413. That all internal revenue agents and inspectors be granted leave of
absence with pay, which shall not be cumulative, not to exceed thirty days in
any calendar year, under such regulations as the Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury, may prescribe.
TITLE IX.
SEC. 900. That if any clause, sentence, paragraph , or part of this Act shall
for any reason be adjudged by any court of competent jurisdiction to be invalid,
such judgment shall not affect, impair, or invalidate the remainder of said Act,
but shall be confined in its operation to the clause, sentence, paragraph, or part
thereof directly involved in the controversy in which such judgment shall have
been rendered.
WHEN ACT TAKES EFFECT.
SEC. 902. That unless otherwise herein specially provided , this Act shall take
effect on the day following its passage, and all provisions of any Act or Acts
inconsistent with the provisions of this Act are hereby repealed.
(T. D. 2366. )
Special excise tax on corporations-Decision of court.
1. SECOND ASSESSMENT.
The commissioner had power to make a second assessment after expiration
of two years from filing return by plaintiff.
2. BURDEN OF PROOF UNDER SECTION 3225, REVISED STATUTES.
The return made by the plaintiff having understated the amount for which
it was subject to taxation, although made in good faith and without any inten
tion to escape lawful tax, plaintiff can not recover in view of section 3225,
Revised Statutes.
District of Colorado in the case of Camp Bird (Ltd. ) v. F. W. How
bert, collector of internal revenue, is published for the information
of internal-revenue officers and others concerned .
W. H. OSBORN,
168
DISTRICT COURT OF THE UNITED STATES, DISTRICT OF COLORADO.

Camp Bird (Ltd. ) v. Howbert, collector of internal revenue.
CONCLUSIONS OF LAW.
1. The court is of the opinion that under this act the plea of the plaintiff
that the commissioner had no power to make this second assessment after the
expiration of two years from the filing of the return by the plaintiff is not
good, in view of the decision of the United States Circuit Court of Appeals for
the Eighth Circuit in the National Bank of Commerce v. Allen ( 223 Fed., 472 ) .
2. In the opinion of the court, under the contract of purchase from Mr.
Walsh, the sum of $2,000,000 mentioned in these contracts to be paid to Mr.
Walsh, in addition to the cash payments made, did not vest in him any right
of ownership to any part of the mine, but was merely an indebtedness for
deferred purchase money, secured by an equitable lien of one-quarter of the
net proceeds of ore mined in certain parts of the mine.
3. The payments of the tax not having been made by the plaintiff within
the time required by law, it can not in any event recover the amounts thus paid,
which were 1 per cent per month from the time the payment was due under
the law until it actually paid it.
4. If the plaintiff is entitled to recover the sums of money as hereinbefore
found by the court, it is also entitled to recover interest thereon from the day
of payment until judgment at the rate of 8 per cent per annum, that being the
statutory rate under the laws of the State of Colorado, where the mine is situ
ated and where the tax was paid.
5. In the opinion of the court the return made by plaintiff, having understated
the amount for which it was subject to taxation, although made in good faith
and without any intention to wrong or defraud the Government or to escape
any lawful tax for which it may be liable under the law, the plaintiff can not,
in view of section 3225 of the United States Revised Statutes, recover under
this action.
(T. D. 2367. )
Income tax.
Income-tax regulations for the administration of the income-tax law, where not
inconsistent with the act of September 8, 1916, extended .
OFFICE OF COMMISSIONER OF INternal Revenue,
Pending the adoption and promulgation of special regulations
under the act of September 8 , 1916, income-tax regulations in force
September 8 , 1916, are hereby extended and made applicable to the
act of September 8, 1916, so far as not inconsistent with the pro
visions of that statute.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
169
(T. D. 2368. )
Exportation of alcohol in tanks or tank cars.
Section 403 of the act approved September 8, 1916, provides
That under such regulations as the Commissioner of Internal Revenue, with
the approval of the Secretary of the Treasury, may prescribe, alcohol or other
distilled spirits of a proof strength of not less than one hundred and eighty
degrees, intended for export free of tax may be drawn from receiving cisterns
at any distillery, or from storage tanks in any distillery warehouse, for transfer
to tanks or tank cars for export from the United States, and all provisions of
existing law relating to the exportation of distilled spirits not inconsistent
herewith shall apply to spirits removed for export under the provisions of
this act.
In accordance with the foregoing provision of law the following

regulations are prescribed :
(1 ) Alcohol or other distilled spirits of not less than 180° proof
may be drawn from receiving cisterns at any distillery or from
storage tanks in a distillery warehouse into tanks or tank cars for
export from the United States.
(2 ) When alcohol or other distilled spirits are to be withdrawn
from distillery bonded warehouse free of tax for export in tanks or
tank cars, metal storage tanks must be provided in the distillery
bonded warehouse, to be constructed and arranged with proper pipe
connections and suitable weighing tanks, as prescribed in regulations
No. 30.
When withdrawals are to be made direct from the receiving cis
terns into tanks or tank cars, storage tanks need not be provided in
the distillery bonded warehouse, in which case the weighing tanks
will be located in the distillery cistern room.
(3) Applications for the withdrawal of alcohol or other distilled
spirits under this act, and bonds covering the tax on the spirits to be
withdrawn for export in tanks or tank cars will be the same as for
spirits contained in original packages , except that in describing the
spirits the serial number of the storage tank will be given, or if with
drawal is to be made direct from the receiving cistern the applica
tion and bond will so state.
(4) Each such tank or tank car will, for the purpose here stated,
be regarded as an original package and an export stamp , to be pro
cured by the shipper, will be affixed to each such tank or tank car.
(5) Bonded carriers to which shipments of spirits in tanks or tank
cars are delivered for transportation for export will procure from
170
the International Seal & Lock Co. , of Hastings , Mich . , “ Tyden ”

seals for securing cars containing the spirits in question, similar to
the seals now in use in the customs service which bear the name of
the place where used, the letters and words " U. S. C. , in bond," and
having a red bulb, for use until such time as the Commissioner of
Internal Revenue may adopt a suitable seal .
Seals will be ordered by the carriers, who will give the name of the
place at which they are to be used. Each lot of seals ordered shall
be numbered consecutively, beginning with No. 1. Seals for use at
one place will be considered as a lot.
Where shipments are to be so made collectors will instruct the
storekeeper and gauger to carefully superintend the loading of the
alcohol immediately after the same is gauged, and to affix to each
opening to the car a seal to be furnished for that purpose.
The gauger in such cases will prepare a separate gauge report
(Form 59 ) for the alcohol placed in each car, noting on his report
the car number, as also the serial numbers of the seals affixed to
the car.
(6) If upon arrival at the frontier port the seals attached to the
tank or tank car are found to be intact, and there are no apparent
circumstances requiring an examination of the contents, the collec
tor of customs will permit the clearance of such tanks or tank cars
and issue his certificate of clearance in accordance with article 118 ,
regulations No. 29, modified for the purpose.
(7) If upon arrival of the tank or tank car at the frontier port
the seals or any of them are found to be broken, or appear to have
been tampered with, or if the tank or tank car indicates in any way
that spirits may have been lost or abstracted , the customs inspector
will make an examination of the tank or tank car, ascertaining the
outage therefrom. Such outage, if any, will be reported in the cus
toms gauger's return and in his certificate of inspection , as well as
in the collector's certificate of clearance.
(8) Supplemental Form 94 A will be revised to include a monthly
report of spirits withdrawn from the receiving cisterns into tanks
or tank cars for export.
In the meantime entries of withdrawals from the cistern rooms for
export should be made in supplemental Form 94 A, in red ink,
stating the aggregate withdrawals for each distiller, as in the case of
withdrawals for transfer to denaturing warehouse.
In Form 94 A, part 1 , a statement in detail will be made of each
tank or tank car withdrawn for export during the month.
A statement in detail will be made in Form 94 A, part 1 , of each
tank or tank car exported and accounted for during the month ; and
171
a separate statement in detail of each tank or tank car withdrawn

for export and unaccounted for at the end of the month.
The statements in detail on the inside pages of the collector's
bonded spirits account, Form 94 A , part 1 , will be made separately
and independent of each other for withdrawals of spirits from cistern
room for export, and withdrawals from warehouse for export.
(9) The exportation of alcohol or other distilled spirits in tanks
or tank cars under these regulations will be restricted to shipments
by railroad destined for points in contiguous foreign territory.
(10) Except as herein provided , withdrawals of alcohol and other
distilled spirits under the provision of law herein stated will be
made and accounted for in the manner prescribed in regulations No.
29, revised August 18 , 1914 , relating to spirits in original packages
withdrawn for export.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
(T. D. 2369. )
Leave of absence.
Revenue agents and inspectors may be granted by the Commissioner of Internal

Revenue leave of absence with pay, which is not cumulative, not to exceed
30 days in any calendar year.
To revenue agents and inspectors :
Section 413 of the act approved September 8, 1916 , " To increase
the revenue, and for other purposes," provides
That all internal revenue agents and inspectors be granted leave of absence
with pay, which shall not be cumulative, not to exceed 30 days in any calendar
year, under such regulations as the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, may prescribe.
Urder the provisions of section 413 the following regulations are

prescribed :
(1 ) Applications for leave of absence should be in writing , or by
telegraph or telephone if the emergency of the case so requires , and
such applications should be approved by the revenue agent under
whom the agent or inspector is assigned to duty. Agents in charge
172
of divisions will make application for leave of absence direct to this

office.
(2 ) All leave of absence is subject to the approval of the Com
missioner of Internal Revenue.
(3) Charges incurred on account of telegrams or telephone mes
sages incident to procuring leave will be at the expense of the officer
desiring the leave.
(4) Leave of absence is reckoned by the calendar year and is not
cumulative ; that is, the leave applying to one calendar year can not
accrue and be taken in a subsequent calendar year.
(5 ) An agent or inspector in the service on January 1 and serving
under a permanent appointment may be granted leave of absence
not to exceed 30 days any time thereafter in the calendar year if the
application is approved by the Commissioner of Internal Revenue .
(6 ) Leave is reckoned at the rate of 21 days per month, and if
an agent or inspector entered the service under permanent appoint
ment on March 1 he would be entitled to only 25 days' leave for the
balance of the calendar year, or if service began on November 1 he
would be entitled to only 5 days ' leave of absence.
(7) Sundays and legal holidays occurring within the period leave
is taken should be considered and counted as days on leave.
(8 ) Leave taken in this calendar year, under the provisions of
section 413, must be subsequent to September 8, 1916, the date of
approval of the act.
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2370. )
Temperance beer.
Responsibility of brewers, manufacturers of beverages, and dealers who place

on the market unstamped beverages which are found to contain more than
one-half of 1 per cent of alcohol by volume.
To collectors of internal revenue, internal-revenue agents, and others
concerned :
It has come to the attention of this office that unstamped beverages
made from malt or substitutes therefor, for sale on draft, in barrels
173
and other bulk containers, and containing more than one-half of 1

per cent of alcohol by volume, are being found on the market in
violation of section 3339, Revised Statutes.
All brewers producing alleged nontaxable beverages must be
warned that such beverages can not be classed as nontaxable under
T. D. 1360 of May 19, 1908, as modified by T. D. 2354 of August 2,
1916, unless the alcoholic content thereof constantly remains below
the limit of one-half of 1 per cent by volume from the time the bev
´erage is finished and ready for sale until it is actually consumed .
The burden is on the brewer not only to know that the beverage which
he sends out unstamped is within the limit, but also to know that the
condition of the liquid is such that no increase in the alcoholic content
can take place after the beverage leaves his premises sufficient to
remove it from the nontaxable class by raising the same above one
half of 1 per cent. In all cases where beverages containing alcohol
in excess of the limit are found on the market, the brewer who pro
duced the same will be held liable to the tax thereon (sec. 3339 , Re
vised Statutes ) , the packages with their contents will be subject to
seizure and forfeiture ( sec. 3352 , Revised Statutes ) , and the brewer
will be liable to prosecution ( sec. 3340 , Revised Statutes ) .
Persons not authorized brewers who manufacture and place on the
market a beverage which is found to contain alcohol in excess of the
limit specified render themselves liable to special tax as brewers and
to the barrel tax on the beverage itself, as well as to prosecution, and
the packages with their contents are subject to seizure and forfeiture.
Persons selling or offering for sale from unstamped packages bev
erages whose alcoholic content is found to exceed the limit will be
held liable to special tax as dealers, and the packages with their con
tents will be subject to seizure and forfeiture.
Revenue agents having reason to suspect that any beverage claimed
to be nontaxable is in fact taxable by reason of the alcoholic content
will forward samples to this office for analysis, sealing and labeling
same in the usual manner. At the time the sample is drawn from the
bulk container for the purpose of forwarding to the laboratory, a
5-grain tablet of bichloride of mercury (poison ) should be imme
diately added to the bottle containing the sample, in order to arrest
fermentation and keep the alcoholic content as when the sample was
drawn. When the tablet is dissolved the sample should be mixed
by shaking. The label must be conspicuously marked "poison ," and
any officer who poisons and omits to so state on the label is liable to
be recommended for dismissal . The small sealed pasteurized bottle
which usually goes to the consumer need not be poisoned when
taken as a sample. *
174
Printed copies hereof will be furnished to collectors for distribu

tion to parties interested in their respective districts.
W. H. OSBORN,
(T. D. 2371. )
Bottling of gin in bond for export.

Section 405 of the act approved September 8, 1916, provides as
follows :
That distilled spirits known commercially as gin of not less than eighty per
centum proof may at any time within eight years after entry in bond at any
distillery be bottled in bond at such distillery for export without the payment
of tax, under such rules and regulations as the Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury, may prescribe.
Under this provision of law gin of not less than 80 per cent proof
may be bottled in bond in the bottling warehouse on the distillery
premises for export at any time within eight years after entry in
bond in a distillery warehouse.
Except as herein provided , regulations No. 23, revised December 21 ,
1912, and regulations No. 29 , revised August 18, 1914, are hereby
made applicable to the withdrawal and bottling in bond for export
of gin before the expiration of four years after entry in a bonded dis
tillery warehouse.
Attention is particularly directed to the fact that spirits with
drawn tax paid and spirits withdrawn for export can not be per
mitted in the bottling warehouse of a distillery at the same time.
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2372. )
Estate tax.
Beneficiaries coming into possession of any property of a decedent where no

executor or administrator of the decedent's property is acting, and bene
175
ficiaries coming into possession of any property of a decedent prior to the

appointment of executors or administrators, are required, where the estate
would be subject to taxation, to file the 30-day notice and the return pro
vided by section 205, Title II, of the revenue act of September 8, 1916.
The subjoined extract from an opinion of the Solicitor of Internal
Revenue, dated September 23, 1916, is published for the information
of those concerned .
The said law, the revenue act of September 8, 1916, section 200, defines the
term " executor " as meaning "the executor or administrator of the decedent,
or, if there is no executor or administrator, any person who takes possession of
any property of the decedent."
Section 205 requires " that the executor, within 30 days after qualifying as
such, or after coming into possession of any property of the decedent, which
ever event first occurs, shall give written notice thereof to the collector " ; and
that " the executor shall also, at such times and in such manner as may be re
quired by the regulations made under this title, file with the collector a return
under oath in duplicate, setting forth the value of the gross estate," etc.
Manifestly, the purpose of the law is to secure such information and returns
as will enable the Government to properly execute the law and collect such
taxes as may be thereby imposed.
In view of this uniform interpretation as to the requirement of notice and
returns in all matters of revenue taxation, as well as the specific language of
the law, I am of the opinion that you are justified in the preparation of regu
lations requiring persons who come into possession of the property of a decedent,
or any part thereof, prior to the appointment of executors or administrators,
to give due and proper notice to the collector of that fact. When executors or
administrators are appointed they, of course, supersede all other persons in the
control of the property whether such persons are in possession or not, and the
duty of giving notice and making returns for the entire estate immediately
devolves upon such executors or administrators.
W. H. OSBORN,
Approved :
WM. P. MALBURN ,
(T. D. 2373.)
Distillers of brandy- Certain exemptions.
Exempting distillers of brandy from grape cheese, to which sugar solution has
been added after the manufacture of wine, either at the winery or on the
176
distillery premises, from the same provisions of law from which distillers
of brandy from other authorized fruits have been exempted .
To collectors of internal revenue and others :
Section 3255 , Revised Statutes, as amended and as further amended
by the act approved September 8, 1916 , entitled " An act to increase
the revenue, and for other purposes," reads as follows :
The Commissioner of Internal Revenue, with the approval of the Secretary of
the Treasury, may exempt distillers of brandy made exclusively from apples,
peaches, grapes, pears, pineapples, oranges, apricots, berries, plums, pawpaws,
persimmons, prunes, figs, or cherries, from any provision of this title relating
to the manufacture of spirits , except as to the tax thereon when, in his judg
ment, it may seem expedient to do so : Provided, That where, in the manu
facture of wine, artificial sweetening has been used, the wine or the fruit
pomace residuum may be used in the distillation of brandy, as ( and ? ) such
use shall not prevent the Commissioner of Internal Revenue, with the approval
of the Secretary of the Treasury, from exempting such distiller from any pro
vision of this title relating to the manufacture of spirits, except as to the tax
thereon, when, in his judgment, it may seem expedient to do so : And provided
further, That the distillers mentioned in this section may add to not less than
five hundred gallons ( or ten barrels ) of grape cheese not more than five hun
dred gallons of a sugar solution made from cane, beet, starch, or corn suger,
ninety-five per centum pure, such solution to have a saccharine strength of not
to exceed ten per centum, and may ferment the resultant mixture on a winery
or distillery premises, and such fermented product shall be regarded as dis
tilling material.
(1) By virtue of the authority contained in said section , as amended

(second proviso) , the Commissioner of Internal Revenue, with the
approval of the Secretary of the Treasury, does hereby exempt dis
tillers of brandy made from grape cheese (not apple or other
cheese ) , sweetened as provided in the statute, from the same pro
visions of law from which distillers of brandy from other fruits,
wine, and fruit pomace residum in said section have heretofore been
exempted , as set forth in regulations No. 7, revised July 10 , 1914, and
seven pounds of unsweetened grape cheese shall be deemed a gallon.
(2 ) Such grape cheese may, therefore, be sweetened once only,
as provided by law, and fermented either on winery or fruit- dis
tillery premises, but where sweetened on the winery premises a rec
ord must be made thereof in a book to be prescribed for that purpose
and kept at the winery. As heretofore, all the distilling material
received on fruit- distillery premises must be at once recorded in
Record 25. Where, however, sweetened grape cheese is received
from a winery , either in a fermented or unfermented condition, in
addition to record being made thereof, a notation in red ink must
be made by interlineation or otherwise showing the facts. When
177
the grape cheese is received at the distillery in an unsweetened

condition and is subsequently sweetened in accordance with the law
on the fruit-distillery premises a notation to that effect must also
be made in the manner above indicated. Furthermore, all sugar
received at a fruit distillery to be used in sweetening grape cheese
must be recorded as distilling material on Book 251.
(3) Brandy produced from such sweetened grape cheese can not
under any circumstances be used in the fortification of pure sweet
wine under the provisions of the act of October 1 , 1890, as amended.
Brandy produced from such sweetened grape cheese will be marked
by the gauger " Brandy," but he will prefix to the word " Brandy "
the words " Sweetened cheese " in the manner provided in regula
tions No. 7, page 175, revision of 1914. In column 2 of Form 591
66
such brandy must be designated by the letters " S. C."
(4) Fruit pomace residuum obtained from wine making to which
sugar in any form has been added prior to draining or pressing can
not be sweetened for use as distilling material in a fruit distillery
under the provisions of the act of September 8, 1916.
(5 ) Until revised , the existing regulations relating to fruit dis
tillers will be in force and the exemptions from the above-mentioned
provisions of law will be subject to such further changes and future
regulations as may be necessary to insure the collection of the tax on
all brandy produced .
(6 ) Distillers who have qualified for the current bonded year, be
fore proceeding to distill said sweetened grape cheese, must give
new notice in each case on Form 27½ and a new bond on Form 301,
which shall provide for the use of same in addition to those materials
printed in the forms.
(7) A new survey must also be made in each of such cases, in
which the spirit-producing capacity of the sweetened grape cheese
will be ascertained and reported, and for that purpose such grape
cheese will be classed by itself as " Grape cheese with sugar solution
added." Such sweetened grape cheese must be rated higher in fixing
the yield than ordinary unsweetened cheese. It will be borne in mind
in making a survey that 1 per cent of sugar used will produce one
half of 1 per cent of alcohol.
(8) Until new blanks are provided , in all notices and bonds here
after given, and in all reports of survey made upon the blank forms
now in use, the name of the new distilling material, with a proper
description of the same as sweetened grape cheese, must be inserted
in proper order, with the names printed in said instruments. Simi
lar changes will also be made in the distiller's records and returns.
(9) Regulations No. 7, revised July 10, 1914, are modified in con
formity with the law and instructions herein.
24433 °-VOL 18—16 -12
178
(10 ) Internal- revenue officers will from time to time take samples
of the sugar solution and of the mash, sterilize and forward the same
to this office in the usual manner for examination .
W. H. OSBORN,
Approved :
BYRON R. NEWTON ,
(T. D. 2374. )
Income tax.
Provision for nonresident alien corporations, etc. , to claim exemption from with
holding normal income tax at source of income in the United States under
the act of September 8, 1916.
Under the act of September 8 , 1916 , the normal income tax is to
be withheld at sources of income in the United States from the
income of nonresident alien firms, copartnerships, companies, cor
porations, joint- stock companies or associations, and insurance com
panies " not engaged in business or trade within the United States
and not having any office or place of business therein. "
The income of such nonresident alien corporations, etc. , which is
subject to the withholding provisions of the law is that derived from
" interest on bonds and mortgages or deeds of trust or similar obliga
tions of domestic or other resident corporations, joint- stock com
panies or associations, and insurance companies," regardless of
amount.
And likewise the withholding provisions of the law " shall be
made applicable to income derived from dividends upon the capital
stock or from the net earnings of domestic or other resident cor
porations, joint-stock companies or associations, and insurance com
panies by nonresident alien companies, corporations, joint- stock
companies or associations, and insurance companies not engaged in
business or trade within the United States and not having any office
or place of business therein," regardless of amount.
Including and from and after September 9 , 1916 , and to and in
cluding December 31 , 1916, the normal income tax will be withheld
from such income at the rate of 1 per cent on the amount thereof.
Including and from and after January 1 , 1917, the normal income
179
tax will be withheld from such income at the rate of 2 per cent on
the amount thereof.
To enable debtor corporations, etc. , in the United States to distin
guish between nonresident alien corporations, etc. , which have and
those which do not have " any office or place of business " in the
United States and also to enable such nonresident alien corpora
tions, etc., as have an " office or place of business " in the United
States, to claim exemption from withholding of the normal income
tax at the source on their income from sources within the United
States, as specified by the statute, a certificate will be provided in the
following form :
Form OWNERSHIP AND EXEMPTION CERTIFICATE-NONRESIDENT ALIEN
1086 FIRM, ORGANIZATION , ETC.
(For use of nonresident alien firms, corporations, etc. , having an " office or place of busi
ness " in the United States to claim exemption from withholding normal income tax
by debtor corporations in the United States. )
INTERNAL
.REVENUE

,DEPARTMENT
INCOME
TREASURY
TAX
(Character of income; if bonds, give name of issue and interest rate. )

-
191-. Amount of coupon or registered interest, $ ..

(Date ofmaturity of interest. )
191-. Amount of dividend , $ ...
(Date declaration of dividend. )
I hereby declare that the firm or organization named below (of which
I am a member or officer) is the owner of the bonds or stock from which
the above-described income was derived , and that said firm or organiza
tion has an office or place of business in the United States, and that
under the provisions of the income tax law said income is not subject
to having the income tax withheld at the source of the income, and that
all the information given herein is true and correct.
Date, 2 191-.
(Name of firm , organization, etc.)
By
(Signature of person duly authorized to
sign and his official position.).
Address:
(Full post-office address in United States of firm, etc.)
The certificate herein provided for shall be printed on yellow

paper , and shall be in size 8 by 3 inches, and shall be printed to read
from left to right along the 8-inch dimension .
The paper upon which the certificate is to be printed shall corre
spond in weight and texture to white writing paper 21 by 32 , about 40
pounds to the ream of 500 sheets.
Individuals or organizations desiring to print their own certifi
cates may do so, but certificates so printed must conform in size and
180
be printed in similar type and upon the same color, shade, and weight
of paper as used by the Government.
Until such certificate shall be printed and distributed , nonresident
alien corporations, etc. , having an " office or place of business " in
the United States will use income-tax certificates 1001 , revised , and
1063. The address given on such certificates shall be that of the
" office or place of business " in the United States of such nonresi
dent alien corporation, etc. There shall be stamped in bold type on
the face of these certificates in the blank space below the date line on
the certificates " Nonresident alien corporations, etc. , having an office
or place of business in the United States."
The normal income tax on the character of income herein specified
and payable to nonresident firms, copartnerships, corporations, etc.,
will be deducted , withheld , and paid to the proper officer of the
United States Government authorized to receive it, unless the cor
poration, etc., entitled to the payment shall file a certificate (under
penalty for false claim ) in form and as herein provided , and only
those nonresident firms, corporations, etc. , which have an " office or
place of business " in the United States can use the certificate herein
provided to be used . The corporations, etc. , which are permitted to
use the certificate herein provided are required to make and render
a return of income to the collector of internal revenue for the district
in which they have their office or place of business, as provided by
the act of September 8, 1916.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
(T. D. 2375.)
Amendment to section 3225, Revised Statutes, by the act of Septem

ber 8, 1916.
Burden of proof in suits to recover taxes collected under second assessment.
Section 3225, Revised Statutes, does not apply to statements or returns
regarding depreciation of oil or gas wells and mines.
TREASURY DEPARTMENT, September 30, 1916.
SIR : Referring to your letter of the 18th instant, in regard to the
decision in the case of Camp Bird ( Ltd. ) v . Howbert, relative to bur
den of proof under section 3225 , Revised Statutes, published in T. D.
2366, your attention is called to an amendment made to section
3225, by the act of September 8, 1916, section 14 , subsection ( d ) , as
follows :
181
But this section shall not apply to statements or returns made or to

be made in good faith under the laws of the United States regarding annual
depreciation of oil or gas wells and mines.
UNITED STATES ATTORNEY, New York.
(T. D. 2376. )
Amendment to definition of peddler of tobacco.

Washington, D. C., October 3, 1916.
The following act, entitled "An act to amend subsection eleven of
section thirty-two hundred and forty-four, Revised Statutes," ap
proved September 7, 1916, is published for the information of in
ternal-revenue officers and others concerned.
DAVID A. GATES,
[Public No. 262-64th Congress-S. 5987. ]

AN ACT To amend subsection eleven of section thirty-two hundred and forty-four,
Revised Statutes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled , That subsection eleven of section thirty
two hundred and forty-four, Revised Statutes, be amended by adding at the end
of said subsection the following : Provided , That manufacturers of, jobbers, and
wholesale dealers in, manufactured tobacco, snuff, cigars, and cigarettes, and
the agents or salesmen of such manufacturers, jobbers, and wholesale dealers,
traveling from place to place, in the town or through the country, and selling
and delivering or offering to sell and deliver such products only to dealers,
shall not be construed to be peddlers.
(T. D. 2377. )
Income tax.
Authorization of acceptance by debtor corporations and withholding agents of

ownership certificates ( Form 1001, revised ) prior to January 1, 1917 , when
executed by nonresident alien firms and organizations and stamped “ not
exempt."
Washington, D. C. , October 4, 1916.
Where income-tax ownership certificates (Form 1001 , revised )
have been executed by nonresident alien firms or organizations " not
182
engaged in business or trade within the United States and not hav
ing any office or place of business therein " to accompany coupons
detached from bonds or other obligations of domestic corporations
they may be accepted by debtor corporations and withholding agents
prior to January 1, 1917, if the words " not exempt " are stamped in
large type across the face of certificates before presentation ; and
debtor corporations and withholding agents will be held liable under
T. D. 2374 for the normal tax provided to be withheld by the act of
September 8, 1916.
G. E. FLETCHER,
Approved :
W. G. McADOO,
(T. D. 2378. )
Regulations No. 37, governing the collection of estate tax under the
act of September 8, 1916.
Washington, D. C. , October 10, 1916.
Transfers of net estates taxable where decedent died after September 8, 1916.
ARTICLE I. Title II of the revenue act of September 8, 1916 , levies
a tax upon the transfer of net estates of decedents dying after the
passage of the act- i . e., on or after September 9, 1916- whether the
decedent be a resident or a nonresident of the United States.
Territory for tax levy- United States defined for purpose of this tax.
ART. II. The United States is defined ( section 200 ) as including
continental United States, Alaska, and Hawaii. The tax is not
imposed in Porto Rico or the Philippine Islands , but, under the
definition in the title, the property in the United States of deceased
residents of the islands is taxable as the property of nonresidents.
Exemption of $50,000 for estates of residents.

ART. III . The rates of tax are set forth in section 201. In the
case of the estates of all residents an exemption of $50,000 is allowed
in determining the value of the net estate . But in the case of non
residents' estates, no exemption is allowed , the only deductions from
the gross estate being a certain proportion of such charges and losses
as are allowed estates of residents . (See Article IX. )
183
THE GROSS ESTATE.
Gross estate defined- Property in charge of executors.

ART. IV. The gross estate of a decedent, as defined in section 202 ,
includes :
( 1 ) The entire estate of every kind , real , personal, and mixed ,
tangible and intangible property, coming into the hands of executors
or administrators, or such as would legally come into their charge if
executors or administrators were appointed , and which property
would be subject to charges against the estate, expenses of adminis
tration , and distribution to the heirs or legatees. This would include
insurance, not payable directly to a beneficiary named in the insur
ance contract, but passing as a part of the administered estate. It
would include also the good will of claimant's business, if such good
will possessed an actual monetary value.
Property transferred by deed of trust, gift, or sale ; when to be included in gross estate.
(2) All property transferred by decedent during his lifetime, but
in contemplation of, or intended to take effect, at his death . This in
cludes not only property transferred by an instrument effecting a
final disposition at the transferor's death , but transfers of any kind,
including gifts and sales that were not bona fide-i . e. , made for an
adequate consideration in money or money's worth-where it can be
established that such transfers were made in contemplation of death.
The law provides not only that all such transfers of any portion of
decedent's property shall be included in the gross estate, but that
all such transfers of material value made within two years prior to
death shall be presumed to have been made in contemplation of death,
and the burden of proving that they were not made in such con
templation and securing their exemption from tax is placed upon
the beneficiary. Wherever, therefore, a collector or agent shall have
knowledge of such a gift, " sale," or other transfer he shall require
that it be returned as a part of the decedent's gross estate. All execu
tors and administrators having knowledge of such transfers as are
described in this paragraph are required by the law to set forth the
facts upon their return of the estate (Form - ) .
Investigation of transfers made more than two years prior to decedent's death.
If, in the case of transfers made more than two years prior to
decedent's death, the executors or administrators shall not include
the value of the transfers upon the return of the estate, collectors
shall not add such value to the gross estate until a thorough investi
gation has been made, all the facts have been ascertained , and the
collector shall have satisfied himself that the transfers were actually
made with the view of providing for the beneficiary after or because
of decedent's death.
184
"Material " transfers made within two years prior to death required to be returned.
In the case of transfers made within two years prior to decedent's

death, it should be noted that if such transfers were made in contem
plation of death they are to be included in the gross estate regardless
of their value. It is only where the value is a " material part " of
decedent's whole estate that the presumption is that they were made
in contemplation of death. Where , therefore, an executor has made
return and the collector finds that transfers of material value made.
within two years prior to decedent's death have been omitted , the
collector shall require the executor to amend the return by including
such transfers in the gross estate, unless the executor shall file con
clusive evidence that the transfers were not made in contemplation
of death .
Property owned jointly.
(3) Decedent's share in joint bank accounts or in any other prop
erty owned by decedent jointly with another or with others as tenants
in entirety. Only such part of such property as can be shown never
to have been owned by the decedent can be excluded from his gross
estate.
Gross estate where there is no executor.
ART. V. In the case of property of a decedent whose estate has no

executor or administrator, all the property and interests of the de
cedent, including the interests described in paragraphs 2 and 3 above,
will be aggregated to determine the gross estate. ( See Art. XVII . ) -
Situs of stock, etc., owned by a nonresident.
ART. VI . In the cases of nonresident decedents, stock owned in a
domestic corporation is to be treated as a part of the gross estate in
the United States, Hawaii, or Alaska . Also such property and inter
ests of a nonresident decedent as are described in paragraphs 2 and
3 of this article are to be treated as part of the gross estate in the
United States, Hawaii , and Alaska, if their situs was the United
States, Hawaii , and Alaska , either at the time of making a transfer
thereof or at the time of decedent's death.
Income and appreciation to be included in the gross estate.

ART. VII. Income earned during the settlement of the estate (in
the case of a nonresident, income earned on the property situated
in the United States, Hawaii , and Alaska ) is also to be treated as a
part of the gross estate. Also , any appreciation in values after the
death of the decedent and prior to the distribution of the net estate
is to be included in the gross estate on the return , since the tax
attaches upon the transfer of the net estate and losses sustained dur
ing administration are deductible.
185
THE NET ESTATE.
Residents' net estates-Deductions from the gross estate-Funeral expenses, etc.
ART. VIII. From the gross estate, determined as set forth in Arti
cle IV above, certain deductions are allowable, as follows :
the cases of estates of residents
( 1 ) Funeral expenses.
(2) Legitimate administration expense.
(3 ) Valid claims against the estate.
Mortgages.
(4) Mortgages against decedent's property, but only such mort
gages as were existent and unpaid at the time of decedent's death.
If in returning the gross estate only the net value to the estate of
the mortgaged property is reported , the value of the mortgages can
not be deducted , as, obviously, this would effect a double deduction .
Losses.
(5) Losses of the estate arising during the legal period of admin
istration and caused by fires, storms, shipwreck, or other unavoid
able accident, or by theft. Only the net loss, after all compensa
tions from insurance or otherwise have been credited can be deducted .
Support of dependents.
(6 ) Support of decedent's dependents during the legal period of

administration. This can not be an arbitrary estimate, but must be
limited to the amount actually paid by the executors or adminis
trators to such persons as were dependent upon the decedent for
support at the time of decedent's death.
Other legal charges-Exemption of $50,000.
(7) Such other legal charges against the gross estate as may be
allowed in a court of competent jurisdiction.
(8 ) The specific exemption of $50,000 .
Nonresidents' net estates.
ART. IX. In the case of estates of nonresidents :
(a ) From the gross estate situate in the United States, Alaska ,
and Hawaii, determined in the manner set forth in Article II , there
may be deducted a proportionate share of all the expenses, losses ,
and charges enumerated in items 1 to 7, Article VIII above, equal
to the share the whole gross estate in the United States, Alaska ,
and Hawaii is of the entire gross estate wherever situated.
Example : If the total gross estate wherever situated is $ 1,000,000 ,
and the share in the United States, Alaska , and Hawaii is $ 100,000 ,
and if the total legal expenses, charges, and losses is $50,000 , the
share deductible from the gross estate within the United States, etc.,
is $5,000 . A synopsis of the correct return would read : Gross estate,
186
$100,000 ; legal deductions , $5,000 ; net estate, $ 95,000 ; tax due,

$1,900.
No exemption.
(b) The exemption of $50,000 to be taken in determining the net

estates of residents does not apply, and no part of it applies, to the
estate of a nonresident.
No deductions if return is incomplete.
(c) Furthermore , the law specifically provides ( sec . 203 ) that if

any deductions whatever are to be allowed from the gross estate of
a nonresident decedent, the return filed by the executor or adminis
trator must show not only the value of the gross estate situated in the
United States, Hawaii, and Alaska, but also the value of all the
property and interests, wherever situated , of the decedent.
THE 30 - DAY NOTICE.
ART. X. In cases of estates in the hands of executors and adminis

trators, the act requires
Executors to file notice of appointment.
(1 ) That within 30 days after the issuance by the court of letters

testamentary or letters of administration a formal notice of such
issuance be filed by the executors or administrators with the collector
of the district in which decedent was a resident at the time of his
death.
Other persons taking possession of decedent's property to file notice.
(2 ) That any person coming into possession, prior to the issuance
of letters to executors or administrators , of any property of the
decedent, shall , within 30 days from the day of acquiring possession,
file a similar notice with the collector.
Donees' and transferees'-Similar notice required.
(3 ) The law contemplates also that all persons who shall have
received within two years prior to the death of the decedent any
material part of decedent's property, either as a gift in contempla
tion of death, or by a transfer intended to take legal effect at de
cedent's death, or by a so- called sale which was not a bona fide sale
for a fair consideration in money or money's worth , should file a
similar notice with the collector within 30 days after the death of
decedent. This is clearly indicated by section 202, paragraph B ,
of the act, wherein, for the purpose of tax liability , such gifts, trans
fers, and “ sales " are held effective in every case as of the day of
the donor's or transferor's death. With the notice to the collector ,
the donee or transferee may file such evidence as may be desired
to establish whether the gift or transfer was in contemplation of,
187
or intended to take effect at, the donor's or transferor's death, or

whether the sale was bona fide.
Duty of beneficiaries where there is no executor.

(4 ) In the cases of estates where no executors or administrators
come at any time into charge of the property, the burden of filing
the 30-day notice is placed by the law upon the individual bene
ficiaries. Each such beneficiary having reason to believe that the
total property of the decedent exceeds the gross value of $60,000 or
the net value of $50,000 , must file the 30-day notice with the collector
within 30 days after coming into possession of any portion of the
property.
Where notice for nonresidents' estates shall be filed.
ART. XI. In the cases of the estates of nonresidents the above set
forth requirements apply fully, except that the collector with whom
any notice is to be filed is the collector in whose district the property
liable for the tax is situated. If such property is located in more than
one district the notice is to be filed with the collector at Balti
more, Md.
Collectors to inform executors as to beneficiaries.
ART. XII. Whenever a collector, in the case of a given estate, re
ceives the notice from a beneficiary and there are executors or ad
ministrators acting, he shall promptly inform the executors or ad
ministrators of the beneficiary's name and address, in order that the
executor or administrator, in compliance with the provisions of sec
tion 205 , may ascertain such facts with regard to the property pos
sessed by the beneficiary as the executor or administrator is required
to show upon his return.
Executors or administrators will render this notice on Form 704.
Beneficiaries will render the notice on Form 705.
THE RETURN.
Return to be made within one year after decedent's death- Tentative return may be made.
ART. XIII . A return of the gross and net estate must be filed with
the collector by the executor or administrator within one year after
decedent's death and before distribution or tax payment is made.
The return must be upon Form and all information called for
upon the blank return must be given. If the administration of the
estate in such incomplete condition that correct information as to
the value of the net estate can not be given, a tentative return may be
filed showing an estimate of the gross and net estate, and the tax
due, and such estimated tax may be paid at the time the return is
filed . The return must be made and filed with the collector in dupli
cate, one copy to be retained by the collector and one forwarded by
him to the commissioner. Where a tentative return has been filed a
188
final and complete return must be made on or before the date of final
payment of the tax in full. Wherever there is a partial payment of
tax in advance a tentative return must be filed before the collector
will accept the partial payment.
When estates of residents are not required to file notice or return.
ART. XIV. In the case of the estates of residents neither the 30
day notice nor the return can be required , except where the gross
estate, as defined in Article IV above, exceeds $ 60,000, or the net
estate, computed in accordance with Article VIII above, exceeds
50,000. Wherever either of these conditions exists the 30-day notice
and the return must be filed .
Every nonresident's estate liable for notice and return.

ART. XV. The return is required of the estate of every nonresi
dent leaving property within the United States, Alaska , or Hawaii ,
regardless of the amount of property so left.
When beneficiaries must file notice and return .
ART. XVI. In the case of estates having no executors or adminis

trators, or where any part of the gross estate as defined in Article IV
above passes other than in charge of executors or administrators, the
act places upon the separate beneficiaries the precise duties with .
regard to the filing of the 30 - day notice and the return and the pay
ment of tax that are otherwise imposed on the executors and adminis
trators. Each such beneficiary is as fully liable to all the penalties
provided in the act as is the executor or the administrator. Where
the property is held for the beneficiary by guardians, trustees, or fidu
ciaries, the 30 -day notice and the return may be executed by such
representatives of the beneficiary.
Collectors to make final return where there is no executor.
ART. XVII . Each beneficiary making return for any part of the
estate is required by the law to give all the information possible
regarding any part of the estate. The final and complete return , in
cases where no executor or administrator acts, will be compiled by
the collector from the several returns of the individual beneficiaries.
After having determined in this manner the total gross and net
estate , the rate of tax , and the proportionate amount due from each
beneficiary, the collector shall notify each beneficiary accordingly,
and will enter upon the assessment list the amount of tax appor
tionable to each.
When false return is filed.
ART. XVIII . Where a return is materially false or incorrect, or
where no return is filed, the collector or his deputy, after investiga
tion, shall make the return and the commissioner shall assess the
tax thereupon.
189
Cooperation of collectors.
ART. XIX . Whenever a beneficiary files with the collector in whose
district he resides a notice of the receipt of property which discloses
that the decedent was resident at the time of death in another col
lection district, the collector receiving the notice shall forward it to
the proper collector and shall promply inform the beneficiary as to
the collection district in which return is required to be made and
tax paid.
Where return of nonresidents' estates are to be filed.
ART. XX. In the cases of the estates of nonresidents the above
set forth requirements apply fully, except that the collector with
whom the notice or return is to be filed is the collector in whose dis
trict the property liable for the tax is situated. If such property is
located in more than one district, the notice or return is to be filed
with the collector at Baltimore, Md.
PENALTIES .
Five thousand dollars penalty for false statement- $500 penalty for failure to file.
ART. XXI. Two separate penalties are provided in connection with
the 30-day notice and the return :
( 1 ) For a false statement knowingly made in a notice or return the
penalty is a fine not to exceed $ 5,000, or imprisonment not exceeding
one year, or both .
Five hundred dollars penalty for failure to file.
(2 ) For failure, whether through neglect or otherwise, to file the
notice or the return at the times required , a penalty of not exceeding
$500, to be recovered , with costs of suit , in a civil action in the name
of the United States.
PAYMENT OF TAX.
Tax due one year from day of decedent's death- 5 per cent discount for advance payment.
ART. XXII . Section 204 provides that the tax is due and payable
one year from the day of decedent's death . Discount at the rate of
5 per cent per annum is allowed for payment in advance . Thus, if
the tax is paid two months before the due date, a discount of one- sixth
of 5 per cent of the total tax should by the return as due is allowed .
Suit for taxes 60 days overdue.
ART. XXIII. The law makes two provisions with regard to taxes
delayed in payment beyond the due date :
( 1 ) Where the delay exceeds 60 days beyond the due date, if the
collector has reason to believe the payment is being arbitrarily with
held, or the Government is in danger of loss thereby, he shall report
the facts to the commissioner, and with the approval of the commis
sioner, he shall then proceed in accordance with section 208 to report
the facts to the United States attorney in order that action may be
190
brought to subject the property of the decedent to be sold under judg

ment of the United States court.
Interest at 10 per cent or 6 per cent on tax 90 days overdue.
(2 ) Where the tax is delayed in payment more than 90 days after

the due date interest begins to run at the rate of 10 per cent per annum
and is computed from the day of the decedent's death to the day of
payment. Provision is made, however, that if after investigation the
collector determines the cause of the delay to be unavoidable , either
because of necessary litigation or other condition, beyond the control
of those responsible for the payment of the tax, and the true tax can
not, therefore, be determined , the interest shall be at the rate of 6
per cent instead of 10 per cent per annum, running, nevertheless, from
the date of decedent's death.
Duplicate receipt.
ART. XXIV. The tax may be paid to the collector or his deputy.
The collector will issue a receipt in duplicate.
When advance payment relieves from interest.
ART. XXV. Where prior to final settlement of an estate the col

lector has accepted a tax payment which he deems sufficient fully to
cover the estate's liability, such payment shall relieve from the accru
ing of further interest until such time, if ever, as it may be deter
mined that the payment was insufficient. The collector shall then
notify the persons liable for the additional tax, and interest at the
rate of 10 per cent per annum shall run upon the due tax from the
date of the collector's notice and demand until the date of payment
of the entire additional tax due.
Tax to be paid before distribution of estate.
ART. XXVI . It is provided in the law (see sec. 208 ) that in every
case, except where a valid will of a testato provides otherwise, the
tax shall be paid from the corpus of the estate by the executors or
administrators before distribution to beneficiaries is made.
LIEN FOR 10 YEARS.
ART. XXVII . Any unpaid amount of tax due is a lien for 10 years
upon all the property of the decedent. Under certain conditions out
lined in section 209 the lien may attach to the property of a trustee
or transferee of decedent.
ADMINISTRATION PROVISIONS.
Powers of investigation- Collectors, agents, etc.
ART. XXVIII. Under section 210 of the act the commissioner , or
any collector or law officer, or his authorized deputy or agent, has
authority to examine any record, file, or paper containing, or sup
191
posed by the official to contain, any information concerning the

estate of a decedent. Refusal to exhibit, upon the official's request ,
any such record, file, or paper renders the person having custody of
the same liable to a penalty of not exceeding $ 500 , recoverable , with
costs, in a civil action in the name of the United States.
Before, however, proceeding to report any such case to the United
States attorney, the collector or agent should submit all the facts to
the commissioner for advice.
Assessment, etc.
ART. XXIX . The present regulations No. 1 will apply to methods
of assessment and collection for the time being and until experience
shall have demonstrated whether specific rules for the assessment
and collection of this tax are required.
Claims.
ART. XXX. The present regulations regarding abatement and re

fund claims will also apply. Attention is called, however, to the
provision of section 207, that where a tentative payment of tax is
made, sufficient in the judgment of the collector at that time to cover
all tax liability of the estate, and later it is found that there has
been an overpayment, refund of the excess shall be made . This
would apply regardless of whether the claim were filed within two
years of date of tax payment.
W. H. OSBORN ,
Commissioner of Internal Revenue,
Approved :
WM. P. MALBURN ,
Acting Secreary of the Treasury.
(T. D. 2379. )
Formula for special denaturation of alcohol.
The following formula , designated as No. 23 , has been approved
for the special denaturation of alcohol to be used in the manufacture
of liniment , namely, to each 100 gallons of ethyl alcohol add 10
gallons of acetone and 2 gallons of benzol, specifications for the
benzol to be the same as those for formula 2-b.
This formula can not be used in central denaturing bonded ware
houses or distillery denaturing bonded warehouses, but the use there
192
of is authorized for the denaturation of alcohol in central distilling

and denaturing plants, the same being one of the two classes of in
dustrial distilleries established under subsection 2 of paragraph
N of section 4, act of October 3, 1913, and supplement No. 2 to regu
lations 30 .
Permission must be obtained from this office to use a special de
naturant in any central distilling and denaturing plant, as provided
in articles 2 and 19 of said supplement.
W. H. OSBORN ,
(T. D. 2380. )
ugers at bonded wineries.
Instructions relative to the assignment, compensation, etc., of gaugers and

storekeeper-gaugers in the separate capacity of gaugers at bonded wineries.
To collectors of internal revenue, revenue agents , and others :
Section 401 of the act of Congress approved September 8 , 1916 ,
provides for the amelioration or correction of natural defects in
wines on bonded winery premises under the supervision of gaugers
or storekeeper-gaugers as gaugers, and paragraph G of section 402
of said act provides for the assignment by the Commissioner of
Internal Revenue of gaugers or storekeeper-gaugers in the capacity
of gaugers to bonded winery premises where wines are to be made or
fortified, with compensation not to exceed $5 per diem while so
assigned, together with actual and necessary traveling expenses, and
also a reasonable allowance for board bills , to be fixed by the Com
missioner of Internal Revenue, with the approval of the Secretary
of the Treasury, but not to exceed $2.50 per diem for said board bills.
Under the provisions of this act the following regulations are
promulgated :
A collector of internal revenue may assign such gaugers as may
be necessary for duty at bonded wineries where sweet wines are to
be fortified, with compensation to be fixed by fees under the rules
and regulations now prevailing. Where such fees are inadequate, or
board bills or traveling expenses are to be incurred , or amelioration
(the correction of natural defects in wine in wine cellars) is to be
practiced, the collector will submit in writing to this office his recom
mendations with respect to the special rate per diem, in lieu of fees,
193.
to be allowed each gauger, together with daily board bills not exceed
.
ing the limits fixed by law.
Where storekeeper-gaugers are to be assigned as gaugers for the
performance of duties at wineries under the provisions of this act,
the collector will recommend the assignment in the usual manner on
Form 241 , with compensation by fees, and if the compensation by
fees is deemed inadequate, the collector will at the same time recom
mend a special rate per diem, in lieu of fees, to each gauger, as well
as the daily rate for board bi'ls to be allowed.
The rate per diem ( in lieu of fees ) and daily board bills recom
mended by the collector will be only such as are commensurate with
the duties to be performed and the location to be visited , but it will
be understood that the same will not always be granted in the maxi
mum amount permitted by law. The collector will, therefore, in
recommending a special rate per diem ( in lieu of fees ) and daily
board bills state fully in advance the reason in each case why fees
are deemed inadequate and why such particular special rate and
board bills recommended by him are deemed just and proper.
In all cases, where a per diem rate of compensation and daily
board bills have been granted, a copy of the commissioner's letter
authorizing the same must accompany the gauger's voucher on
Form 150 , together with an itemized expense account on said form.
The traveling expenses will be those actually and necessarily in
curred in traveling by the most direct route and in the most expe
ditious manner from the residence of the officer to his place of duty,
or from one place of duty to another, or from his place of duty to
his residence by the ordinary means of transportation for the public.
Where a storekeeper-gauger or a gauger has been employed with
compensation by fees and it is subsequently found that such fees
are inadequate , the collector is at liberty to recommend the allowance
of a special rate per diem, not, however, in excess of $5 , in lieu of
fees in each instance, with a full explanation as to why the same is
deemed just and proper, and , if approved , a copy of the commis
sioner's letter granting the same must accompany the voucher on
Form 150 , on which must also be itemized all expenses incurred.
The same gauger or storekeeper-gauger assigned as gauger will
be expected to supervise the fortification of sweet wines or the
amelioration of wines at a number of wineries where the work to be
performed at each place is inconsiderable. A gauger will not,
therefore, be assigned constantly at such wineries where the services
to be performed daily are inconsiderable. Vintners should, there
fore, regulate, so far as practicable, their work of amelioration and
fortification to permit of the performance of all necessary duties at
a number of places by one gauger.
24433° -VOL 18-16-13
194
In each case where a special rate per diem (in lieu of fees ) , with
board bills, is recommended, the collector must furnish the date on
which the same is to become effective, as well as the final date of
service at such rate.
Salleron -Dujardin ebullioscopes must be furnished by proprietors
of bonded winery premises for the use of the Government gaugers,
and sweet-wine sets may be used by revenue agents, deputy collectors,
and others for verifying and testing the alcoholic content of wines,
as provided by regulations No. 28.
These regulations are applicable to officers to be assigned to winery
premises bonded under the act of September 8, 1916, and collectors
will recommend any necessary changes to comply with these regula
tions when the premises are duly bonded.
All regulations inconsistent herewith are accordingly repealed.
W. H. OSBORN ,
Approved : Commissioner of Internal Revenue.
WM. P. MALBurn ,
(T. D. 2381. )
Denatured alcohol.
Authorizing special denaturant for alcohol to be used in the manufacture of

phenacetin.
SIR: This office is in receipt of a letter from the -, manufac
turing chemists of your district, requesting the use of specially
denatured alcohol for use in the manufacture of phenacetin , and
submits the following formula , which has been approved : To 100
parts by volume of ethyl alcohol add 29 parts by volume of sul
phuric acid having a specific gravity of not less than 1.84 at 60 ° F.
It is understood that no part of the alcohol remains in the finished
product , which must meet the specifications of the United States
Pharmacopoeia , and that this formula is to be used in the complete
process for the manufacture of phenacetin and not merely for any
one stage, and that the process is to be closed and continuous.
Respectfully,
W. H. OSBORN,
COLLECTOR, FIRST DISTRICT , Brooklyn , N. Y.
1
195
(T. D. 2382. )
Income tax.
Providing certificate to disclose identity of ownership of stock where the stock

is registered in a name other than that of the actual owner.
Dividends on stock of domestic corporations or resident alien cor
porations are held to be income to the record owner of the stock, and
such record owner will be liable for income tax , normal or additional,
according to his or its individual or corporate status, unless a proper
certificate showing that actual ownership rests with another is filed.
When stock in a domestic or resident alien corporation whose net
income is subject to the normal income tax is issued in the name of
another than a nonresident alien corporation , the dividends on such
stock will not be subject to the withholding of normal tax under the
provisions of section 13 (f) of the act of September 8, 1916 , except
when the debtor corporation , or its withholding agent, has knowledge
that the actual owner of the stock is a nonresident alien corporation
subject to withholding.
When stock in a domestic or resident alien corporation is actually
owned by a nonresident alien individual or nonresident alien corpora
tion, and the stockholder of record is an individual, firm, or corpora
tion acting as agent for the actual owner , such agent by executing
and filing with the debtor corporation the certificate herein provided
may secure relief from accounting for the dividends on such stock
as his or its personal income, but where the agent is a citizen of, or
resident in , the United States, he or it will be required to make re
turn and pay tax for the nonresident alien individual owner when
the amount of dividends received is sufficient to call for the additional
tax provided by section 1 (b) of the act of September 8, 1916 , and in
all cases for the nonresident alien corporation for the purpose of the
normal tax .
The debtor corporation will be governed as to withholding by the
facts as to actual ownership disclosed by said certificates. All certifi
cates filed with debtor corporations for the purpose of disclosing
agency and the actual ownership of stock in domestic or resident cor
porations shall be forwarded by the debtor corporation , or its with
holding agent, to the collector of internal revenue for its district, on
or before the 20th day of the month next succeeding the month during
which said certificates were received.
196
The term " corporations " as used above covers corporations, joint
stock companies or associations, and insurance companies. The term
"nonresident alien corporations " covers all corporations, joint-stock
companies or associations, and insurance companies organized ,
authorized , or existing under the laws of a foreign country and having
no office or place of business in the United States ; the term " resident
alien corporations," such foreign organizations as have such an office
or place of business.
Said certificate shall be printed on buff- colored paper correspond
ing in weight and texture to white writing paper 21 by 32 , about
40 pounds to the ream of 500 sheets. The size of said certificate shall
be 8 by 3 inches, and shall be printed to read from left to right
along the 8-inch dimension.
Individuals or organizations desiring to print their own certificates
may do so, but certificates so printed must conform in size and be
printed in similar type and upon the same color, shade, and weight
of paper as used by the Government.
The certificate shall be in the following form :
Form OWNERSHIP CERTIFICATE - DISCLOSING ACTUAL OWNER OF
1087. STOCK.
(For use ofregistered owner-individual, firm, or organization , resident or nonresident alien—
to disclose actual ownership of stock, when registered owner is not the actual owner and
actual owner is a nonresident alien individual or a nonresident alien firm or organization. )
INTERNAL
REVENUE
DEPARTMENT
. NCOME
TREASURY
(Name of actual owner.) (Full post-office address of actual owner.)

TAX
-
I
(Name of issuing corporation.) (Address of issuing corporation. )

,
Number shares stock owned ..... Par value $ ...... Amount of

dividend
I (we) , the record owner of the above-described stock, hereby declare
that the actual owner of said stock is correctly named and listed above;
that said actual owner is a nonresident alien as to the United States; and
that all the information given herein is true and correct.
Date, " 19
(Signature of registered owner, or, if
organization, name.)
By
(If organization, signature of official
authorized to sign and official posi
tion.)
(Full post-office address of registered

owner. )
W. H. OSBORN,
Approved :
WM. P. MALBURN ,
197
(T. D. 2383. )
Regulations No. 38 relative to the special excise tax on corporations,

etc., under act of September 8, 1916.
CAPITAL-STOCK TAX LAW.
(Sections 407, 408, and 409, Title IV, act of September 8, 1916.)
SPECIAL TAXES.
SECTION 407. That on and after January first, nineteen hundred and seventeen,
special taxes shall be, and hereby are, imposed annually, as follows, that is to
say :
Every corporation, joint-stock company or association, now or hereafter
organized in the United States for profit and having a capital stock represented
by shares, and every insurance company, now or hereafter organized under
the laws of the United States, or any State or Territory of the United States,
shall pay annually a special excise tax with respect to the carrying on or doing
business by such corporation, joint-stock company or association , or insurance
company, equivalent to 50 cents for each $1,000 of the fair value of its capital
stock and in estimating the value of capital stock the surplus and undivided
profits shall be included : Provided, That in the case of insurance companies
such deposits and reserve funds as they are required by law or contract to main
tain or hold for the protection of or payment to or apportionment among policy
holders shall not be included. The amount of such annual tax shall in all cases
be computed on the basis of the fair average value of the capital stock for the
preceding year : Provided, That for the purpose of this tax an exemption of
$99,000 shall be allowed for the capital stock as defined in this paragraph of
each corporation, joint-stock company or association, or insurance company :
Provided further, That a corporation, joint-stock company or association, or
insurance company, actually paying the tax imposed by section three hundred
and one of Title III of this act shall be entitled to a credit as against the tax
imposed by this paragraph equal to the amount of the tax so actually paid :
And provided further, That this tax shall not be imposed upon any corporation,
joint-stock company or association, or insurance company not engaged in busi
ness during the preceding taxable year, or which is exempt under the provisions
of section eleven, Title I, of this act.
Every corporation, joint-stock company or association, or insurance company,
now or hereafter organized for profit under the laws of any foreign country and
engaged in business in the United States shall pay annually a special excise
tax with respect to the carrying on or doing business in the United States by
such corporation , joint-stock company or association, or insurance company,
equivalent to 50 cents for each $1,000 of the capital actually invested in the
transaction of its business in the United States : Provided, That in the case
of insurance companies such deposits or reserve funds as they are required by
law or contract to maintain or hold in the United States for the protection of
or payment to or apportionment among policyholders, shall not be included. The
amount of such annual tax shall in all cases be computed on the basis of the
average amount of capital so invested during the preceding year : Provided,
That for the purpose of this tax an exemption from the amount of capital so
198
invested shall be allowed equal to such proportion of $99,000 as the amount so

invested bears to the total amount invested in the transaction of business in
the United States of elsewhere : Provided further, That this exemption shall
be allowed only if such corporation , joint-stock company or association, or in
surance company makes return to the Commissioner of Internal Revenue, under
regulations prescribed by him, with the approval of the Secretary of the Treas
ury, of the amount of capital invested in the transaction of business outside the
United States : And provided further, That a corporation, joint-stock company
or association, or insurance company actually paying the tax imposed by sec
tion three hundred and one of Title III of this act, shall be entitled to a credit
as against the tax imposed by this paragraph equal to the amount of the tax so
actually paid : And provided further, That this tax shall not be imposed upon
any corporation, joint-stock company or association, or insurance company not
engaged in business during the preceding taxable year, or which is exempt under
the provisions of section eleven, Title I, of this act.
SEC. 408. ( Last paragraph. ) Every person who carries on any business or
occupation for which special taxes are imposed by this title, without having
paid the special tax therein provided , shall, besides being liable to the payment
of such special tax, be deemed guilty of a misdemeanor, and upon conviction
thereof shall pay a fine of not more than $500, or be imprisoned not more
than six months, or both, in the discretion of the court.
law relating to the assessment of taxes, so far as applicable, are hereby extended
to and made a part of this title, and every person, firm, company, corporation,
or association liable to any tax imposed by this title, shall keep such records
and render, under oath, such statements and returns, and shall comply with
such regulations as the Commissioner of Internal Revenue, with the approval of
the Secretary of the Treasury, may from time to time prescribe.
REGULATIONS.
Concerning the special excise tax imposed by section 407, Title IV, act of
September 8, 1916, on corporations, joint-stock companies or associations,
and insurance companies, organized for profit in the United States, and on
the capital invested in the United States of foreign companies and associa
tions transacting business in the United States.
RETURNS, COMPUTATION OF TAX, COLLECTIONS , AND PENALTIES.
Tax imposed.
ARTICLE 1. Section 407 imposes a special excise tax with respect to

the carrying on or doing business by corporations, joint- stock com
panies or associations, or insurance companies, as follows :
Corporations in the United States.
(a) Every corporation , joint-stock company or association, or in
surance company, now or hereafter organized in the United States
for profit and having a capital stock represented by shares, 50 cents
for each $1,000 of the fair value of the capital stock in excess of
$99,000, except as hereinafter indicated ; and
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Foreign corporations.
(b ) Every corporation , joint- stock company or association , or in
surance company, now or hereafter organized for profit under the
laws of any foreign country and engaged in business in the United
States, 50 cents for each $ 1,000 of the capital actually invested in the
transaction of its business in the United States. It is provided in
cases in which the foreign corporation makes a return of the total
amount of capital invested in the transaction of business, both abroad
and in this country, that such proportion of $ 99,000 as the amount
invested in the United States bears to the total amount invested in
the United States and elsewhere may be remitted in computing the
tax upon the capital invested in the United States.
Corporations exempt.
Corporations and associations exempt.

ART. 2. ( a ) The following corporations, joint -stock companies or
associations, or insurance companies, which are exempt from income
tax under the provisions of section 11 , Title I, are also specifically
exempt from the capital-stock tax under section 407, Title IV, of
this act :
First. Labor, agricultural, or horticultural organization ;

Second. Mutual savings bank not having a capital stock represented by shares ;
Third. Fraternal beneficiary society, order, or association, operating under
the lodge system or for the exclusive benefit of the members of a fraternity
itself operating under the lodge system, and providing for the payment of life,
sick, accident, or other benefits to the members of such society, order, or asso
ciation, or their dependents ;
Fourth. Domestic building and loan association and cooperative banks with
out capital stock organized and operated for mutual purposes and without profit ;
Fifth. Cemetery company owned and operated exclusively for the benefit of
its members ;
Sixth. Corporation or association organized and operated exclusively for reli
gious, charitable, scientific, or educational purposes, no part of the net income
of which inures to the benefit of any private stockholder or individual ;
Seventh. Business league, chamber of commerce, or board of trade, not
organized for profit and no part of the net income of which inures to the benefit
of any private stockholder or individual ;
Eighth. Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare ;
Ninth. Club organized and operated exclusively for pleasure, recreation, and
other nonprofitable purposes, no part of the net income of which inures to the
benefit of any private stockholder or member ;
Tenth. Farmers' or other mutual hail, cyclone, or fire insurance company,
mutual ditch or irrigation company, mutual or cooperative telephone company,
or like organization of a purely local character, the income of which consists
solely of assessments, dues, and fees collected from members for the sole purpose
of meeting its expenses ;
Eleventh. Farmers', fruit growers', or like association, organized and oper
ated as a sales agent for the purpose of marketing the products of its members
200
and turning back to them the proceeds of sales, less the necessary selling
expenses, on the basis of the quantity of produce furnished by them ;
Twelfth. Corporation or association organized for the exclusive purpose of
holding title to poperty, collecting income therefrom, and turning over the entire
amount thereof, less expenses, to an organization which itself is exempt from
the tax imposed by this title ; or
Thirteenth. Federal land banks and national farm-loan associations as pro
vided in section twenty-six of the act approved July seventeenth, nineteen hun
dred and sixteen, entitled " An act to provide capital for agricultural develop
ment, to create standard forms of investment based upon farm mortgage, to
equalize rates of interest upon farm loans, to furnish a market for United
States bonds, to create Government depositaries and financial agents for the
United States, and for other purposes."
Mutual companies exempt.
(b ) Inasmuch as the basis of tax is the fair value of the stock of a

corporation , mutual insurance companies and other associations not
having capital stock represented by shares will also be exempt from
tax, in the absence of a basis for the computation of the tax.
Returns.
Tax due in January and July, 1917, and annually in July thereafter.
ART. 3. ( a) Section 3237, Revised Statutes, as amended by section

53 of the act of October 1 , 1890 ( 26 Stats., 567 ) , provides " that all
special taxes shall become due on the 1st day of July, 1891 , and on
the 1st day of July in each year thereafter, or on commencing any
trade or business on which such tax is imposed . In the former case
the tax shall be reckoned for one year, and in the latter case it shall
be reckoned proportionately from the 1st day of the month in which
the liability to a special tax commenced to the 1st day of July follow
ing. ” The capital- stock tax , therefore, which becomes effective Janu
ary 1 , 1917 , will be payable in January , 1917, on returns to be made
during that month for the six months ending June 30, 1917. In July,
1917 , and annually in July thereafter, returns must again be made
and the tax paid for the ensuing fiscal year.
Returns required of every United States corporation having capital stock outstanding of
$75,000 or over.
(b ) Every corporation , joint- stock company or association, or in

surance company , organized in the United States for profit and hav
ing a capital stock issued and outstanding, represented by shares of
the market value of $ 75,000 or over, and not exempt as indicated in
article 2, shall make a return on Form 707 irrespective of the par
value of is capital stock, unless such corporation, joint- stock com
pany or association, or insurance company was not engaged in busi
ness during the preceding taxable year, which for the return due
January 1 , 1917, shall be the fiscal year July 1 , 1915, to June 30, 1916.
201
Return required of every foreign corporation.
(c) Every corporation , joint- stock company or association , or in

surance company, organized for profit under the laws of any foreign
country and engaged in business in the United States, shall make
return on Form 708 irrespective of the amount of capital employed
either at home or in this country in the transaction of its business .
Form of return for United States corporations.
Substance of return required from United States corporations.
ART. 4. The return required by article 3 of corporations, joint

stock companies or associations , or insurance companies, organized
in the United States, shall be made on Form 707, to be supplied by
this department, and shall set forth the following particulars :
( 1 ) Total number of shares of stock now outstanding.
(2 ) Par value of shares.
( 3) Par value of total capital stock outstanding.
(4 ) Amount of surplus.
(5) Amount of undivided profits.
(6) Case I.- Average market value per share during preceding
fiscal year, if stock is listed on an exchange.
Case II.-If stock is not listed on an exchange, average market
value per share computed from sales made during preceding fiscal
year.
Case III.-If stock is not listed on any exchange and no sales have
been made during preceding fiscal year, or if sales have been made
and the price is unknown, the fair average value of the stock may be
estimated from the following data set forth on the return : Amount of
surplus , amount of undivided profits, nature of business, estimated
earning capacity, average dividends per share paid during preceding
five years, average profits per share earned during preceding five
years .
(7) Total number of shares of stock outstanding on last day of
fiscal year .
( 8) Fair value of total capital stock for preceding fiscal year..
(9) Deduction allowed by law of $ 99,000.
( 10) Amount of fair value of stock over $ 99,000 upon which tax
should be computed .
(11 ) Tax rate of 50 cents per year for each full $1,000 .
( 12 ) Amount of munitions tax, if any , paid under Title III of
this act since making the last previous return.
(13) Amount of tax due.
202
Form of return for foreign corporations.
Substance of return required of foreign corporations.
ART. 5. The return required by article 3 of foreign corporations,

joint-stock companies or association , or insurance companies, having
capital invested in the transaction of its business in the United States,
shall be made on Form 708 , to be supplied by this department, and
shall set forth the following particulars :
( 1 ) Amount of capital invested in the United States.
( 2 ) Amount of capital invested in foreign countries.
(3 ) Total amount of capital invested in the corporation, both in
the United States and elsewhere.
(4) Percentage of capital invested in the United States.
(5) Percentage of $99,000 allowed to be deducted under the law.
( 6 ) Amount of capital upon which tax should be computed .
(7) Tax at the rate of 50 cents per year for each full $ 1,000.
(8 ) Amount of munitions tax, if any, paid under Title III of
this act since making the last previous return.
(9) Amount of tax due.
Computation of tax.
United States corporations.
ART. 6. Sec. 1. Companies or associations organized in the United

States for profit.-The tax on companies or associations having a
capital stock represented by shares is imposed on the fair average
value for the preceding year and not the face or par value of the
capital stock. The fair value of the capital stock shall be ascer
tained as follows :
Stock listed on exchange.
(a) Case 1.- If the stock is listed on any exchange its fair value
will be determined by adding the quoted highest bid price for the
stock on the last business day of each month during the preceding
fiscal year ( or if no bid price was quoted on the last day when the
latest day in the month on which a bid was quoted ) , and dividing
by 12 , the result being the average bid price per share for that year.
Stock not listed but of which sales have been made.
(b ) Case II .— If the stock is not listed on any exchange , but sales

thereof have been actually made, and the price paid for the stock is
known to the officer making the return, or can be discovered by him ,
the average price at which sales were made during the preceding fiscal
year shall be the determining factor in ascertaining the fair value
per share.
203
(In the foregoing two cases the actual fair value of the stock is
ascertainable from the facts without the necessity of making an
estimate. )
Cases in which fair average value of stock shall be estimated.
(c) Case III.- If Case I and Case II can not be applied , viz , the
stock is not listed on any exchange, and no actual sales have been
made during the preceding fiscal year, or if the price at which sales
have been made is not known to the officer making the return the
fair average value of the capital stock shall be estimated , and the
surplus and undivided profits for the preceding fiscal year will be
taken into consideration as required by the statute, as well as the
nature of the business, its earning capacity , and average dividends
paid , or profits earned during the preceding five years .
Fair value of total capital stock outstanding.
(d) The fair value per share ascertained or estimated as above
multiplied by the number of shares outstanding will give the fair
value of the stock for taxation purposes .
Deduction of $99,000.
(e ) From this total will be deducted the sum of $ 99,000, the

exemption allowed by law, and the tax will be laid upon the balance
at the rate of 50 cents for each full $ 1,000 of the remainder.
Tax due January, 1917.
(f) Upon the returns to be made during January, 1917 , for the
six months ending June 30, 1917 , the tax due will be 25 cents per
$1,000 of such remainder.
Deduction of munitions tax.
(g) From the tax due as so determined will be deducted the

amount of munitions tax, if any, actually paid since making the last
previous return. As the special excise tax on capital stock is due in
January, 1917 , and the munitions tax will not be determined and
assessed until March or April, no deductions for munitions tax will
be allowed on the January, 1917, return. Deductions, however, will
be allowed on the July, 1917, return for munitions taxes actually paid
prior to that date.
SEC. 2. Corporations , joint- stock companies or associations, or in
surance companies, organized for profit under the laws of any for
eign country and engaged in business in the United States.
Foreign corporations.
(a) The tax imposed on such companies or associations shall be
computed upon the actual capital invested in the transaction of its
business in the United States. The basis of taxation is the average
amount of capital so invested during the preceding fiscal year.
204
Deduction of proportion of $99,000 only allowed if corporation makes return of total

capital invested.
(b) The exemption from the amount of capital invested in the

United States equal to the proportion of $99,000 as the amount so
invested bears to the total amount invested in the transaction of
business in the United States or elsewhere shall only be allowed a
company or association which makes return to the Commissioner of
Internal Revenue, under these regulations, of the amount of capital
invested in the transaction of business outside of the United States.
Thus a foreign company or association investing part of its capital
in the transaction of business in the United States shall be liable for
tax in the amount of 50 cents for each $ 1,000 of the actual capital
invested in the United States, without deduction of the said pro
portion of $99,000, unless it discloses in its return the amount of
capital invested in the transaction of business outside of the United
States.
Corporations not in business during preceding taxable year.
SEC. 3. Corporations not engaged in business during preceding tax
able year. This tax shall not be imposed upon any corporation,
joint-stock company or association , or insurance company not en
gaged in business during the preceding taxable year , or in the case
of the taxable period ending June 30, 1917 , not so engaged during
the year July 1 , 1915 , to June 30, 1916. The tax shall be computed
upon each full value of $ 1,000 and not on any fractional part thereof.
Collection of tax.
Special list, Form 23c.
ART. 7. On account of the impracticability of issuing stamps in

the various amounts, this tax will be collected by assessment on a
special list for the months of January and July , 1917 , and annually
thereafter in July. Any delinquent returns made in February or
other months, or any assessments for delinquency in taxes, may be
listed on the regular list Form 23, and collected in the usual way.
Returns retained by collector.
(a ) Returns listed on special lists will be retained in the office of
the collector as the special list will be prepared so as to give the
essential data shown by the return.
Returns forwarded to commissioner.
(b ) Returns listed on regular lists will be forwarded to this office

with the list for audit.
Penalty of 5 per cent.
(c) Upon failure to pay the tax assessed within 10 days after
notice and demand , a penalty of 5 per cent of the tax unpaid and
interest at the rate of 1 per cent per month until paid shall be added
to the amount of such tax.
205
Penalties.
Administrative and assessment laws applicable to this law.

ART. 8. (a ) Under section 409 it is provided that " all adminis
trative or special provisions of law, including the law relating to
the assessment of taxes so far as applicable, are hereby extended to
and made a part of Title IV , and every person , firm, company , cor
poration, or association liable to any tax imposed by this title shall
keep such records and render under oath such statements and returns
as shall comply with such regulations as the Commissioner of In
ternal Revenue , with the approval of the Secretary of the Treasury,
may from time to time prescribe."
Penalties for failure to make return.

(b ) Any company or association , therefore, subject to special tax
under section 407 of this act, which fails to make returns during the
months of January, 1917, and July, 1917 , and annually in July
thereafter, will be liable to the penalties imposed by section 3176,
Revised Statutes, as amended by section 16 , act of September 8 , 1916,
which reads as follows :
Collector may make the return.

If any person, corporation, company, or association fails to make and file a
return or list at the time prescribed by law, or makes, willfully or otherwise, a
false or fraudulent return or list, the collector or deputy collector shall make
the return or list from his own knowledge and from such information as he
can obtain through testimony or otherwise. Any return or list so made and
subscribed by a collector or deputy collector shall be prima facie good and suffi
cient for all legal purposes.
Extension of 30 days.
If the failure to file a return or list is due to sickness or absence the collector
may allow such further time, not exceeding thirty days, for making and filing
the return or list as he deems proper.
Fifty per cent penalty.

The Commissioner of Internal Revenue shall assess all taxes, other than
stamp taxes, as to which returns or lists are so made by a collector or deputy
collector. In case of any failure to make and file a return or list within the
time prescribed by law or by the collector, the Commissioner of Internal Reve
nue shall add to the tax fifty per centum of its amount except that, when a
return is voluntarily and without notice from the collector filed after such time
and it is shown that the failure to file it was due to a reasonable cause and not
to willful neglect, no such addition shall be made to the tax. In case a false or
fraudulent return or list is willfully made, the Commissioner of Internal Reve
nue shall add to the tax one hundred per centum of its amount.
The amount so added to any tax shall be collected at the same time and in
the same manner and as part of the tax unless the tax has been paid before the
discovery of the neglect, falsity, or fraud, in which case the amount so added
shall be collected in the same manner as the tax.
206
(c) In addition to the penalties imposed by section 3176, Revised

Statutes, section 408 provides as follows :
Specific penalty.
Every person who carries on any business or occupation for which special
taxes are imposed by this title, without having paid the special tax therein
provided, shall, besides being liable to the payment of such special tax, be
deemed guilty of a misdemeaor, and upon conviction thereof shall pay a fine
of not more than $500, or be imprisoned not more than six months, or both, in
the discretion of the court.
W. H. OSBORN,
Approved :
WM. P. MALBurn,
(T. D. 2384. )
Regulations No. 39, concerning the tax imposed by Title III of an

act approved September 8, 1916.
Washington D. C., October 24, 1916.
ARTICLE 1. The term " person " when used in these regulations
shall be held to include such partnerships , corporations , or associa
tions as are engaged in the manufacture in the United States and
in the sale or disposition of the articles enumerated in section 301
of Title III of the act of September 8 , 1916 , or parts thereof, and
the term " taxable person " will include such partnerships, corpora
tions, or associations as receive any profit from the manufacture and
sale of such articles .
ART. 2. The tax imposed by this title is in addition to that imposed
by Title I , Parts I , II, and III , popularly known as the Federal
income-tax law, and is an amount equivalent to 12 per cent of the
entire net profits received or accrued to every person from the sale
or disposition of such of the following-named articles as are manu
factured in the United States by such person :
(a ) Gunpowder and other explosives, except blasting powder and
dynamite used for industrial purposes.
(b ) Cartridges, loaded and unloaded , caps or primers, exclusive
of those used for industrial purposes.
(c) Projectiles, shells , or torpedoes of any kind , including shrap
nel, loaded or unloaded , or fuses or complete rounds of ammunition .
( d) Firearms of any kind and appendages, including small arms,
cannon, machine guns, rifles, and bayonets.
207
(e ) Electric motor boats, submarine or submersible vessels or

boats.
(ƒ) Any part of any of the articles enumerated in ( b ) to ( e ) , in
clusive. ( See art. 13 for definition of parts. )
" Projectiles " as used in this title include any and all missiles to
be projected from a gun , cannon, mortar , or other firearm, and will
include bullets, balls, shot, or other missiles. Under the term
" shells " or " torpedoes " is comprehended any receptacle used to
inclose an explosive charge, or the receptacle and charge combined.
"Appendages" as used in paragraph ( d) will include those ad
juncts or accessories appended to firearms not a part of them but
which facilitate their use, such as straps, belts, scabbards, shields,
holsters, or other appurtenances common to such firearms.
Electric motor boats are those boats, regardless of size or char
acter of construction , which are propelled by electric power.
Submarine or submersible vessels include all craft, no matter how
propelled, manufactured for the purpose of being at will submerged
beneath the surface of the water.
ART. 3. The effective date of this title is January 1 , 1916 ; that is
to say, the tax is laid upon or measured by the net profits received by
or accrued to each taxable person for and during the entire calendar
year ended December 31 , 1916 , or so much thereof as during which
the person may have been engaged in the business of manufacturing
and disposing of such articles, and for each calendar year thereafter
until one year after the close of the present European war.
ART. 4. Every person subject to the tax imposed by this title shall
make a return of annual net profits for the year ended December 31 ,
1916, and for each calendar year. thereafter. ( See art . 5. )
ART. 5. The return contemplated by article 4 of these regulations
shall set forth the following items :
(1 ) Total amount of capital employed in the business or proper
ties used in the manufacture of munitions of war or parts thereof.
(2 ) Total amount of debts or loans the proceeds of which were
used in the business.
(3) Gross amount of income received or accrued from the sale
or disposition of munitions, or parts thereof, manufactured in the
United States.
(4) Cost of raw materials entering into the manufacture of muni
tions or parts of munitions.
(5 ) Total amount of expenses of operation and maintenance re
lating to the business or properties.
(6 ) Amount of interest paid within the year on debts or loans
the proceeds of which were used in the business.
(7) Taxes of all kinds paid within the year with respect to the
business or properties used in the manufacture of munitions or parts
thereof.
208
(8) Losses actually sustained and charged off within the taxable
year in connection with such business and not compensated for by
insurance or otherwise.
(9) Depreciation on property used in but not specially constructed
or installed for the business.
( 10) Amount apportioned to the year for amortization of the cost
of buildings and machinery specially constructed or installed for the
manufacture of munitions or parts thereof.
(11 ) Total amount of net profits upon which the tax is to be
computed.
" The business " as used in the foregoing items is held to mean the
business of manufacturing and selling or disposing of the munitions
or parts thereof enumerated in section 301 of Title III.
ART. 6. The return required in accordance with the last preceding
article will be made upon blank forms prescribed by the Commis
sioner of Internal Revenue and approved by the Secretary of the
Treasury. These blank forms may be had of the collectors of in
ternal revenue of the districts in which the taxable persons have their
principal places of business.
Failure to procure or receive a blank form for use in making the
return will not relieve the taxable person from liability to the penalty
imposed by the title if he fails to make a return within the prescribed
time.
The return, when prepared, shall be sworn to before an officer
qualified to administer an oath, by the owner of the business , if
owned by an individual, by two members of the firm , if owned by a
partnership , or by two principal officers of the company, if owned
by a corporation or association.
ART. 7. When prepared and executed as hereinbefore indicated the
return will be filed with the collector of internal revenue of the dis
trict in which such person has his principal place of business on or
before March 1 next following the calendar year for which the return
is made.
The collector will forthwith transmit the return to the Commis
sioner of Internal Revenue, who, as soon as practicable thereafter,
will assess the tax found due and notify the taxable person of the
amount so assessed, and such person shall pay the tax to the col
lector with whom the return was filed on or before the expiration of
30 days from the date of such notice. Failing in this, the taxable
person will be liable to a penalty equivalent to 5 per cent of the
amount of the tax assessed.
ART. 8. All administrative , special, and general provisions of law
relating to the assessment or collection of taxes, not specifically re
pealed, are made to apply to this title in so far as applicable and
not inconsistent with its provisions.
209
Under these provisions a failure to file a return within the pre

scribed time subjects the person making the return to an additional
tax of 50 per cent, and also to a specific penalty not in excess of
$ 10,000 , or to imprisonment not in excess of one year, or both , in
the discretion of the court : Provided, That in case of sickness or
absence of the person or persons required to make or verify the
return , the collector may, upon application , grant an extension of
time not exceeding 30 days from March 1 , in which case, if the return
is filed on or before the last day of the extended period , the addi
tional tax will not be assessed and the penalty will not be asserted :
Provided further, That if the return is not made within the pre
scribed time, but is voluntarily and without notice from the col
lector filed after such time , and it is shown that the failure to file
it within the time was due to a reasonable cause and not to willful
neglect , the 50 per cent addition will not be made to the tax.
ART. 9. In cases wherein the Secretary of the Treasury or the
Commissioner of Internal Revenue has reason to be dissatisfied with
the return as made , or in cases wherein no return is made, the com
missioner is authorized to make an investigation and personally or
by an agent to examine the books and records of the person and to
determine the amount of tax due and to assess the tax accordingly.
In such case the commissioner shall notify the taxable person of the
result of his finding and the tax shall be collected in the same
manner as herein provided, unless such person, so notified, files with
the commissioner within 30 days from the date of such notice, a
written request for a hearing, in which event, the burden of proof
that the amount of taxable income determined by the commissioner
was not correct will devolve upon the person against whom the tax
was assessed.
ART. 10. The gross income contemplated by this title and to be re
ported in the return for the purpose of this tax is the gross amount
received by or accrued to a taxable person during the year from the
sale or disposition of articles named in section 301 , which are manu
factured within the United States, profits received and accrued from
the manufacture and sale of blasting powder and dynamite , and
from the manufacture and sale of cartridges, loaded and unloaded ,
caps and primers used for industrial purposes being excepted , and
income received during the year 1916 from the sale and delivery of
munitions under contracts executed and fully performed prior to
January 1 , 1916 , being also excepted from liability to this tax.
The income received or accrued from the latter source being exempt
from the tax, any expenses incident to the manufacture of such
articles and the creation of such incomes will not be deductible from
the gross income contemplated by this article.
24433°-VOL 18-16-14
210
Income from contracts executed and fully performed prior to

January 1 , 1916 , relates to any deferred payments on such fully
performed contracts, which payments, pursuant to contract or other
wise, may not have been received until subsequent to January 1 , 1916 .
The profits represented by such payments having been earned prior
to the effective date of this title, are not subject to this tax although
received subsequent to that date.
If, however, the contracts were not " fully performed " prior to
January 1 , 1916 , any profits resulting from that part of the contracts
performed subsequent to January 1 , 1916, must be returned for the
purpose of this tax.
"Gross income " as used in this and other articles of these regula
tions is held to mean gross receipts from the sale or disposition of
the munitions or parts thereof enumerated in section 301 , Title III ,
of the act of September 8 , 1916 .
ART. 11. The tax may be assessed against the person who may at
the time own or carry on the business or who may act as agent for
such person, and in case the business ceases during any calendar year ,
the tax may be assessed against the person who owned or carried
on the business at the time it ceased, or against his agent, if he had
an agent, carrying on the business. In either case the person against
whom the tax is assessed will be held liable for its payment, and to
any penalties that may attach by reason of his failure to comply with
the requirements of the title.
ART. 12. The amount taxable or by which the tax is measured is
the net profits received or accrued from the sale or disposition of any
munitions enumerated in section 301 , manufactured in the United
States, or from the sale or disposition of any parts of the articles
mentioned in articles ( b ) to ( e ) , inclusive, of said section . The only
net profits exempt from the tax are those received or accrued to the
manufacturer from the sale or disposition of blasting powder and
dynamite ; cartridges, loaded and unloaded ; caps and primers used
for industrial purposes. The fact that any of the articles named in
section 301 are manufactured and sold or disposed of in the general
trade, to be used for sporting purposes, or for any purposes other
than industrial , will not exempt from liability to the tax the net
profits received or accrued from the sale or disposition of such
articles.
APT. 13. " Any part thereof," as used in section 301 of this title,
is any article relatively complete within itself and designed or manu
factured for the special purpose of being used as a component part
of a completed munition, and which, by reason of some peculiar
characteristic, loses its identity as a commercial commodity, and
which, without further treatment , can not be used for any purpose
other than that for which it was designed.
211
A stock or commercial commodity purchasable in the general

trade or open market, if adapted to use in the manufacture of a
munition , is not a " part " within the meaning of this section , and
will be treated as raw material , provided that articles which ordi
narily would be classed as commercial commodities become " parts "
within the meaning of this title when they are manufactured specially
for and sold to a manufacturer to be by him incorporated in and
made an essential part of any munitions enumerated in section 301
of this title.
ART. 14. The articles enumerated in ( a ) and ( b ) of section 301 as
being exempt from the requirements of this title by reason of the fact
that they are " used for industrial purposes " include only those
articles so enumerated which are used in connection with or in the
promotion and operation of some industry.
The net profits received or accrued on any articles named in these
paragraphs which are manufactured and sold or disposed of for any
purpose other than for use in connection with or in the promotion
or operation of some industry will be subject to the tax.
ART. 15. As used in section 302 of this title, and as applied to the
manufacture of any part thereof ( referring to the articles enumer
ated in paragraphs ( b ) to ( e ) , inclusive , of sec. 301 ) , raw materials
are held to be any crude or elemental products or substances neces
sary to the manufacture of such parts, and which , without the appli
cation of skill or science, can not become component parts or ele
ments in the finished article cr unit.
As applied to the manufacture of completed munitions, raw mate
rials will include not only such crude products and elemental sub
stances, but all essential finished or unfinished parts as well. The cost
of raw materials authorized as a deduction will not include any
expenditures made for raw materials used in the manufacture of
articles other than munitions, or parts thereof, in cases wherein the
manufacture of such munitions or parts is carried on in connection
with any other business. In other words, the only deduction to be
made from the gross income contemplated by this title on account of
the cost of raw materials is the cost of such materials as are ac
tually used in the manufacture of the articles, the profit on the sale
or disposition of which is subject to the tax imposed by this title.
ART. 16. Running or general expenses as contemplated by section
302 constitute an allowable deduction from the gross amount of
income received or accrued from the manufacture in the United
States, and the sale or disposition of munitions or parts thereof,
to the extent that such expenses are incurred and paid during the
year in the manufacture of articles the profits from the sale of which
are included in the gross amount of income returned .
212
Such expenses will include expenditures for rent, repairs and

maintenance, heat, light, power , insurance, management, salaries ,
and wages. In cases wherein other business is carried on in con
nection with the manufacture and sale or disposition of munitions
or parts thereof, and the running expenses of the person making
the return cover those incurred in the operation of the entire busi
ness and can not be segregated from those incurred in connection
with other business, the expenses deductible for the purpose of this
tax are such a portion of the entire expenses as the gross income
received or accrued from the manufacture and sale or disposition
of war munitions or parts thereof, is a portion of the entire gross
income received or accrued from such entire manufacturing business.
The cost of new buildings , new machinery or equipment, should
be charged to capital account, to be taken care of through the depre
ciation or amortization account.
ART. 17. The amount deductible from the gross income received
or accrued from the manufacture and sale or disposition of munitions
or parts thereof, on account of interest, is the amount of interest
actually paid within the year on debts or loans contracted to meet
the needs of the business of manufacturing such articles, and the
proceeds of which were actually used to meet such needs. This de
duction must not include any interest paid on debts or loans the
proceeds of which were used to meet the needs of any other business
in which the manufacturer may be engaged . This deduction can be
taken only from the gross income of the year in which the interest
was actually paid.
ART. 18. The taxes deductible under this title are those taxes of
all kinds which were actually paid during the year in which the
gross income was received or accrued and which were imposed with
respect to the business or property relating to or used in the manu
facture of articles, the profit from which is returned for the purpose
of the tax imposed by this title.
If the taxes paid by a manufacturer of munitions or parts thereof
are not segregated from those paid with respect to other business
or property, they will be apportioned in accordance with the rule
hereinbefore set out for apportioning running expenses, and the
amount deductible from the gross income received or accrued from
the manufacture and sale of munitions or parts will be the amount
thus apportioned and made applicable as a proper charge against the
income from the manufacture of munitions or parts thereof.
ART. 19. The amount to be deducted from gross income on account
of losses is the amount of losses actually sustained and charged
off during the year for which the return is made, and which were
sustained on account of, or in connection with , the business of the
213
manufacture and sale or disposition of munitions or parts thereof,

and will include loses from fire, flood, storm, accident, or other casu
alties not compensated for by insurance or otherwise, the casualty
losses referred to being only those which relate to this business.
Losses sustained in connection with collateral investments or in
connection with any other business, the profits from which are not
taxable under this title, can not be deducted from the gross income
contemplated by this title.
ART. 20. The deduction authorized on account of depreciation re
lates to the loss due to use, wear, and tear of physical property
owned and used by the manufacturer, but which is not specifically
designed or installed for the purpose of manufacturing munitions
or parts thereof, and which, without material alteration and change,
may be used in connection with any other business in which the per
son is or may be hereafter engaged.
The annual deduction on this account will be a reasonable allow
ance determined upon the basis of the cost and probable number of
years constituting the life of the property.
If the same building and machinery or other equipment are used
coincidently for purposes other than the manufacture of muni
tions or parts thereof, then the amount deductible from the gross
income returned for the purpose of this title on account of depre
ciation will be apportioned in accordance with the rule hereinbefore
set out for apportioning running expenses, and the deduction from
the gross income contemplated by this title will be made accordingly.
ART. 21. Section 302 of this title authorizes a deduction to meet
the conditions peculiar to each concern and has for its purpose the
amortization of the values of buildings and machinery constituting
special plants, which will, except for salvage, have no substantial
value to the manufacturer when the contracts executed or to be
executed for the manufacture of munitions or parts thereof have
been fully performed.
The deduction authorized on this account relates to property
(buildings, machinery, and equipment ) specially constructed or in
stalled for use in the manufacture of munitions or parts thereof, and
which, when no longer useful for this purpose, can not , without ma
terial alteration or change, if at all, be used for any other purpose,
the life of which property is substantially coincident with the life
of the contracts.
The annual allowance to be deducted on this account will be
determined by estimating the probable number of years the property
will be used in the manufacture of munitions or parts and by di
viding the cost of such property, less estimated salvage, by such
probable number of years. The quotient thus obtained will measure
214
the amount to be deducted each year on account of amortization ,

until the cost of the property has been extinguished . Or the cost
of the property may be amortized on the basis of the quantiy of
munitions or parts thereof manufactured under contracts in connec
tion with the fulfillment of hich the buildings and machinery or
equipment were specially constructed or installed.
Neither the depreciation nor the amortization deduction allowable
in the return made for the purpose of this title will relate to prop
erty used in connection with any other business carried on by the
manufacturer. Amortization applies only and particularly to those
special plants and equipment whose life and value , except salvage,
will terminate with the end of the business for which they were
erected and equipped . It is to be differentiated from depreciation
in that depreciation relates to property whose life and value is not
dependent upon or materially affected by its use in the manufacture
of munitions or parts thereof.
ART. 22. Section 304 of this title authorizes the Commissioner of
Internal Revenue, with the approval of the Secretary of the Treas
ury, to prescribe a form for the use of manufacturers of munitions
or parts thereof in making returns of annual income received or
accrued from this source. Such form has been prescribed , and in
addition to a statement of gross income and allowable deductions
therefrom it calls for certain additional information , which addi
tional information is essential to a correct and completed return.
Every person engaged in the manufacture of any of the articles set
out in section 301 will be required to make the return in accordance
with this prescribed form, setting forth not only the gross income
and the authorized allowances but such other particulars as the form
calls for.
ART. 23. Under section 310 of this title these regulations, having
been approved by the Secretary of the Treasury, have the force and
effect of law. Any person subject to this title who violates any of its
provisions or the regulations, or who knowingly makes false state
ments in the return required to be made , or refuses to give such infor
mation as may be called for in the return form or otherwise, is guilty
of a misdemeanor, and upon conviction shall , in addition to paying
any tax to which he is liable , be fined not more than $ 10,000 or im
prisoned not exceeding one year, or both, in the discretion of the
court.
W. H. OSBORN,
Approved :
WM. P. MALBurn,
215
(T. D. 2385. )
Estate tax- Taxable transfers.
Transfers of property made prior to September 8, 1916, or by instrument dated
prior thereto, but made in contemplation of death, are taxable where the
transferor died after September 8, 1916, leaving a total estate exceeding
the specific exemption , if any.
Mr.
SIR : Replying to the inquiry in your letter of the 10th instant,
you are informed that paragraph B of section 202 , Title II , of the
act of September 8 , 1916 , provides for the inclusion in the gross
estate of a decedent dying on or after September 9 , 1916 , of any
interest of which the decedent " has, at any time, made a transfer "
in contemplation of, or intended to take effect at or after, decedent's
death.
This language is so specific that it hardly would seem open to
question that Congress intended to include in the gross estate not
only such transfers, including gifts and sales not bona fide made by
instrument dated after September 8 , 1916, or where the actual
transfer took place after that date, but transfers of any kind made
in contemplation of death at any time whatsoever prior to September
8, 1916. It is believed also that there is no question of the power
of Congress to enact such revenue legislation . The test of the tax
liability is not in such cases the date of the instrument making the
transfer or the date of the actual transfer, but the date of the death
of the decedent.
Approved :
WM. P. MALBURN,
(T. D. 2386. )
Income tax.
Dutch Administration Offices as the registered , but not the actual, owners of
stock of domestic or other resident corporations in the United States to
disclose the identity of the actual owners of said stock for the purposes of
the withholding provisions of section 13 ( f ) , act of September 8, 1916.
Dutch Administration Offices being nonresident alien corporations
not engaged in business or trade in the United States, and not having
216
an office or place of business therein, and said Dutch Administration

Offices being the registered owners of stock of domestic or other
resident corporations in the United States, are prima facie liable for
the normal income tax on income derived from dividends upon the
capital stock or from the net earnings of the aforesaid domestic or
other resident corporations in the United States and to having the
tax deducted and withheld from such income under section 13 ( f) ,
act of September 8 , 1916.
It appearing that the Dutch Administration Offices, while the reg
istered owners of stock as aforesaid , are not the actual owners thereof,
but that they have issued their bearer certificates, with coupons at
tached, against said stock , and that the dividends on said stock are
collected for the account of the holders of said bearer certificates and
that the relation sustained by said Dutch Administration Offices to the
said bearer certificate holders is that of agent, for the purposes of
administration the Dutch Administration offices may appoint an
agent in the United States and give notice of that fact by filing in
duplicate with each corporation issuing the stock so held by said
Dutch Administration Offices, a notice in substantially the following
form :
You are hereby advised that

(Name and address of Dutch Administration Office )
the registered owner of stock in " has appointed
(Issuing corporation )
whose address is
(Name of agent)
as its agent in the United States.
Upon receipt of notice as aforesaid , debtor or issuing corporations

in the United States may pay over to said Dutch Administration
Offices or their agent in the United States all dividends, without
withholding any tax, and shall forward to the Commissioner of
Internal Revenue one copy of the said notice of the appointment of
the agent in the United States.
It will be necessary to file this notice but once, unless there shall
be a change of agent, when a similar notification should be given.
When it shall appear that the Dutch Administration Offices have
an agent in the United States and when, because of that showing,
dividends of domestic or other resident corporations in the United
States shall have been paid to them without withholding of tax, said
Dutch Administration Offices, through their agent in the United
States, will be required to make returns of income and pay tax on
all dividends received except such as shall be shown to have been
received by them for the account of nonresident alien individuals.
This showing shall be made by way of certificate No. 1087 , prescribed
by T. D. 2382 , and all such certificates shall be attached to the return
when filed. The form of return for reporting tax withheld from
217
dividends will be prescribed by the Commissioner of Internal

Revenue.
Where the normal tax has heretofore been withheld from Dutch
Administration Offices which, under the foregoing, would not have
been withheld if they had had an agent in the United States, they
may, through an agent to be appointed by them in the United States,
file with the Commissioner of Internal Revenue at Washington , a
statement in which shall be set out
(a ) The name and address of the Dutch Administration Office
which is the registered owner of stock of domestic corporation , and
the fact that it is the registered but is not the actual owner of such
stock.
(b) The name and address of each corporation in which stock is
so held ; the amount of dividend paid by each corporation ; the
amount of tax withheld by each corporation.
(c ) The names and addresses of the actual owners of the stock ;
the amount of stock owned by each ; amount of dividend payable to
each. The showing called for in this paragraph (c ) shall be made
by attaching to the statement certificaes, Form 107, prescribed by
T. D. 2382.
When it shall appear by such statement and showing that tax has
been withheld in excess of liability of the Dutch Administration Of
fices for tax, this office will give the necessary instructions to the
withholding agent to release and pay over the amount of tax with
held in excess .
W. H. OSBORN,
Approved :
WM. P. MALBURN ,
(T. D. 2387. )
Wines, liqueurs, cordials , etc., subject to internal-revenue tax.

Synopsis of decisions.
The following synopsis of decisions, supplemental to published
regulations relating to domestic and imported wines, liqueurs, cor
dials , and similar compounds, taxable under the act of September 8,
1916, is published for the information of internal-revenue officers and
others concerned.
(1 ) Bonded premises can be established by wine makers and whole
sale dealers only.
218
(2) The storage on bonded premises of distilled spirits or wines

on which tax has been paid is not permissible.
(3 ) So much of the premises used for the storage or treatment of
untax-paid wines must be bonded.
(4 ) Premises of storage companies can not be bonded . Untax
paid wines can not, therefore, be received on such premises.
(5 ) Cordials are taxable under the act of September 8, 1916 , only
when containing wine fortified under that act. The mixing of wine
not so fortified with distilled spirits in the manufacture of cordials
comes within the prohibition of paragraph ( f ) of section 402 of
said act.
(6 ) Tax-paid wine fortified under the act, if so treated as to bring it
within the class of cordials, is subject to tax as a cordial.
(7) Dry wines, when sweetened , may be fortified only by the " pro
ducer " and " on the premises where actually made." ( Par. ( c ) , sec.
402. ) Tax-paid grain or other ethyl alcohol may, however, be used
in fortifying any sweet wines. ( Par. ( f ) , sec. 402. )
( 8 ) Cordials , etc. , held by wholesale dealers when the act of Sep
tember 8 , 1916 , took effect, and those subsequently received (unless
containing sweet wine fortified under that act ) are not subject to tax.
( 9) Wines fortified under the act of September 8, 1916 , if con
taining added sugar and aromatic substances , under whatever name
sold, will be subject to tax as cordials.
(10) Cocktails prepared on premises where they are to be consumed
and not exposed for sale need not be labeled or stamped .
( 11 ) Liqueurs, cordials, and similar compounds subject to tax
must be manufactured on bonded premises, but all wines or spirits
used for such purpose must be first tax paid.
( 12 ) Cordials, including cocktails, are subject to tax only when
containing wine fortified under present law. Vermuth, while taxed
under the act of October 22 , 1914, as a cordial, is now subject to tax
as a wine.
( 13 ) Rectifiers manufacturing vermuth, or taxable compounds,
will be required to bond their premises and to keep all such taxable
articles separate and apart from nontaxable articles.
( 14 ) Any domestic wines may be used in the manufacture of
liqueurs, cordials, and similar compounds and in the manufacture
of medicinal preparations, provided no distilled spirits are added.
The prohibition against the mixing of distilled spirits with wines is
held not to apply to the limited use of alcohol in the making of fluid
extracts from herbs which may be used in the manufacture of cor
dials. The quantity or percentage of alcohol permitted in the prepa
ration of such extracts for the manufacture of cordials must in all
cases conform to the United States Pharmacopoeia.
( 15 ) Retail dealers, being exempt from giving bond, can not
receive on their premises untax- paid wines.
219
( 16 ) Wholesale dealers who do not bond their premises , and who

have untax-paid wines in their possession , must make monthly re
turns under oath as to the sale of all such wines.
(17) Wholesale dealers who have shipped untax-paid wines sub
sequent to September 9, 1916, should make returns thereof and affix
to such returns the necessary tax-paid stamps.
( 18 ) Wholesale dealers carrying unstamped wines must keep the
same separate and apart from tax- paid wines. Separate buildings
or rooms, however, will not be required for this purpose.
(19 ) Wholesale dealers transferring wines to themselves as retail
dealers should so enter such wines on their wholesale records. Wines
furnished as samples or given away by dealers are nevertheless sub
ject to tax .
(20) Where all wines held by wholesale dealers have been duly
tax paid, monthly statements will not thereafter be required of such
dealers.
(21 ) Wholesale dealers declining to furnish inventories of wines
on hand September 8, 1916 , or to render the required monthly state
ments as to the disposition of such wines, to be reported to the United
States district attorney for prosecution under paragraph ( f) , sec
tion 402 of the act.
(22 ) Wholesale dealers are not required to bond their premises , but
unless bonded all wines received thereon must be first tax paid.
(23 ) Rectifiers and pharmaceutical manufacturers are not entitled
under the law to receive on their premises untax-paid wine or spirits.
(24 ) All wines used by manufacturing chemists or apothecaries in
preparations made by them, and all compounds and preparations
sold by them as wines, however specially designated , are subject to
tax as wine.
(25) All premises where wines are produced for sale, or where the
quantity produced for family use exceeds 200 gallons per year, must
be bonded. Wine makers refusing to bond such premises or to com
ply with the law and regulations to be reported to the United States
district attorney for prosecution.
(26 ) The exemption of 200 gallons free of tax for family use (par.
(b) , sec. 402 ) applies only to wines made on the premises of the
producer for the exclusive use of his own family and not to wines
produced at a winery owned and operated by several heads of fami
lies jointly.
(27) The use of filtering apparatus will be permitted for filtering
wines, but if otherwise used on the premises of dealers such dealers
will thereby incur special tax as rectifiers.
(28 ) Unstamped wines in the hands of wholesale dealers or re
ceived by retail dealers on and after September 9 , 1916, are subject
to the tax imposed by the act of September 8, 1916.
220
Wines and cordials in the hands of retail dealers September 8,

1916, having been removed for consumption prior to that date are
subject to tax under the act of October 22 , 1914.
(29 ) Wines received by dealers which, by subsequent fermentation,
are converted into sparkling wines, are subject to tax as sparkling
wines and should be so accounted for by such dealers .
(30) Tax on unstamped wines removed from or to premises not
bonded should be reported for assessment against the shipper of such
wines.
(31 ) Wines and cordials in hands of wholesale dealers September
8, 1916 , not having been removed for sale directly to consumers , are
held to be not subject to tax under the act of October 22, 1914.
Wines and cordials so held by retail dealers are subject to tax under
that act.
(32 ) Transfers of wines by wholesale dealers from stamped to
unstamped packages should be reported by such dealers in their
monthly statements.
(33 ) Tax on fortified wines should be computed and paid on the
alcoholic strength of such wines after fortification.
( 34 ) Untax- paid wines can be lawfully shipped only from and to
bonded premises.
( 35 ) Unstamped wines may be blended on bonded premises, but
when removed must be stamped according to the alcoholic strength
of wine as blended.
(36 ) Wines in transit September 8 , 1916 , should be so inventoried
by both shipper and receiver, the tax in such cases to be assessed
against the shipper, but abated if paid by receiver.
(37 ) Wines hereafter removed from wholesale dealers' premises,
or from any bonded premises ( unless transferred to other bonded
premises ) must be first tax paid. Unstamped wines heretofore re
moved should be at once reported for assessment.
( 38 ) Artificial or imitation wines can not be fortified under the
provisions of paragraph ( c ) , section 402 , of the act of September 8,
1916 , and if containing distilled spirits can not be used in the manu
facture of cordials.
(39 ) Carbonated wines can be produced only at the winery or
other bonded premises, and can not therefore be produced on the
premises of a retail dealer.
(40 ) The distinction between " carbonated " wine and sparkling
wine is that the former is artificially carbonated while the latter
is carbonated by natural fermentation .
(41 ) The artificially carbonating of still wines on which tax has
been paid is not permissible, as such carbonated wines are a distinct
product and must be produced on bonded premises.
(42 ) Where wines of different alcoholic strength are blended , the
tax will be computed and paid on the resultant product. This also
applies to wines previously tax paid, and any additional tax in such
221
cases must be paid by stamps to be affixed to the packages or cases

containing such blended wines.
(43 ) Wines returned to bonded premises in stamped packages , to be
clarified , may, when clarified , be replaced in such stamped packages,
which should be set apart for that particular purpose. If otherwise
recasked, the wines will be subject to tax as if originally produced .
(44 ) Wines received by other than bonded dealers may be with
drawn from stamped packages , to be clarified or placed in other con
tainers, but all such new containers should be labeled by the dealer
showing the wine was withdrawn from stamped packages.
(45 ) Wines are taxable according to their alcoholic strength
when placed on the market, but the blending on bonded premises of
wines of different alcoholic strength is permissible.
(46 ) In general, dry wines, such as claret and sauternes , come
within the 4 - cent tax rate, and sweet wines, such as sherry, port, and
madeira, come within the 10- cent rate. Certain sweet wines, how
ever, will test over 21 per cent, and in such cases are subject to the
25-cent rate. Dealers should determine alcoholic strength from the
invoices received by them.
(47 ) So-called sherry material and grape juice containing one
half of 1 per cent or more of alcohol will be classed as wine and will
be subject to tax as such .
(48 ) Wines made from berries or fruit, whether pure or adulter
ated, are taxable as wine. Honey wine, unless so sweetened as to be
a cordial, is also subject to tax as wine.
(49 ) Imitation or artificial wines , although labeled as such , and
all compounds made in imitation of or sold as wine are taxable.
(50 ) Apple cider or other fruit juice , fermented naturally or
artificially, if sold as wine , is taxable as wine. Unfermented prune
juice, unless fortified with wine or spirits and sold as wine, or unless
mixed with fortified wine and sold as a cordial, is held to be not
subject to tax.
(51 ) It is permissible to crush grapes on unbonded premises, pro
vided the juice of the grapes is removed from the premises while
wholly unfermented . Persons receiving such grape juice, if allowing
the same to ferment, must qualify as wine makers.
(52 ) Wines to which sugar is added , so that their volume is mate
rially increased, are subject to an increase of tax, to be paid by the
dealer treating such wines. The use of sugar solution in excess of
35 per cent of the volume of the resultant product will not be per
mitted under section 401 of the act or the pure-food laws.
(53 ) Wines which have become so soured as to admit of their sale
or use only as vinegar may be removed or may be destroyed , free of
tax, in the presence of a deputy collector, who will certify to the fact
on the dealer's monthly statement. So-called wine vinegar, if con
taining 2 per cent or more of alcohol , will not be regarded as vinegar.
222
(54) Imported or domestic still wines on which tax has been paid,
but which when subsequently bottled become carbonated by secondary
fermentation, are subject to tax as sparkling wines. Where, how
ever, such change in the wine is not produced by the addition of
sugar for the purpose of starting secondary fermentation and is
merely incidental to bottling, the dealer in such case will not be re
garded as the producer.
To avoid double taxation, the additional tax found to be due may be
paid by affixing additional stamps to the bottles containing such wines ,
with a label showing the wines to have been bottled without treatment.
(55 ) Imported wines when removed from customhouse must be
tax paid by stamp.
( 56 ) No allowance can be made where a shortage is discovered on
imported wines after being tax paid . If, however, the shortage is
discovered before removal from customhouse, tax need be paid only
on the quantity removed .
"
(57) There is no provision in the act of September 8, 1916, for re
fund of tax paid on brandy used in fortifying wines upon redistilla
tion of such wines ; and since this act is amendatory of the act of
October 22, 1914, the refunding provision of the last- named act is
not applicable.
( 58 ) The use of condensed must before fermentation or before
fortification of wine is permissible ; and pending revision of regula
tions the fortification of wines may be continued under present regu
lations and present form of bond, if consent of signers to bond is
obtained.
(59 ) Bond securing payment of internal- revenue tax will not be
required for imported wines , as such wines will remain in the custody
of the customs officers until such tax is paid.
(60 ) As the tax on imported wines is payable on removal of the
wines from the customhouse, such wines can not be transferred to
bonded premises established under the wine act.
(61 ) Imported wines transferred in bond from the port of entry
to another port will be tax paid on removal from bond at the last
named port.
(62 ) Vermuth , in the hands of retail dealers September 8 , 1916 , is
held to be subject to tax under the act of October 22, 1914 , as a
cordial.
(63) Wines used in the manufacture of vermuth must be first tax
paid ; and the vermuth , as such , is subject also to the tax imposed by
the act of September 8, 1916 .
(64 ) Vermuth and debonnet are subject to tax as wine. So- called
cordials, if in fact wine, or if sold as wine, although containing
fermented fruit juices or distilled spirits, are taxable as wine.
(65 ) Vermuth made from tax- paid spirits , without the addition
of wine, is taxable as wine. The use of both wine and spirits is pro
-223
hibited in paragraph ( f) , section 402 , of the act, unless the wine has
been fortified under the act , in which case the product is taxable as a
cordial.
(66) Unfortified wines, if not mixed with distilled spirits, may
be used in the manufacture of vermuth , but such wines, as also the
vermuth so manufactured , are each subject to tax. Still wines forti
fied under the act of October 22 , 1914, may be used in the manu
facture of vermuth, subject to the conditions above named.
(67 ) Domestic wines may be exported to foreign countries, or
may be shipped to Porto Rico , the Philippine Islands , and to the
Panama Canal Zone free of tax. Like exemption, however, does
not apply to shipments to the island of Guam.
(68 ) Wines purchased for use of the United States, or for the
Panama Canal Commission , may be delivered free of tax. Applica
tions for the necessary withdrawal permit in such cases should be
made under section 3464, Revised Statutes.
(69) Stamps of the appropriate denominations should be securely
affixed to all casks or cases containing wine, and where the value
of any stamp exceeds 30 cents, the initials of the wine maker or
dealer and date of cancellation should be plainly marked thereon .
( 70) Wines may removed from stamped packages to show casks,
if on inspection of the premises by a deputy collector all wines are
found to be duly stamped .
(71 ) The wine stamps issued under the emergency revenue act of
October 22 , 1914, may be used for wines, cordials, etc. , taxable under
the act of September 8 , 1916. Such stamps may be affixed to the casks
or outer cases containing the taxable wines. Bottles of wine re
moved from stamped cases should , however, be labeled by the dealer
as containing wine removed from stamped packages or cases. Bot
tles removed from unstamped cases should be stamped.
W. H. OSBORN ,
(T. D. 2388. )
Income tax.
Adapting income-tax Form 1012 for use by debtor corporations in reporting

income tax withheld from dividends paid to nonresident alien corpora
tions, etc.
The duty of withholding income tax from dividends under section
13 (f) , act of September 8 , 1916 , rests upon domestic or other resi
224
dent corporations paying the dividends. When it shall be made to

appear, as provided in T. D. 2382 or otherwise , that the actual owner
of its stock is a nonresident alien corporation , etc. , it shall be the
duty of the debtor or issuing corporation in the United States to
withhold 1 per cent from September 9 to December 31 , 1916 , inclu
sive, and 2 per cent thereafter, as income tax, from the amount of
dividend it pays to each nonresident alien corporation, etc. , and shall
make return of such withholding on monthly returns provided for
the purpose .
Until such returns are printed and distributed , debtor or issuing
corporations will use income-tax Form 1012 and stamp across the
printed declaration at the top of the form, in large letters, " Monthly
return of income tax withheld from dividends paid to nonresident
alien corporations," etc. 蒋
The name and address of the withholding agent and of the debtor
corporation will be inserted in the blanks provided for that purpose.
As there is no exemption which may be claimed by nonresident alien
corporations in receipt of dividends from domestic or other corpora
tions resident in the United States, the column "Amount of exemp
tion claimed " and column "Amount of income on which withhold
ing agent is liable for tax " will be disregarded . The amount of
dividend payment in each case will be entered in the column "Amount
of income," and the amount withheld will be entered in the last
column.
Such return will be accepted by this office as a compliance with the
requirement for monthly return of income tax withheld from divi
dends paid to nonresident alien corporations pending the printing
and distribution of form specially provided for that purpose.
W. H. OSBORN ,
Approved :
WM. P. MALBURN ,
(T. D. 2389. )
Increase in price of Alexander's improved wantage rod-Method of

procuring and using the same.
Washington, D. C. , November 4 , 1916.
On account of increased cost of labor and materials, the contractor
for furnishing Alexander's improved wantage rod has found it nec
225
essary to increase the price to $2.85 each , which , until further notice,
will be the price of the rod to all persons in the Internal-Revenue
Service.
Applications for the rod by persons in the service must be ad
dressed to the Commissioner of Internal Revenue, and at the same
time the price stated above, in money order or draft, must be for
warded to the National Bank of Baltimore, at Baltimore, Md ., pay
able to the order of that bank. In no instance must the remittance
be sent to this office or be made payable to the commissioner.
The post-office address of the intending purchaser should be plainly
indicated in the application , as the rod will be forwarded by mail ,
except when otherwise requested ; in which case, it will be sent by
express at the expense of the applicant.
Persons not connected with the Internal - Revenue Service who de
sire to purchase the rod should correspond directly with the con
tractor, Samuel F. Culbertson , Baltimore , Md .
In using Alexander's improved wantage rod , the instructions in
the Gaugers' Manual should be observed.
Collectors will be furnished with copies hereof for distribution to
gauging officers in their respective districts, and will give the infor
mation herein contained as wide a publicity as possible , as any devia
tion from the above instructions may result in delay in filling orders.
G. E. FLETCHER,
(T. D. 2390.)
Annual inventories.
Inventories to be made by cigar and tobacco manufacturers on January 1 next

and verified by collectors or their deputies.
TREASURY DEpartment ,
Washington, D. C., November 4, 1916.
Inventories on January 1 next by manufacturers of tobacco , snuff,
cigars, and cigarettes are required to be made in accordance with
the following provisions of law:
Section 3358, Revised Statutes.- Every person * * * engaged in the
manufacture of tobacco or snuff shall make and deliver to the collector of the
P district a true inventory in such form as may be prescribed by the Commis
sioner of Internal Revenue and verified by his own oath, of the quantity of
each of the different kinds of tobacco, snuff flour, snuff, stems, scraps, clip
pings, waste, tin-foil, licorice, sugar, gum, and other materials held or owned
by him on the 1st day of January of each year, * * setting forth what
24433 °-VOL 18-16-15
226
portions of said goods and materials and what kinds were manufactured and
produced by him and what were purchased from others. * * *
And whenever any such person refuses or willfully neglects to deliver the
inventory he shall be fined not less than five hundred dollars nor
more than five thousand dollars and be imprisoned not less than six months
nor more than three years.
Section 3390, Revised Statutes.- Every person * engaged in the
manufacture of cigars ( or cigarettes ) shall make and deliver to the collector
of the district a true inventory in such form as may be prescribed by the
Commissioner of Internal Revenue of the quantity of leaf tobacco, cigars,
stems, scraps, clippings, and waste, and of the number of cigar boxes and the
capacity of each box held or owned by him on the 1st day of January of each
year * * * setting forth what portion and kinds of said goods were manu
factured or produced by him and what were purchased from others, and shall
verify said inventory by his oath indorsed thereon. * In case of
refusal or willful neglect to deliver the inventory * * * he shall be fined
not less than five hundred dollars nor more than five thousand dollars and
imprisoned not less than six months nor more than three years.
These statutes also require that the collector ( or his deputy )
shall make personal examination of the stock sufficient to satisfy him
self as to the correctness of the inventory and shall verify the fact
of such examination by oath , to be indorsed on the inventory.
The making of true inventories is of the greatest importance. Too
much stress can not be laid upon the necessity for their accuracy. No
claim of failure to make a true inventory-in which certain tobacco
was not included -submitted in response to notice to show cause
against assessment for omitted tax on apparent deficiencies shown in
an examination of a manufacturer's account will be entertained .
In making the required inventory on January 1 next, manufac
turers should observe carefully the following instructions :
( 1 ) All tobacco material in the factory should be segregated ac
cording to the classifications provided in the inventory blank.
(2 ) Each class of tobacco should be weighed separately and all
unstemmed tobacco stored off the bonded factory premises, for which
permission has been granted by the commissioner, must be included in
the inventory . Each entry made in the inventory blank should be
compared with the entry made of same in the manufacturer's revenue
book , which should correspond.
(3 ) Tobacco dust, siftings, sweepings, and waste on hand shall
not be included in any class of tobacco except that in cigar manu
facturer's inventory Form 70b ; same may be reported only under the
head of " Waste."
(4) A list should be made of the weight and marks of each un
opened hogshead , case, or bale, or other package of tobacco , and all
broken packages or loose tobacco within the factory should be
included in such list , with a sufficient description of same for identifi
cation by the deputy, who will call to verify the inventory, and also
of all unstemmed tobacco stored off the bonded factory premises.
227
Such list should be made on the back of the inventory form or pre
served on separate sheets of the same size and attached thereto.
(5 ) An accurate record should be kept of the quantity of each class
of tobacco (in the condition in which inventoried ) used after the
inventory is taken to the date of the visit of the deputy calling to
verify the same.
Collectors will detail as many deputies as possible, and direct them
to so arrange their routes for the purpose of verifying the inventories
at the earliest practicable date after January 1 next, and they should
(a) see that each class of tobacco has been properly inventoried and
the foregoing instructions observed ; ( b ) determine, from the quanti
ties of each different kind of tobacco sold and used between the dates
of inventory and his visit and on hand and purchased , as to the
correctness of the inventory and require any necessary amendments
to be made by the manufacturer before the latter makes oath to same
before him and before inventory is taken up ; ( c) note carefully the
provisions of regulations No. 8, revised July 1 , 1910 , page 60 , headed
" Deficiencies found by examining officers," and report each such case
found by him immediately to the collector.
Collectors are hereby instructed to cause a copy of this decision ,
together with the proper inventory blank, to be delivered to each
manufacturer of tobacco, snuff, cigars, or cigarettes registered in their
respective districts, not later than the 15th day of December of this
year, to enable them to comply with the law in regard to inventory
on January 1 next.
G. E. FLETCHER,
(T. D. 2391.)
Imported still wines and sparkling and artificially carbonated wines

subject to tax.
In view of the many large consignments of imported wine and the
difficulty experienced in affixing to each cask or case an internal
revenue stamp before removal of the wine from the customhouse, the
stamping of such casks or cases will not hereafter be required , pro
vided the following instructions are carefully complied with :
(1) The importer or his agent, prior to the removal of the wines
from the customhouse, will obtain from the collector of internal
revenue of the district stamps sufficient to cover the entire quantity
of wine invoiced to him.
228
(2 ) The customs entry in such cases will be prepared in triplicate,

two copies of which will be filed with the collector of internal reve
nue, to one copy of which will be attached the required stamps un
canceled.
(3) Upon receipt of the entry , the collector will indorse upon one
copy a certificate under his official seal, setting forth that the required
revenue stamps covering the wine therein described have been pur
chased, and will then deliver such copy so certified to the importer
to be filed by him with the collector of customs.
(4) The stamps purchased , as above provided , will remain filed
with the duplicate entry, uncanceled until a report of the gauge
or inspection of the wine by a customs officer has been received show
ing the actual taxable quantity of wine covered by the entry.
"
(5 ) When the amount of tax has been determined from the re
port of inspection, a sufficient number of the retained stamps to
cover the tax due will then be permanently affixed to the duplicate
entry and duly canceled . In the event that more stamps have been
retained with the entry than required , the remaining unused stamps
will be returned to the importer. If on the other hand the retained
stamps are found to be insufficient to cover the tax due, additional
stamps should be at once purchased by the importer and likewise be
affixed to the entry and canceled .
(6) A daily list should be prepared and a record kept of all stamps
purchased for imported wine, and such daily list , together with the
corresponding entry papers and attached stamps, will be forwarded
to this office at the end of each month.
G. E. FLETCHER,
Approved :
WM. P. MALBURN ,
(T. D. 2392.)
Narcotic law-Conspiracy to violate-Decision of court.

In a charge of conspiracy to violate section 2 of the act of December 17, 1914,
the indictments containing no reference to exceptions therein, the court
held, in overruling demurrer to the indictment, " that an indictment charg
ing conspiracy to commit an offense need not negative exceptions found in
the statute which defines the offense that is the object of the conspiracy.—
United States v. Stone ( 135 Fed., 392 ) .
Washington, D. C. , November 6, 1916.
The appended decision of Judge Brown , in the District Court of
the United States for the District of Rhode Island, in the case
229
of United States v. Patrick J. O'Hara, John S. D'Arcy, Charles

O'Leary et al., is published for the information of internal-revenue
officers and others concerned.
G. E. FLETCHER,
DISTRICT COURT OF THE UNITED STATES, DISTRICT OF RHODE ISLAND.

United States v. Patrick J. O'Hara et al.
BROWN, Judge: This indictment is for conspiracy to commit offenses against

the United States defined by the Harrison Act of December 17, 1914 (38 Stats.,
p. 785 ) , which relates to opium, etc.
It should be observed that the gist of the offense charged is conspiracy, and
that in such cases it is not essential to set forth the offense which is the object
of the conspiracy with the same certainty and strictness as in an indictment for
the substantive offense. Williamson v. United States (207 U. S. , 425, 447 ) .
It is urged that the specific object of the conspiracy as defined in the indict
ment may or may not be a crime. It is true that under section 2 of the Harri
son Act there is a provision that the previous general language shall not apply
in certain cases.
The first count which charges a conspiracy to commit an offense by the doing
of certain acts apprises the defendants with reasonable certainty that they are
not charged with doing these acts under such circumstances as fall within the
paragraphs a, b, c, and d, which follow the words " nothing contained in this
section shall apply." These are in the nature of exceptions, and has been held
that an indictment charging conspiracy to commit an offense need not negative
exceptions found in the statute which defines the offense that is the object of the
conspiracy. United States v. Stone ( 135 Fed., 392 ) .
Assuming that there may be found in this somewhat confused statute various
exceptions to the general definition of the offense, the count does not seem to me
insufficient for not expressly excluding what is excluded in the exemptions or
enumerations of instances where the act does not apply.
The second count relates to a conspiracy to commit an offense against the
United States, to wit, to obtain, by means of order forms issued by the Commis
sioner of Internal Revenue, certain drugs enumerated in the count, for pur
poses other than for the use, sale, and distribution thereof, * * * in the
conduct of a lawful business in said drugs, and for purposes other than the use,
sale, and distribution of said drugs, * * in the legitimate practice of the
professions of the said defendants.
In respect to this count also it is urged that there is indefiniteness and un
certainty ; that as the criminality consists in the wrongful object or purpose the
purpose should be set forth specifically, so that the court may know that it was
an improper purpose.
I am of the opinion that this is not necessary, since the count charges that
the conspiracy was to obtain the drugs for purposes other than those specified
in the act.
The third ground of demurrer is applicable to the overt acts in both counts.
The only ground which seems to require special consideration is the objection
that there is a want of allegation of the place of commission of any of the overt
acts. While the particular paragraphs which set forth the overt acts contain
no allegation of place I am of the opinion that upon reading the indictment
as a whole it sufficiently fixes the locus of the overt acts. The concluding para
230
graph of each count alleges that the defendants " at the times and places
* * * aforesaid conspired to commit an offense, " and did do the several
acts mentioned in connection with their several names to effect the object of
said conspiracy, etc." Any deficiency in fixing a locus to the several overt acts
is thus cured, and the indictment as a whole must be interpreted as charging
their commission within the jurisdiction of this court.
The demurrers are overruled.
(T. D. 2393. )
Surveys of distilleries.
Instructions relative to making surveys of distilleries using the filtration-aera

tion process and operating on the sweet-mash principle for the commercial
manufacture of yeast only.
The act of Congress entitled " An act to increase the revenue, and
for other purposes," approved September 8, 1916 , provides that the
second paragraph of section 3264 , Revised Statutes , as amended by
section 5 of the act of March 1 , 1879 , and as further amended by the
act of Congress approved June 22 , 1910 , be amended so as to read as
follows :
In all surveys forty-five gallons of mash or beer brewed or fermented from
grain shall represent not less than one bushel of grain, and seven gallons of
mash or beer brewed or fermented from molasses shall represent not less than
one gallon of molasses, except in distilleries operated on the sour-mash principle,
in which distilleries sixty gallons of beer brewed or fermented from grain
shall represent not less than one bushel of grain , and except that in distilleries
where the filtration-aeration process is used, with the approval of the Com
missioner of Internal Revenue ; that is , where the mash after it leaves the
mash tub is passed through a filtering machine before it is run into the fer
menting tub, and only the filtered liquor passes into the fermenting tub, there
shall hereafter be no limitation upon the number of gallons of water which may
be used in the process of mashing or filtration for fermentation ; but the Com
Treasury, in order to protect the revenue, shall be authorized to prescribe by
regulation, to be made by him, such character of survey as he may find suitable
for distilleries using such filtration-aeration process. The provisions hereof
relating to filtration-aeration process shall apply only to sweet-mash distilleries.
Under the provisions of this act the following regulations are pro
mulgated for surveying distilleries using the filtration-aeration
process :
(1 ) Such a distillery must be equipped with a filtration-aeration
apparatus, must be operated on the sweet-mash principle with a
24-hour fermenting period, and be used for the manufacture of yeast
commercially and must be so constructed that the mash , after it leaves
231
the mash tub, will pass through a filtering machine before it is run
into the fermenting tub and only the filtered liquor will pass into
the fermenting tub. Mash tubs must be provided with tight covers
and all openings therein kept locked by the storekeeper, except at
distilleries where no ground grain is kept or brought on the premises
but the grain passes directly by continuous closed conveyers from
the weighing hopper on the premises to the mill and thence to the
mash tub, in which case the weighing hopper shall be kept locked .
The distillery in all other respects must be constructed in conformity
with the law and regulations pertaining to grain and molasses dis
tilleries.
(2) A distiller who has built and equipped a distillery of this
character in conformity with the law and regulations must give
notice on Form 27A, omitting only the number of gallons of beer
or mash which will represent a bushel of grain or gallon of molasses.
Upon receipt of such notice the collector will submit the matter to
this office, together with a copy of the notice and with a full explana
tion and his recommendations in the premises, for the approval of
the commissioner before a survey of the distillery is made. The
commissioner, under the statutory discretion vested in him, may
withhold approval where the construction, as shown by the notice ,
is unsatisfactory, the character of the distiller, as reported by the
collector, is not good , or the location of the distillery will afford
opportunity for fraud , or for any other reason deemed sufficient by
him .
(3) If the commissioner approves of the construction and method
of operation as shown by the notice and explained by the collector
of the district, he will so inform the collector , and after such notice
of approval is received a survey of the distillery will be made in the
manner now provided by section 3264 , Revised Statutes, and regula
tions No. 7 for grain or molasses distilleries, with the following ex
ceptions : Since the unlimited use of water is permitted and the quan
tity of same will undoubtedly vary, no fixed allowance of dry inches
would seem to be possible, and such allowance may be omitted and
the cubic contents of the fermenters should be reported on Form 123 ,
instead of the working capacities. There will also be omitted in the
report of survey statements of the strength of beer, the total capacity
of the fermenters in bushels or gallons , the daily mashing and fer
menting capacity, and the daily spirit producing capacity in the
spaces provided for those purposes.
(4) For the reasons above stated in regard to the omission of the
allowance for dry inches, the omission of the statement of the strength
of beer, etc., notices of changes in capacity are not deemed necessary
and need not be filed by the distiller.
(5) It will be understood that, while a survey of the character
prescribed herein will not determine the daily spirit producing capac
232
ity of the distillery in advance of operations and will not furnish

the complete data heretofore required in such reports of survey, it
must contain a very careful estimate of the yield of spirits from a
bushel of grain or gallon of molasses in order that a computation
may be made at the end of each month when the storekeeper's and
distiller's returns are received to determine the quantity of spirits
which should have been made in the distillery based upon the ma
terials reported used and the surveyed yield only, and for this reason
the utmost care must be exercised by the storekeeper in keeping rec
ords 17 and 17 and in making returns on Form 88. In determining
the yield of spirits per bushel of grain or gallon of molasses to be
fixed by the survey the officer making the survey will in a measure be
guided by the instructions contained in regulations No. 7 , but it must
be borne in mind that at a distillery of this character using the filtra
tion-aeration process the distilling material is largely exhausted in
the production of yeast and in consequence only a relatively low yield
of spirits per bushel of grain or gallon of molasses can be obtained
by the distiller.
(6 ) Temperature and gravity must be taken and recorded and re
port thereof made as heretofore.
W. H. OSBORN,
Approved :
WM. P. MALBurn ,
(T. D. 2394. )
Corporation tax-Proper defendant in suit to recover back taxes—

Decision of court.
1. SUIT TO RECOVER TAXES.
Suit to recover back taxes collected can not be maintained against the
successor of collector to whom the taxes were paid, except in his individual
capacity.
2. REMEDY FOR ILLEGAL COLLECTION.
The remedy either lies in an action against the collector who actually re
ceived the taxes or in an action against the United States.
3. ACT OF FEBRUARY 8, 1899.
The act of February 8, 1899, which provides that no action against a
United States officer shall abate by reason of the expiration of his term, was
to enable proceedings pending against public officials in their official capacity
to be continued when necessary to obtain settlement of questions involved.
Washington, D. C., November 14 , 1916.
Southern District of New York, in the case of Duncan I. Roberts v.
233
John Z. Lowe, jr., collector, is published for the information of in

ternal-revenue officers and others concerned.
G. E. FLETCHER,
UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK.
Duncan I. Roberts, individually and as a member and as president of the

United States Express Co. , an unincorporated joint-stock association, v.
John Z. Lowe, jr., collector of internal revenue of the United States of
America for the second district of New York.
AUGUST N. HAND, District Judge : This is a demurrer to the complaint in an

action brought against the defendant, John Z. Lowe, jr., who is described as
" collector of internal revenue," to recover corporation excise taxes collected
from the United States Express Co. by Charles W. Anderson, who was at the
time collector of internal revenue. The only theory of recovery, in my
opinion, is against Mr. Lowe individually, and I know of no provision of law
which would enable him to obtain restitution from the Government if he were
held liable.
Section 989 of the Revised Statutes, providing that when recovery is had
against a collector for money exacted by him and by him paid into the Treasury
no execution shall issue against such collector provided the court certifies there
was probable cause for the act, only in terms is in aid of the collector who re
ceived and turned over the tax to the Treasury Department. I can see no theory
upon which this action can be brought against the succeeding collector. The
remedy either lies in an action against Mr. Anderson or in an action against
the United States. The latter remedy is apparently authorized by the case of
United States v. Emery ( 237 U. S., 28 ) . If any authority were needed, the case
of Patton v. Brady, executrix ( 184 U. S. , 608 ) , would seem to involve the con
clusion that the only action which can be brought against any individual is an
action of assumpsit against the collector who actually exacted the tax ; and
it was held in the case of Patton v. Brady, supra , that such an action could be
revived against the personal representative of the deceased collector. This posi
tion is wholly inconsistant with the theory hat the action is against the col
lector as such. The theory is a recovery for money illegally obtained by the
collector as an individual, and no subsequent collector can be subjected to his
liability.
I do not think that the plaintiff can sue the defendant as successor to Collec
tor Anderson under the act of February 8, 1899 ( chap. 121, 30 Stat. L., 822 ) ,
which provides that no action or other proceeding lawfully commenced against
any officer of the United States in his official capacity, or in relation to the dis
charge of his official duties, shall abate by reason of the expiration of his term,
but in such event the court at any time within twelve months thereafter, on mo
tion or supplemental petition showing a necessity for the survival thereof to
obtain a settlement of the questions involved , may allow the same to be main
tained against his successor in office. This remedial act was to enable pending
proceedings against public officials in their official capacity to be continued when
necessary to obtain settlement of the questions involved. In this case there
was no pending action against the former Collector Anderson. This action is
not necessary to recover the money for the plaintiff has a remedy against the
United States, as appears from the decision in the case of United States v.
Emery, supra, as well as against Anderson, and, finally, this cause of action is
234
not in theory against the collector in his official capacity. If recovery were had
against the present collector, for reasons stated in the earlier part of this
opinion, I do not see that any existing legal machinery exists by which he could
obtain restitution from the Government. Judge McPherson in his opinion in
the case of Armour v. Roberts ( 151 Fed., 846 ) apparently held that a succeed
ing collector could be sued as much for restitution of sums paid to a former
collector, but he did not discuss any of the difficulties which I have alluded to
in reaching such a result, and I can find no sufficient basis for the conclusion he
reached. He evidently misconceived the nature of the action, which is an action
against the collector personally. If this were not so it would not have been
held by the Supreme Court in the case of Patton v. Brady, executrix ( 184 U. S.,
608 ) , to have survived against the executrix of the deceased collector.
For the foregoing reasons the demurrer should be sustained and the complaint
dismissed.
(T. D. 2395. )
Inheritance taxes.
State inheritance taxes deductible from the gross estate in determining tax
due under Title II of the act of September 8, 1916.
COLLECTOR INTERNAL REVENUE,
Pittsburgh, Pa.
SIR : Replying to your letter of the 14th instant inquiring whether
State inheritance taxes are deductible from the gross estate of a
decedent in determining the Federal tax due under Title II of the
revenue act of September 8, 1916 , you are informed that among the
deductions from the gross estate specified in section 203, paragraph
a, subparagraph 1 , of the above-mentioned act is the item “ such
other charges against the estate as are allowed by the laws of the
jurisdiction , whether within or without the United States, under
which the estate is being administered ."
Since it does not appear open to question that State inheritance
taxes are a primary charge against an estate and allowable as credits
to executors and administrators in every State imposing such taxes,
they are clearly deductible from the gross estate of the decedent
whose property and interests are liable to the Federal tax im
posed in Title II of the act of September 8, 1916.
Respectfully,
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
235
(T. D. 2396. )
Act of September 8, 1916— Statute of limitations.

BAR REMOVED FROM CERTAIN CLAIMS FOR REFUND.
Claims can now be made for refund of taxes paid under the act of August
5, 1909, act of October 3, 1913, and act of September 8, 1916, if the question
involves a review of the return.
TREASURY DEPARment,
SIR : This office is in receipt of your letter of the 26th ultimo,
asking for a ruling as to whether, under section 14, paragraph A, of
the act of September 8, 1916, claims for refund which have once
been rejected by the commissioner because of the statute of limita
tion in existence at that time may be reopened . The portion of sec
tion 14 referred to is in the following words :
Provided, That upon the examination of any return of income made pursuant
to this title, the act of August 5 , 1909, * * * and the act of October 3, 1913,
* * * if it shall appear that amounts of tax have been paid in excess of
those properly due, the taxpayer shall be permitted to present a claim for
refund thereof notwithstanding the provisions of section 3228.
This office is of the opinion that claims can now be made for re
fund under that provision . Claims rejected can also be reopened
if the question involves an examination of the return . The power
does not extend to other claims whose adjustment does not necessitate
an examination of the return.
Respectfully,
W. H. OSBORN ,
COLLECTOR INTERNAL REVENUE,
Los Angeles, Cal.
(T. D. 2397. )
Samples of distilled spirits.

Wasington, D. C., November 20, 1916.
This office is informed that it is the practice of certain distillers
to draw samples from packages of distilled spirits after the packages
have been regauged and while lying on the gauge porch awaiting
arrival of tax-paid stamps. Such a practice is entirely unauthorized,
and you will instruct storekeepers and gaugers in your district not
to permit the same while spirits remain in their custody.
W. H. OSBORN,
236
(T. D. 2398. )
Revenue agents' , inspectors ' , and special disbursing agents' forms.
The use by revenue agents and inspectors of Form 629 ( trimonthly diary
report ) is discontinued. Form 132 should contain statement of duties
performed. Special disbursing agents will discontinue reporting on Form
7300 the expenses incurred in each State for miscellaneous items and
services of special employees, guides, posse men, and informers.
TREASURY DEepartment,
To internal-revenue agents in charge of divisions and others con
cerned :
Hereafter the rendition of Form 629 (trimonthly diary report)
by revenue agents and inspectors will be discontinued and Form
132 for November, 1916, and thereafter should contain, in addition
to the itemized statement of expenses, the information that has here
tofore been shown on the Form 629.
Hereafter it will not be necessary for revenue agents acting as
special disbursing agents to report on Form 7300 the expenses in
curred in each State for miscellaneous items and services of special
employees, guides, posse men, and informers. However, the report
of work performed in each State, as shown by lines 1 to 17, inclusive,
will be made as heretofore.
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2399. )
Income tax.
Certificate of ownership for use of nonresident alien individuals, firms, organ

izations, and fiduciaries, with coupons detached from bonds of domestic
corporations, etc.
Certificate 1004 , revised, provided to be furnished with coupons
detached from bonds or other obligations of domestic corporations
237
owned by nonresident alien individuals or fiduciaries, is hereby re

vised to include firms and organizations, and a certificate in the fol
lowing form, to be known as Form 1004, revised November 22, 1916,
is provided for use of nonresident alien individuals, firms, organiza
tions, and fiduciaries, for the purpose of declaring ownership of
bonds of domestic corporations, etc. , and to be attached to interest
coupons detached from said bonds when presenting said coupons
for payment :
Form 1004, OWNERSHIP CERTIFICATE- NONRESIDENT ALIENS
Revised .
(To befurnished with coupons detached from bonds or other obligations of domestic
Nov. 22, 1916. corporations, etc., owned by nonresident alien individuals, firms, organizations,
and fiduciaries .)
(Full description of bonds, giving name of issue and interest rate.)

INTERNAL
REVENUE
DEPARTMENT
INCOME
..., 191 ... Amount of coupon or registered interest .

TREASURY
(Date of maturity of interest.) $....

TAX
.-
I declare that I am a nonresident alien as to the United States and

that I am the owner of the above-described bonds from which were
detached the accompanying coupons, or from which I am entitled
,
to the above-described registered interest, and that all of the infor

mation as given in this certificate is true and correct.
Date, "" 191 ...
(Usual business signature of owner
of bonds.)
(Full post-office address of owner.)

By " Agent.
(Usual business signature
of agent authorized to
sign for owner.)
(Full post-office address of agent.)

(Signatures must be clearly and legibly written. )
1 NOTE 1.-To be filled in only when duly authorized agent executes this certificate
for owner, in which case the name and address ofowner must be given, and collecting
agent first receiving certificate must stamp across face " Satisfied as to identity and
responsibility of agent" (giving name and address of collecting agent).
NOTE 2.-If securities are owned joir tly by several persons one may sign, and the
names, addresses, and proportions of ownership of each indorsed on the bark hereof.
NOTE 3.-When numbers of bouds are required to be given, same are to be entered
on back hereof.
JOINT OWNERS.
If securities described on other side are owned jointly, the names and addresses
of owners and the proportion of ownership of each should be given.
Names. Full post-office address. Proportion owned.

238
Said certificate shall be printed on white paper and shall be in

size 8 by 3½ inches and shall be printed to read from left to right
along the the 8-inch dimension.
The paper upon which the certificate is to be printed shall corre
spond in weight and texture to white writing paper 21 by 32 , about
40 pounds to the ream of 500 sheets. This certificate will be
furnished by the Government.
Individuals and organizations desiring to print their own cer
tificates may do so, but certificates so printed must conform in size
and be printed in similar type and upon the same color, shade, and
weight of paper as used by the Government .
W. H. OSBORN ,
Approved :
WM. P. MALBURN,
(T. D. 2400.)
Alcoholic content of wines.
The wine maker is responsible for the correct determination of the alcoholic
content of wines.
SIR : This office is in receipt of your communication of the 17th
instant in which you ask the following question :
Should this office submit samples of all wine manufactured in this district,
or is it the duty of the wine maker to have the wine analyzed for the purpose
of determining the alcoholic content ?
In reply you are informed that articles 27 and 28 of regulations

No. 28, supplement No. 2 , require gaugers and visiting deputies to
make occasional tests of wines as to alcoholic content, but the respon
sibility for the proper stamping of the wines is placed upon the wine
maker or bonded dealer. Samples are not to be submitted to the
laboratory of this office unless an appeal is taken from the findings
of the internal-revenue officers or in cases where it is suspected that
the wines are understamped. W. H. OSBORN ,
COLLECTOR OF INTERNAL REVENUE,
Omaha, Nebr.
239
(T. D. 2401. )
Income tax.
Revision of T. D. 2382 of October 19, 1916, and providing certificate to dis

close identity of owner of stock where the actual owner is a nonresident
alien individual, firm, or corporation, and the stock is registered in the
name of a citizen of, or resident alien individual in, the United States or a
domestic firm or corporation.
The intent and purpose of this regulation is to provide only in
respect of making return for and payment of tax on dividend in
come accruing to nonresident aliens.
Such dividends on stock of domestic corporations or resident alien
corporations are held , prima facie, to be income to the record owner
of the stock and such record owner will be liable for the income tax,
normal or additional, according to his or its individual or cor
porate status, unless a disclosure of actual ownership is made to the
Commissioner of Internal Revenue which shall show who the actual
owner is and his address, and that the record owner is not the actual
owner. This showing shall be made upon the form herein provided .
When the record owner of such stock is a nonresident alien cor
poration, etc., not having an office or place of business in the United
States, the debtor corporation will withhold the normal income tax
and pay the same to the proper officer of the United States author
ized to receive it in manner and form provided for withholding
and accounting for tax withheld .
In all cases where the actual owner is a nonresident alien indi
vidual or corporation and the record owner is an individual, firm,
or corporation in the United States, citizen , or resident alien , and
the aforesaid showing of actual ownership is made, the record owner
will be held, for income-tax purposes, to have the receipt, custody,
control, and disposal of the dividend income and will be required
to make return for the actual owner and pay the tax found by such
return to be due. Where the actual owner is a nonresident alien
corporation return will be made regardless of the amount of divi
dend and the normal income tax will be paid ; and when the actual
owner is a nonresident alien individual a return shall be made when
ever the amount of dividend is $3,000 or over ; and when the net
amount thereof exceeds $20,000 said custodian shall also pay the
additional tax on such income. The return for nonresident alien
corporations shall be made on income-tax Form 1031 (1030 for in
surance companies) , and return for nonresident alien individuals
shall be made on income-tax Form 1040.
240
When it shall appear from the disclosure herein provided for that
the actual owner is a nonresident alien partnership all certificates
making such disclosure shall be transmitted to the collector for the
information of the Commissioner of Internal Revenue, but no re
turn will be made for such partnership and no amount will be
retained from such income by the representative of such partner
ship in the United States unless and until said representative shall
be so instructed by the Commissioner of Internal Revenue.
The term " corporations " as used above covers corporations, joint
stock companies or associations, and insurance companies. The term
"nonresident alien corporations " covers all corporations, joint- stock
companies or associations, and insurance companies organized, au
thorized, or existing under the laws of a foreign country and having
no office or place of business in the United States ; the term " resident
alien corporations," such foreign organizations as have an office or
place of business in the United States.
The certificate for disclosing actual ownership , as herein contem
plated , shall be in the following form :
Form 1087, OWNERSHIP CERTIFICATE-DISCLOSING ACTUAL OWNER OF
Revised . STOCK .
Nov. 29, 1916. (For use of foreign principal-individual, firm, or organization- to be filed with
representative in the United States of such foreign principal to disclose actual
ownership of stock of domestic corporation . )
(Name ofrecord owner.) (Full post-office address ofrecord

owner.)
(Address of issuing corporation.

INTERNAL
(Name of issuing corporation .)

.REVENUE
DEPARTMENT
INCOME
Number of shares of stock owned ....... Class of stock (com

TREASURY
mon, preferred, etc. )

-TAX
1
I (we) hereby declare that I am (we are) the actual owner of the
above-described stock, or that the record owner of said stock holds
it for my (our) account, and the actual owner is
,
(Name.)
(Address.)
that I am (we are), or the actual owner is (are), nonresident alien
as to the United States ; that the record owner of said stock is cor
rectly listed above, and that said record owner is the representative
in the United States of the undersigned with respect to said stock,
and that all the information given herein is true and correct.
Date, 3 19...
(Signature of actual owner, or, if
organization, name for which rec
ord owner acts.)
By
(If organization, signature of official
authorized to sign and official po
sition.)
(Full post-office address of actual

owner, or person, firm, or corpora
tion for whom or which record
owner acts.)
241
The foregoing certificate is to be filed with the record owner by

the person, firm, or corporation , etc. , for whom and in whose behalf
the record owner acts. A certificate once filed disclosing the actual
owner will be held to answer for all the requirements under this
regulation until ownership shall change , when it will be necessary
to disclose the actual owner as in the first instance. All such cer
tificates filed with the record owner shall, by him or it , be forwarded
with the return of income which he or it shall make for the person
or corporation for whom or for which said record owner acts.
Said certificate shall be printed on buff-colored paper , correspond
ing in weight and texture to white writing paper 21 by 32 , about 40
pounds to the ream of 500 sheets. The size of said certificate shall
be 8 by 3 inches and shall be printed to read from left to right
Individuals or organizations desiring to print their own certifi
cates may do so , but certificates so printed must conform in size and
be printed in similar type and upon the same color, shade, and
weight of paper as used by the Government.
All Treasury decisions in conflict herewith are hereby superseded
and repealed.
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2402. )
Income tax.
Amending T. D. 2313 of March 21, 1916, as to payment of income tax for non
resident aliens, so as to relieve their agents or representatives in the
United States from the duty of paying tax for said nonresident aliens in
certain cases.
Income derived by nonresident aliens from interest on bonds and
dividends on stock of domestic corporations is subject to the Federal
income tax, normal or additional, or both, as the case may be, “ and
said tax shall be paid by the owner of such income, or the proper
representative having the receipt, custody, control, or disposal of
the same."
24433°-VOL 18-16 -16
242
In all cases the proper representative in the United States of a

nonresident alien, with respect to such income, shall make return
for such nonresident alien of all such income coming into his custody
or control and pay the tax thereon as provided by T. D. 2109 of
December 28, 1914 , and T. D. 2313 of March 21 , 1916 ; provided ,
however, where all income shall have been paid over by the repre
sentative to his principal on or before September 8 , 1916 , or where
the stockholder of record shall not, between September 8 and Decem
ber 31 , 1916, be in receipt of or have in his custody or control income
the property of his said principal, such representative will be re
lieved from paying said tax, leaving the same a charge against the
nonresident alien and to be collected from him by any means at the
disposal of the Commissioner of Internal Revenue ; but where such
representative shall have in his custody or control subsequent to
September 8, 1916, income of such nonresident alien, said representa
tive shall pay the total tax due upon the income of such nonresident
alien so in his custody and control for the entire year 1916 and
subsequent years.
When the actual owner is a nonresident alien individual , a return
shall be made whenever the net amount of income is $3,000 or over,
and the custodian of the income shall pay the tax found by such
return to be due. The return for nonresident alien corporations
shall be made on income-tax Form 1031 ( Form 1030 for insurance
companies ) , and returns for nonresident alien individuals shall be
made on income-tax Form 1040.
T. D. 2313 of March 21 , 1916, is hereby amended accordingly.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON ,
(T. D. 2403. )
Rectification Act of September 8, 1916.
Regulations governing the use of still wines and tax-paid spirits in the manu
facture of vermuths, liqueurs, cordials, and similar compounds under the
act of September 8, 1916.
Tax-paid still wines, domestic and foreign, and tax-paid distilled
spirits may be used by rectifiers in the manufacture of vermuths ,
liqueurs, cordials, and similar compounds and fluid extracts under
the following conditions :
243
(1 ) If the wines are fortified under the act of September 8, 1916,

they may be used in making vermuths, liqueurs, cordials, and simi
lar compounds , but both the wines and the products must be tax
paid, the vermuths at the wine rate and the other compounds named
at the cordial rate under said act.
(2 ) Either tax-paid spirits or tax-paid wines, unfortified , under
the act of September 8, 1916, may be used separately by rectifiers
in making vermuths, liqueurs , cordials, and similar compounds , but
no tax will attach to the products thus made , except vermuths, which
will be taxable at the still- wine rates.
(3 ) Under said act the mixing or blending of tax-paid spirits and
domestic still wines is held to be absolutely prohibited , except as
hereinafter stated in paragraph 5 .
(4) All still wines used in the manufacture of medicinal prepara
tions must be tax paid before being used in such manufacture.
( 5 ) Tax -paid spirits and tax-paid wines fortified under the act
of September 8 , 1916 , may be mixed by rectifiers in manufacturing
vermuths, liqueurs, cordials , and similar compounds, provided the
products are tax paid at the appropriate rates. Tax-paid grain or
other ethyl alcohol may also be used in fortifying sweet wines as
defined in subsection 43 of the act. Fluid extracts may be made.
with tax-paid spirits and such extracts may be added to tax- paid
unfortified still wines in making nontaxable cordials on condition
only that in making such extracts the quantity of tax-paid spirits
used does not exceed the standard fixed by the United States Phar
macopoeia.
(6 ) Taxable and nontaxable articles must be kept separate and
apart in the rectifying house.
A rectifier who intends making vermuths, liqueurs, cordials, and
similar compounds taxable under the act of September 8, 1916 , must
first give the required bond , to be hereafter prescribed .
Each container to be used by rectifiers for the manufacture of
taxable products under the act of September 8 , 1916, must be marked
in plain and legible characters in oil colors not less than 3 inches
long, with a serial number, followed by the legend " Only for ver
muths , etc., taxable under the act of September 8, 1916. "
Rectifiers now engaged in the manufacture of products taxable
under the act above referred to will be required to file a supple
mental notice, Form 27B, in duplicate, specifying by serial numbers
and capacities the container or containers in which such compound
ing and rectification is to be done. At the commencement of each
special-tax year the notice, Form 27B, filed in duplicate, must con
tain, in addition to the usual particulars in regard to the business
of rectification, a special description by serial numbers and capacities
of the vessels to be used in making vermuths , liqueurs , cordials,
etc., subject to tax under the act of September 8 , 1916 .
244
All Forms 27B relating to the business of rectifiers who manufac

ture products taxable under the act above referred to will be marked
in red ink, at the top of the indorsement fold , " Vermuth , etc."
A separate special record , book 52 , must be provided , at his own
expense, by the rectifier or wholesale liquor dealer transferring wines
to rectifiers and be open at all times to the inspection of revenue officers,
in which a complete record must be kept by the rectifier or wholesale
liquor dealer of all wines received on the premises and sent out
therefrom, from whom the same were received and the disposition
made thereof, together with the serial number of the container, the
wine gallons therein , the kind of wine, whether fortified or unforti
fied, and, if the former, under what act fortified , the alcoholic con
tent thereof, and the fact that the tax has been paid on such wine
under the provisions of the law and regulations.
Separate pages or portions of Record 64 will be set aside by each
rectifier who manufactures and disposes of products subject to tax
under the act of September 8, 1916 , for entry thereof, and the col
lector will set aside like portions of Record 39 for the same purpose.
At the end of each month the totals in these separate accounts will
be carried to the regular account of the rectifier and added to the
entries representing the general volume of business.
Form 45 will be made as heretofore and will include all the
business done by the rectifier during the month.
No still wines or other alcoholic liquors or compounds may be used
or emptied from the original container for making vermuths , liq
ueurs, etc., taxable under the act of September 8, 1916 , until notice
shall have been given by the rectifier on Form 122 and authority
received by him from the collector on said form in the usual man
ner for the use thereof, the necessary modification being made of the
language under part 2 of the form so as to permit the gauging and
inspection of each package and the dumping of the same. The col
umns under the heading " Return of spirits gauged " will be filled
out so far as practicable so as to indicate the contents of each pack
age and the actual proof of the same. The fact that the tax has been
paid on the wine or other taxable liquor dumped must be certified
on this form .
Upon completion of the process the taxable products will be
gauged after rectification and return thereof made on Form 237 in
the usual manner.
Forms 122 and 237 , pertaining to products subject to tax under the
act of September 8 , 1916, will be made separately from like forms
pertaining to the other business of the rectifier and will be marked in
red ink, at the top of the indorsement fold , " Vermuths, etc. "
The compounds made from materials herein referred to , being the
products of rectification, must be marked , branded, and stamped the
245
same as other products of rectification , as required by the law and

regulations, and , in addition thereto , at the time of removal for sale
or consumption, if the compound is taxable, there must be affixed to
the containers stamps denoting the payment of the tax on the con
tents under the act of September 8, 1916.
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2404. )
Manufacture of vermuth, liqueurs, etc.

Supplemental regulations relating to the manufacture of vermuth and liqueurs,
cordials, and similar compounds taxable under the act of September 8, 1916.
In the absence of any specific requirement in the act of September
8, 1916, relating to liqueurs, cordials, and similar compounds for the
bonding of the premises where such articles are produced , so much
of paragraphs 11 and 13 of T. D. 2387 , holding that such premises
should be bonded , are hereby modified as follows :
Rectifiers manufacturing vermuth or taxable liqueurs, cordials , etc., while not
required to set apart and bond a portion of their premises, will nevertheless be
required, under the provision of paragraph (h ) , section 402, of the act of
September 8, 1916, to execute a tax bond and to keep all such taxable articles
separate and apart from nontaxable articles.
Vermuth, although subject under the act to a tax as wine, being a

product of rectification, is included with liqueurs, cordials, etc. , so
far as the bonding by the rectifiers is concerned.
The notice of intention to produce the above-named articles will
be in the form prescribed in regulations ( T. D. 2403 ) , and the bond
to be given in such cases will be in the following form :
BOND OF RECTIFIER.
(Act Sept. 8, 1916. )
Know all men by these presents, that 9 of as principal, and

of " and 9 of 9 as sureties , are held and firmly bound
unto the United States of America in the sum of ―――――――― thousand dollars, lawful
money of the United States, for the payment whereof to the United States we
bind ourselves, our heirs, executors, administrators, and assigns, jointly and
severally, firmly by these presents.
246
Witness our hands and seals this day of 9 191-.

Whereas the above-bounden principal is engaged or intends to engage in
business of making and selling liqueurs, cordials, or similar compounds on prem
ises located at " in the ▬ ▬ ▬ ▬ ▬ ▬ ▬ collection district of
Now, therefore, the condition of this obligation is such that if the said prin
cipal shall fully and faithfully comply with all requirements of an act of Con
gress, approved September 8, 1916, and all regulations issued pursuant to said
act, respecting the production, removal, and the accounting of any and all of
the aforementioned articles ( including vermuth ) hereafter produced by him, or
which now remain on said premises ; and if the said principal shall well and
truly pay all taxes due on said articles at the time and in the manner required
by said act and regulations, then this obligation to be void ; otherwise to remain
in full force and virtue.
[ SEAL. ]
[ SEAL . ]
[SEAL. ]
Signed, sealed, and delivered in the presence of—
The foregoing bond will be executed in duplicate with sureties sat

isfactory to the collector, and in a penal sum at least equal to the
tax on the estimated quantity of the articles named remaining on
hand at any one time, but in no case less than $500. One copy of this
bond will be at once forwarded to the Commissioner of Internal
Revenue. In case of insufficiency a new or additional bond will be
required by the collector.
W. H. OSBORN ,
Approved :
BYRON R. NEWTON,
(T. D. 2405. )
Equalizing wantage- Undergauging distilled spirits.
Washington, D. C., December 1, 1916.
To collectors of internal revenue, internal-revenue agents, gaugers,
storekeepers, and storekeeper-gaugers :
In view of the frequent reports received at this office relating to
the equalization of wantage in packages of spirits in warehouse ,
gaugers, storekeepers, and storekeeper-gaugers assigned to duty at
distilleries or at bonded warehouses where spirits are in store are
again reminded that it is their duty to observe closely the conduct
247
of all persons who have access to such spirits for legal and proper
purposes to the end that the fraudulent practice of equalizing
wantage by shifting the spirits from one package to another may
be prevented .
In this connection attention is specially called to the following
instructions, to be found on pages 81 and 82 of regulations No. 7
of July 10, 1914 :
Hereafter storekeepers will not permit any person to enter or remain in
any distillery warehouse in their charge during their absence, temporarily or
otherwise, from such warehouse, and if it is necessary for the storekeeper to
leave the warehouse while the distiller or owner of the spirits or any cooper
or other employee of such distiller or owner is in the warehouse the store.
keeper shall cause each and every such person to leave the warehouse before
him, and he shall, upon leaving the warehouse, securely lock the door thereof ;
and in all cases all testing, sampling, or examination of spirits for any purpose
shall be done in the presence of the storekeeper, and all instruments used in
the warehouse for such testing, sampling, or examination shall either be
removed from the warehouse while not in actual use or shall be delivered to
the storekeeper to be locked up by him in some secure place inaccessible to
any other person.
A failure on the part of officers assigned to distillery warehouses

or other bonded warehouses to comply with the foregoing instruc
tions will be followed by immediate suspension from duty or removal
from office, as the circumstances may warrant .
Underguuging of distilled spirits.—The attention of this office has
also been called to flagrant cases of undergauging of bonded spirits
upon their removal from warehouse.
In some instances it appears that gaugers have permitted such
spirits to be weighed and proofed by distillery employees, a practice
which has resulted in excessive leakage allowances, and consequent
loss of revenue, and which renders such gaugers liable to prosecution
under section 3169 , Revised Statutes.
Hereafter gaugers intrusted with the duty of gauging distilled
spirits will be held to the strictest accountability, and when found
derelict in the performance of duty will be reported for instant dis
missal and for prosecution under said section 3169.
It will be the duty of revenue agents to visit all distilleries in
their respective divisions at frequent and irregular intervals ; to
carefully regauge a selected number of packages that have recently
been deposited in warehouse, and also such packages (or a sufficient
number for test gauge) that have been regauged for withdrawal and
found on or near the distillery premises. Any irregularities dis
covered either on the part of the gauger or storekeeper will at once
be reported to this office for appropriate action.
Collectors will see that each gauger and each storekeeper or store
keeper-gauger in their districts is at once furnished with a copy of
248
this circular , and that a receipt therefor is duly furnished by each

such officer.
W. H. OSBORN ,
‫ما‬
(T. D. 2406. )
Estate tax.
Income earned after decedent's death and appreciation in values during ad

ministration are not to be returned as a portion of the gross estate.
Mr.
SIR : Replying further to your letter of October 26, 1916, you are
informed that Article VII of regulations 37 has been reconsidered ,
and in view of an opinion of the Solicitor of Internal Revenue, dated
November 9, sustained in an opinion of the Attorney General of
November 29, it is held that , for the purpose of tax under Title II
of the revenue act of September 8 , 1916 , the gross estate of a decedent
must be based upon the value of the property at the time of decedent's
death, and income earned after death and appreciation in values
during administration shall not be returned for estate tax.
Respectfully,
W. H. OSBORN,
Approved :
WM. P. MALBURN ,
(T. D. 2407.)
Income tax.
Corporations and other organizations exempt from the Federal income tax on their
incomes under section 11 of part 2 of the act of September 8, 1916, are not relieved
from the withholding requirements of the law as set forth in section 9 of that act.
To collectors of internal revenue and internal-revenue agents:
Attention is invited to the language of paragraph G, act of Octo
ber 3 , 1913 , and section 11 , act of September 8, 1916 , with regard to
the exemption of certain corporations and organizations and their
income from the income tax.
Under paragraph G of the act of October 3 , 1913 , the language
was "Provided, however, That nothing in this section shall apply to
249
""
[naming nine different classes of corporations or organiza
tions]. Under this language it was held that the corporations or
organizations included within the language of this proviso were not
affected by any of the provisions of the statute, and that not only
was their income exempt from tax but the corporations or organiza
tions were also themselves exempt from the withholding requirements
of the law.
Section 11 , act of September 8 , 1916 , provides " (a) that there shall
""
not be taxed under this title any income received by any
land then 14 different classes of corporations or organizations are
named]. It is held under this language that the statute relieves
from tax the income of the corporations or organizations named in
paragraph (å) of section 11 , but that the said corporations or organ
izations are required to answer under all the other provisions of
the statute as to withholding and making returns of tax withheld .
You are instructed to disseminate this information as rapidly and
as extensively as possible, to the end that all corporations or organ
izations which were relieved from the withholding and accounting
provisions of the act of October 3, 1913, may be advised of their
duty to withhold and account under the act of September 8, 1916 .
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2408.)
Pay of storekeeper-gaugers.
Change in rate of compensation of storekeeper-gaugers designated as general store
keeper-gaugers.
On and after January 1 , 1917, the compensation of storekeeper
gaugers designated as general storekeeper-gaugers will be at the
rate of $4 per day, together with actual and necessary traveling
expenses, except that when the aggregate quantity of spirits remain
ing in charge of a general storekeeper-gauger is reduced to 5,000 or
ess gallons the rate of compensation will be $3 per day for such days
only as he may be required to visit the warehouses for the purpose
of making withdrawals of spirits therefrom or for other necessary
purposes.
250
All regulations and instructions inconsistent herewith are accord

ingly revoked .
W. H. OSBORN,
Approved :
BYRON R. NEWTON,
(T. D. 2409. )
Distilled spirits in bonded warehouse.

Excessive losses of distilled spirits in bonded warehouse-Revising Circular No. 625.
Section 4, act of May 28, 1880, provides :
If it shall appear at any time that there has been a loss of distilled spirits from any
cask or other package hereafter deposited in a distillery warehouse, other than the
loss provided for in section thirty-two hundred and twenty-one of the Revised Statutes
of the United States, as amended , which , in the opinion of the Commissioner of In
ternal Revenue, is excessive, he may instruct the collector of the district in which
the loss has occurred to require the withdrawal from warehouse of such distilled
spirits, and to collect the tax accrued upon the original quantity of distilled spirits
entered into the warehouse in such cask or package, notwithstanding that the time
specified in any bond given for the withdrawal of the spirits entered into the warehouse
in such cask or package has not expired .
A like provision is made in section 58 of the act of August 28 , 1894 ,
as to spirits deposited in general bonded warehouses or in special
bonded warehouses .
In view of the loss allowance provided in section 50, act of August
28, 1894, as amended , and the large excessive losses frequently dis
covered on a special regauge of packages in warehouses, collectors
will hereafter require the immediate withdrawal of all packages show
ing, on regauge, a loss of 50 per cent or more over the statutory
allowance where such excessive loss exceeds 3 proof gallons .
Packages showing a loss not exceeding 50 per cent over the maxi
mum statutory allowance, and which have remained in warehouse
less than four years , will be permitted to remain in warehouse until
the spirits therein contained are eligible for bottling in bond, namely,
four years from date of original gauge, provided the statutory allow
ance ascertained at the time such special regauge is made is accepted
by the distiller as the final allowance to be made on the withdrawal
of the packages from the warehouse, and is so noted on Form 381 ,
to be at once filed by him in duplicate.
The retention in warehouse of such deficient packages will not be
permitted, however, where the condition of the warehouse or the
cooperage of the packages in the warehouse is such as indicates a
want of proper care on the part of the distiller in preventing unneces
251
sary loss or wastage, or where the loss is of such extent as will ma

terially affect the tax security afforded by the lien imposed by
section 3251 , Revised Statutes .
Collectors will see that a copy of this Treasury decision is furnished
to each distiller in their respective districts.
W. H. OSBORN ,
(T. D. 2410. )
Temperance beer- Packages.

Washington, D. C. , December 8, 1916.
SIR : This office is in receipt of your letter of the 2d instant , in
which you refer to that provision of T. D. 1360 which reads as follows:
The temperance beverage when removed from the brewery premises must be con
tained in packages unlike those ordinarily used for containing fermented liquor.
* * *
In reply you are informed that the purpose of the provision above
quoted is to thoroughly and permanently distinguish the packages
used or that may be used for containing the taxable product of the
brewery from those used or that may be used for containing the
nontaxable beverages containing less than half of 1 per cent of
alcohol by volume produced on brewery premises .
Accordingly, this office holds that for the purpose of containing
such nontaxable beverages, metal packages, whisky or vinegar bar
rels , or remodeled beer packages differing in size and shape from the
regular statutory packages for containing fermented liquors may be
employed .
It is also held that objection will not be made to the use for this
purpose of regular beer cooperage , provided same is equipped on
both heads with a substantial plate of iron or steel securely and per
manently attached thereto, and painted in a solid color with oil and
lead , with lettering in a contrasting color of the same materials con
spicuously placed thereon reading as follows : "Nontaxable , less
than half per cent alcohol, " the word " Nontaxable " to be not less
than 1 inches in height and of proportionate width ; the remaining
words to be not less than one-half inch in height and of proportion
ate width.
In addition to the distinctive construction of the heads above re
quired , the hoops of the packages must be painted white in oil and
lead .
Respectfully,
W. H. OSBORN,
To
252
(T. D. 2411.)
Manufacturers' orders for stamps for cigars, cigarettes, tobacco, and

snuff.
Forms of orders for stamps for cigars, cigarettes, tobacco, and snuff revised , standard
ized as to size, printed in different colors, to be used as soon as a supply is forwarded
to collectors and distributed by them to manufacturers.
The forms on which manufacturers are required to order cigar,
cigarette, tobacco, and snuff stamps have been revised and standard
ized as to size, same being 8 by 3 inches and printed in different
colors, as follows:
Form . Title . Color.
168 Manufacturer's order for cigar stamps.. White.

172 Manufacturer's order for tobacco stamps Blue.
173 Manufacturer's order for snuff stamps . Salmon.
485 Manufacturer's order for cigarette stamps.. Yellow.
As soon as the new forms are received from the Public Printer a
supply will be forwarded immediately to each collector. Said forms
should be distributed to the manufacturers of cigars, cigarettes,
tobacco, and snuff requiring same, and they shall be used exclusively
on and after the 26th instant . The use of any other forms of orders
for stamps mentioned above is forbidden.
Extra copies of this decision will be printed and a supply of same
forwarded to collectors for distribution to manufacturers of tobacco,
snuff, cigars, and cigarettes in their respective districts.
W. H. OSBORN ,
(T. D. 2412. )
Income tax.
Providing certificate for claiming allowable deductions which are known at the time
of receipt of fixed , annual, or periodical income by individuals whose income is
subject to withholding.
Under section 9 (b) , act of September 8 , 1916 , when any amount
allowable as a deduction, provided in sections 5 and 6 of the act, is
253
known at the time of receipt of fixed, annual, or periodical income by

an individual whose income is subject to withholding of tax, the person
entitled to and receiving such income may file with the person, firm,
or corporation making the payment, a certificate, under penalty for
false claim , stating the amount of such deductions and making a claim
for an allowance of the same, whereupon there shall be no withholding
upon the amount of such claim and such certificate shall become a part
of the return to be made in behalf of the person making the claim.
When, because of such claim , no tax shall have been withheld, the cer
tificates nevertheless shall be forwarded , with letter of transmittal , to
the collector of internal revenue for the district in which the withhold
ing agent resides.
A certificate for this purpose is provided in the following form :
Form 1088 . CERTIFICATE FOR CLAIMING DEDUCTIONS-INDIVIDUALS .

(For use by individuals in claiming at time of receipt of income under sec. 9 (b) benefit
of deductions under secs. 5 and 6 of the income-tax law, act of Sept. 8, 1916.)
Amount of income....
.......
(Give name of withholding agent.)
Amount of deduction now

(Full post-office address.) claimed ...... $ ......
INTERNAL
REVENUE
INCOME
,DEPARTMENT
Amount of income on
TREASURY
(Character of deductions: Business which tax is withheld .. $ ......

TAX
expense, interest, taxes, etc.)

.-
(Character of income, as rent, salary, interest on bonds, mortgages, etc., and if latter
give description of bonds, mortgages, etc.)
I certify that the foregoing claim is for deductions to which I am
entitled under the income-tax law, act of September 8 , 1916, and
that the amount claimed is not in excess of the deductions to which
I am entitled under the law.
Signed :
(Usual business signature of payee.)
Address:
(Full post-office address of payee.)
1 By Agent.
(Usual signature of agent authorized to
sign for payee.)
Address:
(Full post-office address of agent.)
Date, ··" 191 ..
1 NOTE 1.-To be filled in only when duly authorized agent executes this certificate
for payee, in which case the name and address of payee must be given.
NOTE 2.-Claim for deductions on Form 1088 can be filed with the debtor or with
withholding agent at any time, not less than 30 days prior to March 1 next succeeding
the year for which return is due.
SIGNATURE MUST BE CLEARLY AND LEGIBLY WRITTEN.
254
This certificate shall be printed on yellow paper corresponding in

weight and texture to white writing paper 21 by 32. It shall be in
size 3 by 8 inches and shall be printed to read from left to right
Individuals or corporations desiring to print their own certificates
may do so, but the certificates so printed shall conform in size and
be printed upon the same color, shade, and grade of paper and in
similar type to that used by the Government.
W. H. OSBORN ,
Approved :
WM. P. MALBURN,
(T. D. 2413. )
Formula for special denaturation of alcohol.

Washington, D, C. , December 11 , 1916.
To collectors of internal revenue and others:
The following formula , designated as No. 25 , has been approved
for the special denaturation of alcohol to be used exclusively in the
manufacture of the tincture of iodine :
To every 100 wine gallons by volume of ethyl alcohol of not less than 180° proof
there shall be added 20 pounds by weight of iodine, such alcohol when so denatured
to be used exclusively in the manufacture of tincture of iodine, in accordance with
the requirements of the United States Pharmacopoeia .
This formula can not be used in central denaturing bonded ware

houses or distillery denaturing bonded warehouses, but the use thereof
is authorized for the denaturation of alcohol in central distilling and
denaturing plants, the same being one of the two classes of indus
trial distilleries established under subsection 2 of paragraph N of
section 4 , act of October 3 , 1913 , and supplement No. 2 to regula
tions 30.
Permission must be obtained from this office to use a special de
naturant in any central distilling and denaturing plant, as provided
in articles 2 and 19 of said supplement .
W. H. OSBORN ,
Commissioner of Internal Revenue,
255
(T. D. 2414. )
Affixing tax stamps to cases or casks of imported wine.
Tax stamps may be affixed to casks or cases of imported wines, instead of being
affixed customs entry as provided in T. D. 2391 of November 6 , 1916.
COLLECTOR FIRST DISTRICT, St. Louis , Mo.
SIR : This office is in receipt of your letter of the 2d instant, in
reference to the payment of internal-revenue tax on imported wines ,
and to the desire of some importers in your district to stamp the pack
ages or cases containing such wines, instead of affixing the required
stamps to the customs entry, as provided in T. D. 36786 (customs)
of November 6, 1916, and T. D. 2391 (internal revenue) of Novem
ber 6 , 1916 .
In reply, you are informed that the affixing of stamps to the cus
toms entry in such cases is permitted as a matter of convenience to
the importer, but where the importer prefers to stamp each package
or case containing the wines this department sees no objection to
having the tax paid in this manner.
The removal of packages so stamped may be arranged with the
customs officers at your port .
Approved :
WM. P. MALBURN,
(T. D. 2415.)
Estate tax.
Conditions under which tentative return may be filed and advance tax payment
accepted.
SI : Receipt is acknowledged of your report of the 7th instant
with regard to the liability to estate tax of the estate of
You make specific inquiry with regard to the allowance of certain
estimated deductions from the gross estate which were shown by
the executor upon his preliminary return.
256
Section 204 of the taxing act , in which provision is made for the
allowance of a discount of 5 per cent for payment of tax before the
expiration of one year from the death of the decedent, does not, of
course, contemplate that , in order to take advantage of this discount,
executors shall be permitted to make vague and inaccurate estimates
of the value of the gross estate, or the extent of the legal deductions
therefrom . If executors were permitted to make returns which
were mere estimates it is obvious that they might oftentimes estimate
the gross estate conservatively and estimate the deductions gener
ously, or, at least , it could not be assumed that this had not been
done, and it would , therefore, be necessary that in every case, after
the final accounting of the executors, the Government should make a
supplementary investigation to determine the true facts, since in
the majority of the cases it would be probable that the tax had been
underpaid in the first instance.
Section 205 provides for the filing of the return at such times and
in such manner as may be required under the regulations promul
gated by the Commissioner of Internal Revenue, with the approval
of the Secretary of the Treasury, and it is obvious that the proper
time for return to be made is a time coincident , as nearly as possible,
with the final settlement of the estate and the date upon which the
estate tax is due. Since in many States more than a year from the
decedent's death is allowed for administration, the time set by the
regulations for the filing of the return was made coincident with
the due date of the tax-that is, one year after decedent's death .
Section 207 of the act relates primarily to the payment of the tax
and not to the filing of the return, and it contemplates that, if at
the time the tax is due it is impossible , because of delay in adminis
tration, for an exactly accurate return to be made, a tentative return
may be filed and tax shown thereon to be due may be tentatively
accepted by the collector. Neither section 205 nor section 207 con
templates that at any time return may be filed and tax paid without
a reasonably approximate determination of the facts relating to the
gross estate and the separate legal deductions.
Therefore, when application is made to collectors for authority to
file returns within one year from the death of the decedent whose
estate is being returned , collectors will require that such tentative
return be based upon determined or accurately determinable values
of gross estate and items of deductions, and if the estate in question
has not reached such a state of settlement that a reasonably accurate
return can be made, advance payment of tax will not be accepted.
Respectfully.
W. H. OSBORN,
INTERNAL REVENUE AGENT, Richmond, Va.
257
(T. D. 2416.)
Exportation of domestic wines free of tax under the act of September 8,

1916.
Pursuant to the authority conferred in paragraph (d ) , section 402 ,
of the act of September 8, 1916, the following regulations governing
the exportation of domestic wines free of tax are prescribed :
EXPORT BOND TO BE GIVEN.
ARTICLE 1. Where domestic wines are to be removed from bonded

premises , free of tax, for exportation, the party intending to export
the same will file with the collector of internal revenue of the district
in which such premises are located, a bond in the following form, to
be executed in duplicate, one copy to be retained by the collector
and one copy to be forwarded to the Commissioner of Internal
Revenue :
(FORM A. )
Bond.
(Domestic wines for export.)

Know all men by these presents , that we, 9 as principal, and ――――――― and
2 as sureties, are held and firmly bound to the United States of America in the
▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ ▬ dollars, for the payment whereof to the United States we bind ourselves ,
sum of ―――――
our heirs, executors , administrators, and assigns , jointly and severally, firmly by
these presents , as witness our hands and seals this day of ———————— 191-.
The condition of this obligation is such, that whereas the above bounden principal
intends to remove from the bonded premises No. ―――――――――― —, of — " located at
in the ――――――― district, State of — , certain domestic wines without payment of the
internal-revenue tax, for exportation from the United States under the provisions of
section 402 of an act of Congress approved September 8, 1916.
Now, therefore, if the said principal shall , as to all such wines so removed for expor
tation as aforesaid , faithfully and fully comply with all the requirements of said act
of Congress and regulations issued pursuant thereto, and shall furnish or cause to be
furnished to the collector of internal revenue for said district, and to the Commis
sioner of Internal Revenue, within 90 days from the date of each such removal,
satisfactory evidence showing that the said articles have been duly exported to a
port or place without the jurisdiction of the United States, then this obligation to
be void ; otherwise to remain in full force and virtue.
[SEAL. ]
[SEAL.]
[SEAL. ]
Sealed and delivered in the presence of―
24433°--VOL 18-16 -17

258
ART. 2. The penal sum of the foregoing bond must at least equal
double the amount of tax on the estimated quantity of wine to be
removed for exportation by the principal during a period of three
months, and in no case less than $ 1,000 . The bond so given will be
a continuing bond , and so long as it remains good and sufficient
removals may be made thereunder.
An account shall be kept with each bond , either upon the bond or
otherwise, in which account the principal will be charged with the
tax on each lot removed for exportation and will receive credit for
the tax on each lot concerning which satisfactory proof of exporta
tion is received .
REMOVAL OF WINE FOR EXPORT.
ART. 3. After giving the required bond and upon filing with the
collector of the district a combined withdrawal and export entry
(art. 4 ) in duplicate, the exporter may, upon approval of the entry
by the collector, withdraw the wines therein described for export ,
free of tax. The packages or cases containing such wines must be
plainly marked for identification , and must , in addition to such
marks, have plainly branded thereon the words " For export," in
letters not less than 2 inches in height .
ART. 4. The withdrawal and export entry will be in the following
form , and when approved will be returned to the exporter, and will
be by him filed in duplicate with the collector of customs at the port
from which the wines are to be shipped , and at least six hours prior
to shipment:
(FORM B. )
Withdrawal and export entry.
(Domestic wines for export.)
Part 1.
DISTRICT OF 9
9 191- .
1
Entry for withdrawal of the following described domestic wines from bonded
No. 一, of 1 in this district for exportation , free of tax, under export bond
executed by me (or us) on the day of " 191- .
Marks and serial Nos. Number of Wine Number Wine

packages . (gallons). of cases. (gallons)
1 Winery or storeroom.
Exporter.
Approved.
Collector District
259
Part 2
PORT OF " 191-.
To
Collector of Customs:
Entry of the above-described wines for exportation to ? on board the
now lying at request being hereby made for the inspection and lading of said
wines ; and I solemnly declare that the said articles are truly intended to be exported
as above stated and not to be brought back or relanded within the limits of the
United States.
Exporter.
Inspector will inspect The above-described articles were in
and superintend the lading of said arti spected and laden under my supervision
cles. this day of " 191-, except the
following:
Collector.
Inspector.
Part 3.
The vessel and articles above described were duly cleared from this port on the
day of , 191-.
Deputy Collector of Customs.
ART. 5. Upon issuing the above certificate of clearance the original
entry will be returned to the collector of internal revenue, who will,
upon receiving from the exporter a duly executed foreign bill of
lading, credit the export bond as provided in article 3, and will for
ward the entry and bill of lading to the Commissioner of Internal
Revenue.
ART. 6. Until printed blanks of the forms herein prescribed are
furnished by the department, typewritten forms may be used.
W. H. OSBORN,
Approved: Commissioner of Internal Revenue.
W. G. McADOO,
(T. D. 2417.)
Capital-stock tax, act of September 8, 1916–– Rulings of the commis
sioner.
Specific rulings made by this office in answer to questions arising under the special
excise tax imposed by section 407 of the above act.
The following rulings have been made by this office in answer to
many questions arising under the special excise tax imposed by
section 407 , Title IV, act of September 8, 1916 , on corporations trans
acting business in the United States:
(1) No deductions are allowed corporations organized in the
United States for capital invested in England, France, and other
foreign countries.
260
(2) Any surplus or undivided profits of a corporation that is

invested in bonds or other securities having no connection whatever
with the actual business of the corporation should be stated on the
return (Form 707) and will be taken into consideration if the fair
value of the stock is estimated under Case III of item 6.
(3) Referring to section 3, article 6 , of regulations No. 38 , regard
ing the provision in the law " that this tax shall not be imposed upon
any corporation , joint-stock company or association , or insurance
company not engaged in business during the preceding taxable year,"
it is held that if a corporation was engaged in business for any time,
even one day, during the preceding fiscal year, July 1 , 1915 , to June
30 , 1916 , it is required to file a return on Form 707, as stated in
paragraph (b) , article 3, of the regulations . There is no relation
between the amount of tax payable and the length of time during
which the corporation was so engaged in business.
(4) The provision inserted in the regulations requiring every
United States corporation having a capital stock outstanding of the
market or fair value of $ 75,000 or over to file a return on Form 707 ,
even though the fair value of its capital stock does not exceed $ 99,000,
the exemption allowed by law, was for the purpose of leaving the
final determination of the question of tax liability of the company
for the collector or the Commissioner of Internal Revenue.
(5) Referring to article 7 of regulations No. 38, regarding the
collection of this tax by assessment, the collectors will accept pay
ment of the tax when the returns are filed as " advance collections,"
provided there is no question about the amount of tax due ; but
corporations are not required to pay the tax until after receipt of
notice and demand on Form 17.
(6) The provision under the first paragraph of article 2 of the
regulations exempting from this tax agricultural or horticultural
organizations , only applies to those corporations that are engaged
in that business merely for the general welfare and benefit of the
public, such as agricultural or horticultural fairs or exhibitions . A
corporation engaged in general farming, raising cattle, or the agri
cultural business, for profit, is liable to this tax the same as any
other corporation .
(7) Capital stock that has once been issued by a corporation is
regarded as being " outstanding," even though it is afterwards
acquired by the company for value, and carried on the books as
"treasury stock."
(8) The following suggestions have been made with regard to
supplying the information required on Form 707 , and also two errors
in printing are noted under items 1 and 8:
Item 1. - The dollar mark should be omitted in the space provided
for the figures .
261
Item 4.-"Amount of surplus," as shown by the books of the cor

poration at the present time.
Item 5 .—“ Amount of undivided profits, " as shown by the books
of the corporation at the present time.
Item 6.-Cases I and II: Through lack of space no provision was
made on the draft of Form 707 for computing the average fair value
under item 6 of more than one kind of stock. There appears to be
ample space, however, on the printed form under cases I and II of
item 6 to list the highest prices quoted and highest sale prices of both
common and preferred stock. It is, therefore , suggested that the
average fair value of each kind of stock be listed in this way, which,
multiplied by the total number of shares of each kind of stock out.
standing on June 30, 1916 (item 7) , and added together would give
the fair value of the total capital stock, both common and pre
ferred, for the preceding fiscal year ended June 30 , 1916 , under item 8.
Case III: " Surplus, if any," and " Undivided profits, if any,'
should be the average surplus and average undivided profits as shown
by the books of the corporation for the preceding fiscal year, July
1 , 1915, to June 30 , 1916. Inasmuch as the fair value of the stock
ascertained under this case is only an estimate, this office has per
mitted corporations whose fiscal years ended on December 31 , 1915,
or any other date, to use the figures shown by the books on that date.
"Estimated earning capacity " of a corporation should be its pros
pective earnings for the next following year, and should be expressed
in terms of percentage of the par value of the capital stock.
""
The "Average dividends per share paid during preceding five years
may be found by adding together all regular and extra dividends
paid during the five years and dividing by 5.
Item 8. -This question should read as follows : " 8. Fair value of
total capital stock for preceding fiscal year ended June 30 , 1916
""
(No. 6 multiplied by No. 7) , $ — .
W. H. OSBORN,
(T. D. 2418.)
Capital-stock tax.
Citations from decisions of the Supreme Court regarding " doing business " under
capital-stock tax, act of September 8, 1916.
The following decisions made in cases arising under the corporation
tax act of August 5, 1909, will be followed where they are final or
262
have been acquiesced in by the department in similar questions aris

ing under the special excise tax imposed by section 407 , Title IV ,
act of September 8 , 1916 :
99.66
I. When is a corporation " engaged in business, ' 'doing business, ” or “ transacting
business?"
II. " Massachusetts trusts " are exempt from the special excise tax.
III. Filing of returns.
IV. Foreign corporations transacting business in the United States.
V. Domestic building and loan associations organized and operated for mutual
purposes and without profit are exempt.
VI. Insurance companies claiming exemption as fraternal beneficiary societies .
The special excise tax imposed under section 407 of the act of
September 8 , 1916 , is very similar in some respects to the corpora
tion-tax act of August 5 , 1909, and therefore the following court
decisions rendered under that act would apply to the present law:
I.
Flint v. Stone Tracy Co. , Cedar Street Co. v. Park Realty Co. and 13 other cases (220
U. S. , 107; T. D. 1685).
In these cases it was held that section 38 , act of August 5, 1909 ,

imposing a special excise tax on corporations was constitutional , and
further that corporations whose business is principally the holding
79
and management of real estate are actively " engaged in business
within the meaning of that statute.
In the case of Cedar Street Co. v. Park Realty Co. it developed that
the Park Realty Co. was organized to " work, develop , sell , convey,
mortgage , or otherwise dispose of real estate ; to lease, exchange,
hire, or otherwise acquire property ; to erect , alter, or improve build
ings ; to conduct, operate, manage, or lease hotels , apartment houses ,
etc .; to make and carry out contracts in the manner specified con
cerning buildings *** and generally to deal in, sell, lease, ex
change, or otherwise deal with lands , buildings, and other property,
real or personal ," etc.
The court, in its decision, used the following language :
We think it is clear that corporations organized for the purpose of doing business,
and actually engaged in such activities as leasing property , collecting rents, managing
office buildings, making investments of profits, or leasing ore lands and collecting
royalties, managing wharves, dividing profits, and in some cases investing the sur
plus, are engaged in business within the meaning of this statute, and in the capacity
necessary to make such organizations subject to the law.
Several good illustrations of what constitutes " engaging in busi
ness 19 are cited in the decision of the court in these cases.
Zonne v. Minneapolis Syndicate et al. (220 U. S. , 187; T. D. 1687) —Peculiarity of cor

porate organization exempting it from special excise tax.
Where a corporation originally organized for the purpose of own

ing and renting an office building leased the property for 130 years
263
and reorganized and practically went out of business, its sole au

thority being to hold the title subject to the lease and to receive and
distribute the rentals accruing thereunder or the proceeds of sale
if the property should be sold, held not liable to the special excise
tax under section 38 of the act of August 5 , 1909 .
The court stated in this case as follows :
The corporation involved in the present case , as originally organized , and owning
and renting an office building, was doing business within the meaning of the statute
as we have construed it. Upon the record now presented we are of opinion that the
Minneapolis syndicate, after the demise of the property and reorganization of the
corporation, was not engaged in doing business within the meaning of the ac . It
had wholly parted with control and management of the property ; its sole authority
was to hold the title subject to the lease for 130 years, to receive and distribute the
rentals which might accrue under the terms of the lease, or the proceeds of any sale
of the land if it should be sold . The corporation had practically gone out of business
in connection with the property and had disqualified itself by the terms of reorgani
zation from any activity in respect to it. We are of opinion that the corporation was
not doing business in such wise as to make it subject to the tax imposed by the act
of 1909.
McCoach, collector, v. Minehill & Schuylkill Haven Railroad Co. (228 U. S. , 295;
T. D. 1847).
Leased railroads . -A railroad corporation, which has leased its
property for a term of years and parted with its control and manage
ment, but which maintains its corporate organization and collects
rentals from the lessee company and distributes the same among its
stockholders , is not " engaged in business " within the meaning of
the corporation- tax act of 1909 and is not liable for taxes thereunder,
notwithstanding the lease provides for recovery of the property in
case of default.
Corporations out of business . - When the corporation owning the
property has gone out of business in connection therewith and dis
qualified itself from any activity in regard to it, there is no liability,
the principle being the same as that involved in the case of Zonne v.
Minneapolis Syndicate (220 U. S. , 187) , which is held to govern this
case.
The court stated in this case as follows :
From the facts as stated above it is entirely clear that the Minehill Co. was not,
during the years 1909 and 1910 , engaged at all in the business of maintaining or oper
ating a railroad , which was the prime object of its incorporation . This business, by
the lease of 1896, it had turned over to the Reading Co. If that lease had been
made without authorization of law-it may be that for some purposes, and possi
bly, for the present purpose—the lessee might be deemed in law the agent of the
lessor ; or at least the lessor held estopped to deny such agency . But the lease was
made by the express authority of the State that created the Minehill Co. , conferred
upon it its franchise, and imposed upon it the correlative public duties. The effect
of this legislation and of the lease made thereunder was to constitute the Reading Co.
the public agent for the operation of the railroad and to prevent the Minehill Co.
from carrying on business in respect of the maintenance and operation of the rail
road so long as the lease shall continue. And it is the Reading Co. , and not the
Minehill Co. , that is " doing business " as a railroad company upon the lines covered
264
by the lease, and is taxable because of it. The corporation-tax law does not con
template double taxation in respect of the same business.
United States v. Emery-Bird- Thayer Realty Co (237 U. S., 28; T. D. 2188).
Engaged in business . -The lessor corporation was not carrying on
or doing business within the meaning of the law, the only business
done being keeping up its corporate organization and collecting and
distributing rent received from lessee following the rule laid down
in T. D. 1847.
The court states as follows :
Being of opinion that the District Court had jurisdiction , we pass to the merits.
They also may be disposed of without much discussion . The line lies between Cedar
Street Co. v. Park Realty Co. (220 U. S. , 107 , 170) and Zonne v. Minneapolis Syndi
cate (220 U. S. , 187) , the latter case being carried perhaps a little further by McCoach
v. Minehill & Schuylkill Haven R. R. Co. (228 U. S. , 295) . We are of opinion that this
case is governed by the last two and that the decision was right. The question is
rather what the corporation is doing than what it could do (228 U. S. , 305 , 306) , but
looking even to its powers, they are limited very nearly to the necessary incidents
of holding a specific tract of land . The possible sale of the whole would be merely
the winding up of the corporation . That of a part would signify that the dry goods
company did not need it. The claimants characteristic charter function and the
only one that it was carrying on was the bare receipt and distribution to its stock
holders of rent from a specified parcel of land . Unless its bare existence as an inter
mediary was doing business, it is hard to imagine how it could be less engaged .
Stratton's Independence (Ltd.) v. F. W. Howbert, collector (231 U. S. , 399; T. D. 1913).
Mining companies . -Section 38, act of August 5 , 1909 , imposing
a special excise tax on corporations applies to mining companies .
The court stated as follows :
It is not correct, from either the theoretical or the practical standpoint , to say that
a mining corporation is not engaged in business, but is merely occupied in convert
ing its capital assets from one form into another. The sale outright of a mining prop
erty might be fairly described as a mere conversion of the capital from land into
money. But when a company is digging pits, sinking shafts, tunneling, drifting,
stoping, drilling, blasting, and hoisting ores, it is employing capital and labor in
transmuting a part of the realty into personalty and putting it into marketable form.
The very process of mining is, in a sense, equivalent in its results to a manufacturing
process. And , however the operation shall be described , the transaction is indubit
ably "business " within the fair meaning of the act of 1909; and the gains derived
from it are properly and strictly the income from that business; for " income " may
be defined as the gain derived from capital, from labor, or from both combined , and
here we have combined operations of capital and labor. As to the alleged inequality
of operation between mining corporations and others, it is of course true that the
revenues derived from the working of mines result to some extent in the exhaustion
of the capital. But the same is true of the earnings of the human brain and hand
when unaided by capital, yet such earnings are commonly dealt with in legislation
as income. * * * That mining companies are doing business, within the fair
intent and meaning of this clause, seems to us entirely plain , for reasons already given.
Rio Grande Junction Railway Co. v. United States, Case No. 32746, Court of Claims.
(T. D. 2345.) (Decided May 26, 1916.)
The Minehill decision in the Supreme Court. -Decision in the Mine
hill case (228 U. S. , 295 ; T. D. 1847) does not apply where a cor
265
poration is organized for the ostensible purpose of building and

operating a railroad and leases the road before it is built.
Corporations organized to build and lease property . -If the purpose
for which it was organized was to build and lease property, the rents
derived from such lease are taxable, even though thereby the cor
poration leases all the property and of necessity goes out of all cor
porate business excepting the collection and distribution of the rents.
The court stated :
We do not think, however, the case presented by the plaintiff comes within the
cases cited, for reasons which we will proceed to give . Its articles of incorporation
show that it was designed as a junction company ; that is to say , that it was intended
as a connecting line between other lines named . The contract for a lease was exe
cuted within six months after the date of its articles of incorporation , and by its terms
it may be well inferred that the lessees guaranteed the payment of all funds borrowed
for its construction , and from the latter fact it may well be inferred that its construc
tion was not begun until these bonds were issued and their payment guaranteed . It
does not appear that this company ever purchased or owned any rolling stock or
anything pertaining to the operation of a railroad , except its track and appurtenances
necessary for the use of rolling stock. As soon as said junction railroad was completed
the lessees took possession of it and have been operating it ever since . Shortly after
it was incorporated and before the execution of the agreement the General Assembly
of Colorado authorized the plaintiff to lease its railroad (not then built) , which must
have been for the purpose of making doubly certain what the articles of incorporation
already seemed to allow. These facts lead to but one conclusion, and that is that the
‫ܕ‬
"business " for which the plaintiff was incorporated was to build and lease a junction
railroad and enjoy the profits of that business alone. It never equipped a railroad for
use as such and never intended to, as all the facts show. If plaintiff is allowed to
evade payment of the corporation tax in this way, we see no reason why this practice
can not be followed in the construction hereafter of every railroad , and thus evade the
payment of a large percentage of the tax upon the net income of railway corporations.
There are cited below several decisions of the lower courts , con
struing the language of the Supreme Court in the above cases and
further defining the terms " doing business ," "engaged in business,"
and " transaction of business " : Baumbach , collector, v . Sargent Land
Co. et al. (219 Fed. , 31 ) , (now before the Supreme Court on writ of
certiorari) ; Lewellyn, collector , v. Pittsburgh, B. & L. E. R. R. Co.
et al. (222 Fed . , 177) ; Miller , collector , v . Snake River Valley R. R.
Co. (223 Fed . , 946) ; Traction Co. v . Collectors of internal revenue
(six cases) (223 Fed . , 984) , (decision of District Court printed in
T. D. 2000 reversed) ; Waterbury Gaslight Co. v. Walsh ( 228 Fed . , 54) ;
McCoach, collector, v. Continental Passenger Railway Co. of Phila
delphia (233 Fed . , 976) ; State Line & S. R. Co. v. Davis (228 Fed . ,
246) ; Wilkes-Barre & W. V. Traction Co. v. Davis, collector (214 Fed . ,
511 ) ; Maxwell v. Abrast Realty Co. (218 Fed . , 457) ; United States
v. Nipissing Minės Co. ( 206 Fed . , 431 ) .
Corporations which are not " engaged in business," "doing busi
ness," or " transacting business," as construed under the language
of the courts in the above decisions are not subject to the special
excise tax imposed under section 407 of the act of September 8 , 1916.
266
II.
Eliot v. Freeman et al. (220 U. S. , 178; T. D. 1686).
Intent of Congress . -It was the intention of Congress to embrace
within the statute imposing a special excise tax on corporations only
such corporations and joint-stock associations as are organized under
some statute or derive from that source some quality or benefit not
existing at the common law.
The two cases now under consideration embrace trusts which do not derive any
benefit from and are not organized under the statutory laws of Massachusetts . Joint
stock companies of the statutory character are not known to the laws of that Common
wealth. Ricker v . American Tea Co. ( 140 Mass. , 346) . These trusts do not have per
petual succession, but end with lives in being and 20 years thereafter.
Entertaining the view that it was the intention of Congress to embrace within the
corporation-tax statute only such corporations and joint-stock associations as are
organized under some statute or derive from that source some quality or benefit not
existing at the common law, we are of opinion that the real-estate trusts involved in
these two cases are not within the terms of the act. In that view the decrees in both
cases will be reversed and the same remanded to the Circuit Court of the United States
for the District of Massachusetts, with directions to overrule the demurrers and for
further proceedings consistent with this opinion.
III.
United States v. Military Construction Co. (204 Fed., 153; T. D. 1774).
Returns. -Corporations having a net income of $ 5,000 or less are
not exempt from the requirement that a return be made to the col
lector of the district in which such corporation has its principal place
of business .
The return required is a somewhat complicated one. It consists of eight sections ,
the proper interpretation of which controls the determination of what the net income
may be. This is a matter for the exercise of the official judgment and discretion of
the revenue department. In order that it may exercise such judgment and discretion
it must have the facts before it. The officers of the corporation and those of the
revenue department may differ as to the ultimate effect of such facts.
This ruling with regard to filing returns is also laid down in United
States v. Acorn Roofing Co. and four other corporations (204 Fed . ,
157 ; T. D. 1784) .
IV.
Laurentide Co. (Ltd.) v . Durey, collector (231 Fed. , 223; T. D. 2346).
Liability of foreign corporation- " Doing business " —" Transacting
66
business " 'Engaged in business ." —Under the revenue act of
August 5 , 1909, taxing the net income of foreign corporations en
gaged in business in the United States, and under the income-tax law
of October 3 , 1913 , taxing such income of such corporations accru
ing from business transacted and capital invested within the United
States , where a Canadian corporation making news print paper sent
agents into the United States to solicit purchasers for its product ,
paying their expenses, hiring desk room in the United States, em
267
powering the salesmen to make written contracts, in part in the

United States , subject to the corporation's approval in Canada, and,
when approved, to deliver the contracts , paying rent , storage charges
on paper shipped into the United States, and also for work done by
checks drawn on a bank in the United States where the company
kept its funds received for goods delivered in the United States to
purchasers, and then, to perform its written contracts, shipped
paper consigned to itself in the United States to different points,
where it hired storage rooms, and had the paper delivered to itself
at such rooms , where it stored it in its own name and at its own
risk pending delivery, doing so for its own convenience and to insure
delivery according to contract , also shipping into the United States
and storing in such manner paper to meet anticipated demands ,
such Canadian company " did business " in the United States , and
"engaged in business " therein, and also "transacted business " in
the United States, so that it was liable to taxation under both acts.
The court stated :
Appropriating the idea of Mr. Justice Peckham expressed in Pennsylvania L. M.
F. I. Co. v. Meyer (197 U. S. , at p . 415 ; 25 Sup . Ct ., 483 ; 42 L. Ed . , 810) , I think it
would be somewhat difficult for the Laurentide Co. (Ltd. ), or its able attorney , to
describe what it was doing in the United States if it was not doing, carrying on, and
transacting business therein when there receiving large quantities of news paper con
signed to itself and storing it, hiring and paying for storage room therefor , delivering
it to customers, purchasers thereof, soliciting contracts by agents for the purchase
and supply of same, renting and paying rent for a room for doing the business, de
positing and collecting the checks received in payment, and paying the expenses of
the business therefrom, all done in the State of New York in the United States. It
was not necessary that the contracts should have been made wholly in the United
States. Pennsylvania Life Insurance Co. v . Meyer (197 U. S. , 407 , 414 ; 25 Sup. Ct. ,
483 ; 49 L. Ed . , 810) , or that their execution or performance should have been wholly
in the United States.
V.
Herold, collector, v. Park View Building and Loan Association (210 Fed. , 577; T. D.
1941).
Construction of clause. -The words " no part of the net income of
which inures to the benefit of any private stockholder or individual "
do not apply to domestic building and loan associations operated for
the mutual benefit of members .
Exemption.- Building and loan associations operated exclusively for
the mutual benefit of their members are exempt.
Issuance of prepaid stock . The issuance of prepaid stock does not
destroy mutuality (affirming 203 Fed . , 876) .
VI.
Commercial Travelers' Life and Accident Association v . Rodway, collector (235 Fed. , 370;
T. D. 1918).
Insurance companies. -The corporation in question is an insurance
company within the meaning of the law and subject to the tax imposed
by section 38, act of August 5 , 1909.
268
Fraternal beneficiary societies . - There is no exemption in the law

in favor of insurance companies other than fraternal beneficiary soci
eties operating under the lodge system (see T. D. 1738) . Fraternal
beneficiary societies defined .
Inasmuch as the basis of tax is the fair value of the stock of a cor
poration, mutual insurance companies and other associations not
having capital stock represented by shares will also be exempt from
tax, in the absence of a basis for the computation of the tax.
Respectfully,
W. H. OSBORN,
W. G. McADOO,
(T. D. 2419. )
Cases containing spirits bottled in bond.

Modification of article No. 34 , regulations No. 23, revised December 21 , 1912,
spirits bottled in bond.
TREASURY Department ,
You are hereby advised that as to cases which are to contain
spirits bottled in bond for domestic purposes , article No. 34, regu
lations No. 23 , revised December 21 , 1912 , is hereby amended so as
to permit the serial numbers of such cases to be stenciled thereon in
black letters instead of being burned , imprinted , or embossed as at
present required.
W. H. OSBORN,
W. G. McADOO,
(T. D. 2420. )
Registry of, and issue of certificates of registry to , dealers in leaf tobacco .

Dealers who have paid special tax which expires by limitation December 31, 1916,
are required , in order to continue business , to make return for register and obtain
certificates of registry for the period of the fiscal year 1917.
Each dealer in leaf tobacco and retail dealer in leaf tobacco , who
has paid special tax for the period ended December 31 , 1916 , will, on
269
account of the expiration by limitation on said date of the act of

October 22 , 1914 , which imposed such special taxes , be required ,
within the month of January, 1917, in order to continue business , to
make return for register on Form 277, and obtain certificates of
registry, Forms 282 and 641 , respectively, for the period of the fiscal
year ended June 30, 1917. Likewise , all dealers who commence
business on and after January 1 , 1917 , will be required to file returns
for register and obtain certificates of registry . These certificates must
be posted conspicuously in the dealers' places of business.
It is assumed that those dealers who , on account of their sales
having been less than 1,000 pounds , were not subject to a special
tax, have filed returns for register and obtained certificates of registry
for the current year. Such dealers will not be required to file new
returns for register or obtain new certificates of registry at this time.
W. H. OSBORN,
(T. D. 2421.)
Estate tax.
Thirty-day notice , return, and tax payment required of representatives this coun
try of nonresidents where no executor acts within the required time ; also a similar
requirement in the case of fiduciaries holding property of a resident where no
executor acts.
To collectors of internal revenue and revenue agents:
Inquiry has been made of this office as to the liability under sec
tion 205 of the revenue act of September 8, 1916 , of representatives
in this country of a nonresident decedent leaving property in the
hands of the representatives, and where , so far as the representatives
know , no executor has been appointed.
Section 205 of the act requires that the " executor " within 30
days after qualifying as such, or after taking possession of any prop
erty of decedent, whichever event first occurs , shall give notice to
the proper collector, and that later the " executor " shall file return
of the estate . Section 207 requires that the " executor " shall pay
the tax to the proper collector or his deputy. In section 200 the
term " executor " as used throughout Title II is defined as meaning
either the executor or administrator, or if there is none, " any person
who takes possession of any property of the decedent."
In the instance cited to this office for ruling, it is argued that the
representatives in this country of the nonresident decedent do not
"take possession " of decedent's property, and that, since the rep
270
resentatives are neither administrators nor beneficiaries , they can

not be required to file the 30-day notice, or return, or make payment
of the tax.
From this view the Government must dissent , for although there
is no change of agent or representative, there is , immediately upon
the nonresident's death, a complete change in the character of the
agency. Prior to the death, the local representatives held the prop
erty in charge for the nonresident, but immediately the death has
occurred they hold subject to the order of executors or adminis
trators, and for the beneficiaries legally entitled thereto . At the
moment of death there is , on the part of the local representatives ,
an actual legal taking of possession for succeeding owners—a change
in the conditions of possession so complete that no actuality would
be added by the substitution of other agents . It is clear, therefore ,
that , under the provisions of Title II , such representatives are re
sponsible for the filing of the 30- day notice and can be saved from
this responsibility only if, prior to the expiration of 30 days from the
death of the nonresident, the required notice has been filed by the
executor or administrator.
Further weight is given to this ruling by a consideration of the
very evident intent of Congress in its definition in section 200 of
the term " executor. " This definition was given with the sole pur
pose of providing effective means for the ascertainment and collec
tion of the tax due in every case where the complete facts might not
be known to the executor or where the executor might be in a posi
tion successfully to evade his responsibilities under the taxing act.
Obviously, the object on the part of Congress in causing " any per
son who takes possession of any property of the decedent " to share
equally with executors and administrators the liability to render
notice and return and pay the tax was that there should not be,
under any circumstances of transmission , a failure of the adminis
trative power to secure a full disclosure of the facts and a complete
satisfaction of the tax. Congress must have foreseen, in enacting
the final paragraph of section 202 , that without such an administra
tive requirement as this the tax due because of stock owned by a
nonresident in domestic corporations could be successfully evaded .
The definition of "executor " in section 200 was made intentionally
so broad that no property subject to the tax could escape taxation
through any uncertainty as to the person liable for giving accurate
information with regard thereto .
The 30-day notice will therefore be required in every case of
such representatives in the United States of nonresident decedents ,
unless the representatives know that within 30 days after the death
of the decedent the executor or administrator has filed the notice.
Similarly, the return for the portion of the estate within their charge
271
will be required of the local representatives within one year from the
death of the decedent, unless the local representatives, prior to that
time, have ascertained that the executor or administrator has filed
the return . Similarly, tax payment will be required of the repre
sentatives out of the property in their charge if payment has not
been made before the due date by the executor or administrator.
The penalty imposed in section 210 for failure to fulfill these require
ments is $ 500 , to be recovered with costs of suit in a civil action.
This ruling applies also with regard to certain property of resi
dents , such as the decedent's interest in joint bank accounts or any
other property owned jointly, or as tenants in entirety, and property
conveyed by deed of trust. In such cases the fiduciary holding for
the succeeding beneficiary the decedent's share of the joint account,
or other property jointly owned, or acting as trustee of property
conveyed to beneficiaries by a deed of trust, is required to file the
30-day notice and the return and make tax payment, unless, within
the required periods, the requirements of the law have been other
wise fully satisfied .
W. H. OSBORN,
Approved :
W. G. MCADOO,
(T. D. 2422.)
Special permits for removal of tobacco material from cigar and tobacco
factories.
New form (No. 688) of special permit adopted to take the place of Record 100 for
issue by collectors to manufacturers of cigars and tobacco exclusively on and
after January 1, 1917.
1. A new form of special permit , Form 688, a supply of which
has been forwarded to each collector who has not previously been
furnished with same, has been adopted to take the place of Record 100
for issue by collectors to manufacturers of cigars and tobacco making
application therefor , authorizing the removal of certain specified
kinds of tobacco from their bonded factory premises for sale or trans
fer to another factory or for return to a leaf dealer. Form 688 shal
be used exclusively on and after January 1 , 1917 , Record 100 thereby
becoming obsolete. The use of any other form of permit is forbidden .
2. No tobacco material shall be removed from any bonded cigar
or tobacco factory premises in advance of the receipt, by the manu
272
facturer operating the factory, of special permit , Form 688, author

izing same, duly issued by the collector of internal revenue for the
district, except tobacco stems suitable for manufacturing purposes
when sold by a manufacturer of tobacco to another qualified manu
facturer of tobacco , or dealer in leaf tobacco, as provided on page 22
of regulations No. 8 , revised July 1 , 1910. Special attention is
called to the provisions of the same regulations that the manufac
turer's application for special permit must be filed with the collector
a sufficient length of time in advance of the removal of the material
from his factory to enable the collector or his deputy to inspect the
tobacco described in the application, if he deems it necessary to do
so, before issuing the permit. No more nor less material nor other
than the kinds specified in the special permit can be removed from
the factory under same. Removal must be made immediately upon
receipt by the manufacturer of permit, revenue entry therefor to be
made on Book 73 or 74 , as the case may be, not as of date of permit,
but of date of removal.
3. Each manufacturer, in his application for a special permit,
besides giving his registered factory number, must indicate whether
said number is his cigar or tobacco factory number, and supply the
same information with respect to the kind of factory and factory
number of the manufacturer, as well as the district and State in
which he is located , to whom he desires to sell or transfer tobacco
material for which permit is applied for. In case shipment is to be
made to a leaf dealer, the name of the dealer, his business , and the
district and State in which he is located must be given.
Extra copies of this decision will be printed and furnished to the
several collectors for distribution to the manufacturers of tobacco,
snuff, cigars, and cigarettes registered in their districts .
W. H. OSBORN,
(T. D. 2423.)
Capital-stock tax-Rulings of commissioner.
Specific rulings made by the office of internal revenue in answer to questions arising
under the special excise tax imposed by section 407 of the act of September 8, 1916.
TREASURY Department ,
(1 ) The following suggestions have been made regarding the
method of estimating the fair value of stock under Case III, item 6,
on Form 707 :
273
(a) Where the capital stock of a corporation is worth $ 100 pe

share par value and the corporation reports 10,000 shares , having a
total value of $ 1,000,000 , and also reports a surplus of $ 500,000 and
undivided profits of $ 50,000 , the book value of such stock would be
$ 1,550,000 . This should be taken as the basis of the approximate
value of the stock per share ($ 155) unless by reason of earning
capacity the real value is in excess of the book value, or unless for
any reason the book value is fictitious and is shown by overesti
mating the value of assets .
(b) If the " average profits per share earned during preceding five
years " indicate an " estimated earning capacity " in excess of the
book value, the fair value of the capital stock may be based upon
a reasonable return on capital invested , dependent on the hazards
of the business and what prices the stock of corporations engaged
in a similar character of business brings in the open market.
(c) If the book value is fictitious and is shown by overestimating
the capital assets, this fact should be fully explained , either on the
return or in a statement attached thereto , and may be given allow
ance in determining the fair value of stock where the " average
profits per share earned during preceding five years " and " earning
capacity " are exceedingly low.
(d) The " average dividends per share paid during preceding five
years " are stated merely for the information of this office in a case
where a corporation shows an earning capacity, but states no surplus
or undivided profits .
(e) One return submitted by a lumber company for examination.
showed a surplus of $ 257,700 , but stated that it was " not earned . "
In view of the fact that the total profits of this company for the last
four years of operation only amounted to $ 22,709.19 , and it had paid
no dividends within the last five years , and its earning capacity was
practically nothing, the corporation was advised to file a statement
explaining how the surplus was acquired , and if it was real or ficti
tious owing to the inflated valuation of assets on the books . The fair
value of the stock of this company, which was estimated on the return
at par, $ 100 per share, would largely depend upon the value of its
assets , especially the surplus of $257,700 . In other words , if the
capital stock of $450,000 , the surplus of $ 257,700 , and the undi
vided profits of $ 22,708.19 , were divided up at the present time,
would the corporation pay $ 162 per share to each of the stockholders ,
that being approximately the book value ?
(f) A return filed by a cotton-yarn manufacturing corporation
howing average profits for the last five years of $ 15,949.45 on capital
stock of $200,000 , stated an estimated value under Case III of $ 70
per share . An industrial corporation of this character stating the
24433°-VOL 18-16-18
274
fair value of its stock at $ 70 upon a return showing an earning ca

pacity of 7 to 8 per cent is considered fair , in view of the specula
tive character of its business .
(g) The collectors may make notations at the foot of special lists ,
Form 230, of any exceptional cases in which specific rulings of the
department are desired , and if it is necessary for this office to make
an examination of the return , statements , or affidavits of officers
of the corporation, the collectors will be asked to forward them for
that purpose.
(h) Where a holding company owns all the stock of several sub
sidiary corporations which is not listed on any exchange or which has
not been sold in the last fiscal year, it has been held that the fair
value of the stock of such subsidiary companies may be estimated
from the market value of the total capital stock of the holding com
pany (the parent corporation) by apportionment of the fair value of
the total capital stock of the holding corporation among the sub
sidiary companies . This does not of course relieve the holding com
pany from its liability to the special excise tax , the average fair value
of the stock of which can probably be computed under Case I or II.
(2) Corporations estimating the fair value of their stock under
Case II, item 6 , on Form 707 , will comply strictly with the provisions
in the regulations by taking " the average price at which sales were
made during the preceding fiscal year " and not the average selling
price per share . Thus if 10 shares were sold at $100 and 1,000 shares
were sold at $70 , the " average price at which sales were made ”
would be $ 85 . The average selling price in such a case would be
$70.29, but this price will not be accepted as an average fair value .
Corporations protesting against the computation of the value of stock
on this basis may file a statement with the return on Form 707 setting
forth the facts in detail and requesting the collector to bring the case
to the attention of this office by a notation on the special list, Form
· 230, when it is forwarded to the department for audit.
(3) From correspondence reaching this office there appears to be
a general lack of understanding of the character and scope of the
special excise tax imposed upon corporations by this act.
This tax is an excise tax on the privilege of doing business similar
to occupational taxes imposed on individuals, except that instead
of a flat tax the amount of tax is measured by the average value of
the stock during the preceding year. Being a privilege or occupa
tional tax, it is payable in advance for a period from the time the act
goes into effect to the end of the fiscal year and annually thereafter
in July, the beginning of the Government's fiscal year. The tax is
payable to the collector at any time after January 1 , 1917 , but
penalties for nonpayment do not attach until 10 days after notice
275
and demand therefor has been served by the collector upon the
taxpayer.
It is a condition precedent that the corporation to be liable must
have been engaged in business during the preceding taxable (fiscal)
year. This means, however, not that it must have been engaged in
business during the entire year, but at some time in the year, and
the length of time has no bearing upon the amount of tax due . That
is found by ascertaining the actual average market value of the stock
from known sales, or estimating such value for the preceding taxable
year, which, in the case of the return due in January, 1917 , is the
Government's fiscal year from July 1 , 1915, to June 30 , 1916.
G. E. FLETCHER,
(T. D. 2424.)
Capital-stock tax.
Corporations in the possession and control of receivers appointed by the court and
held not taxable under the corporation tax act of August 5, 1909, in the Supreme
Court decision printed in T. D. 1896 of November 17, 1913, are not subject to the
special excise tax imposed under section 407, act of September 8, 1916 .
SIR : Receipt is acknowledged of your letter of the 22d instant
regarding the special excise tax imposed under section 407 , act of
September 8 , 1916 , on corporations transacting business in the United
States , and calling attention to the cases of United States v . Whit
ridge , receiver of the Third Avenue Railroad Co. et al., and United
States v. Joline and Robinson, receivers of the Metropolitan Street
Railway Co. et al. (231 U. S. , 144) , in which it was held that a corpora
tion, such as a railroad, in the possession and control of receivers
appointed by the court, was not subject to the excise tax imposed
under the act of August 5, 1909 .
In reply, you are advised that the special excise tax imposed under
section 407 of the act of September 8 , 1916, is very similar in this
respect to the corporation tax act of August 5, 1909, and in view of
the above Supreme Court decision, which is reported in T. D. 1896 ,
it is held that corporations which are now in the hands of receivers
will not be required to make a return on Form 707 unless the receiver
ship terminates before the close of the taxable period , nor will corpora
tions now operating under their corporate management but which
were in the hands of receivers during the preceding taxable (fiscal)
year, July 1 , 1915, to June 30 , 1916 , be required to file a return in
276
January, 1917. In this connection reference is made to paragraph

3 of T. D. 2417 and to the decisions cited in T. D. 2418.
Respectfully,
G. E. FLETCHER,
Mr.
(T. D. 2425.)
Income tax.
Tax liability of income received from sources within the United States by foreign
Governments or their resident agents.
OFFICE OF COMMISSIONER OF INTERNAL Revenue ,
Under the provision (sec. 9 , g) of the act of September 8, 1916
which declares the intent and purpose of the Federal income-tax law,
it is held that the total net income received during each calendar year
by foreign Governments from sources within the United States arising
from interest on bonds, notes, or other interest-bearing obligations of
residents , corporate or otherwise, and including the income derived
from dividends on capital stock or from net earnings of resident cor
porations , etc. , whose net income is subject to a like tax, is subject
to a tax of 2 per cent (sec. 10) , effective as of January 1 , 1916 .
Returns shall be made and the tax shall be paid , under the liabil
ities named in the law, by the actual owners of the income or the
proper representatives in the United States having its receipt, cus
tody, control, or disposal.
Treasury regulations based upon the applicable withholding pro
visions of the act of September 8 , 1916 (sec . 13 , e and f) , will be held
effective in the case of foreign Governments and their representatives
as of January 1 , 1917.
Foreign governments having no office or place of business in the
United States, or their foreign agents , will use income-tax certificate
Form 1004 , revised November, 1916. Foreign governments having
an office or place of business in the United States , or their resident
agents in the United States, may use income-tax certificate Form 1086 .
W. H. OSBORN ,
Approved:
W. G. MCADOO,
277
(T. D. 2426.)
Capital-stock tax.
The individual fair value of stocks of two banks that have a definite combined market
value, but no separate value, may be ascertained by apportionment of this market
value on the basis of the capital stock, surplus, and undivided profits of each
corporation for the fiscal year.
SIR : Receipt is acknowledged of your letter of the 14th instant,
quoting a communication from the National Bank, stating
that the stock of that bank and the Trust Co. , two separate
corporations, each having 20,000 shares of stock, are issued together
in such a way that there is no separate market value for either class of
stock. It appears that each share of stock of the National
Bank, which has a par value of $ 100 per share , automatically carries
with it one share of stock of the Trust Co. , of a par value of
$50, as evidenced by a printed indorsement on each certificate of stock
of the -National Bank.
In view of the fact that the combined stocks of these two banks have
a definite market value for the fiscal year ended June 30, 1916 , of
$220.58, this office approves of the suggestion regarding the appor
tionment of this market value between the stocks of the two cor
porations on the basis of the capital stock, surplus, and undivided
profits of each for that period as outlined below :
Average price for combined stock .. $220.58
Average capital, surplus, and undivided profits for period ending June
30, 1916:
National Bank... 3, 104, 032.00
Trust Co ...... 1, 371, 274.00
Total... 4, 475, 306. 00
Percentage of total is—
For National Bank . 69.36
For Trust Co ... 30.64
For National Bank, 69.36 per cent of $220.58 is (per share) ……. 153.00
For Trust Co. , 30.64 per cent of $220.58 is (per share) . 67.58
20,000 shares of National Bank, at $153 per share . 3,060, 000.00
Less deduction .. 99,000.00
2, 961, 000.00
Tax, at 25 cents per $1,000 , is .. 740.25
20,000 shares of - Trust Co. , at $67.58 per share ... 1, 351, 600.00
Less deduction .. 99,000.00
1, 252, 600.00
Tax, at 25 cents per $1,000, is . 313. 15
COLLECTOR INTERNAL REVENUE ,
San Francisco, Cal.
278
(T. D. 2427.)
Income tax.
Definition of the term " a head of a family " as used in the income-tax law of September
8, 1916.
Under the act of September 8 , 1916 , the head of a family is entitled
to claim a personal exemption of $4,000 for the purpose of the normal
income tax.
For this purpose a head of a family is held to be a person who
actually supports and maintains one or more individuals who are
closely connected with him by blood relationship , relationship by
marriage or by adoption , and whose right to exercise family control
and provide for these dependent individuals is based upon some
moral or legal obligation .
W. H. OSBORN,
Approved :
W. G. MCADOO,
(T. D. 2428.)
Suit against collector to recover tax-Corporation-tax act of August 5,

1909-Decision of court.
•
1. ORGANIZED FOR PROFIT.
The plaintiff was incorporated to provide and operate a terminal for certain stated
railroads, which were required to use the station to be built, and to which the
capital stock of the corporation was issued , said railroads paying for the use of the
terminal, which payments were part of the operating expenses of the railroads, they
being entitled to dividends on the stock in the corporation . It was held that the
plaintiff company was organized for profit within the meaning of the law.
2. ENGAGED IN BUSINESS .
The plaintiff corporation to which payments were required to be made by the
railroads using the terminal, and which granted concessions and licenses to others
than the said stockholding railroads for the transaction of various kinds of business
and which operated facilities for supplying power, heat, light, gas, etc. , manu
factured by it was engaged in business.
3. INTEREST ON BONDS ALLOWABLE AS A DEDUCTION.
Interest on bonded or other indebtedness paid within the year is to be deducted
from gross income, according to the second clause of section 38 ; but only the interest
paid upon such indebtedness to an amount not exceeding the corporation's paid-up
capital stock. The question was decided by the Supreme Court, decision of
Anderson v. Forty-two Broadway Co.
279
4. TAXES RIGHTLY ASSESSED .

The taxes assessed upon returns amended by the commissioner and collected
from the plaintiff company were lawfully collected , and judgment is rendered for
defendant.
The appended opinion of the United States District Court for the
District of Massachusetts in the case of the Boston Terminal Co. v.
James D. Gill, collector, is published for the information of internal
G. E. FLETCHER,
DISTRICT COURT OF THE UNITED STATES , DISTRICT OF MASSACHUSETTS.

Boston Terminal Co. v . James D. Gill, collector.
(December 26, 1916. )
DODGE, Judge: In these three actions at law the plaintiff seeks to recover back
payments made by it to the defendant collector which had been assessed upon and
collected from the plaintiff as taxes due from it under the Federal excise-tax statute
of August 5, 1909 , section 38 (36 Stats . , 112-117) . The first suit relates to the taxes
so collected for the year 1909 ; the second and third to the taxes for the years 1910 and
1911 , respectively.
The parties waive trial by jury and have submitted the cases to the court upon a
statement of agreed facts, filed November 22, 1915 , covering all three cases. I there
fore find the facts to be as set forth in said statement, which is to be referred to in
connection with this opinion . The agreement provides that the court may draw
inferences of fact.
(1) The first question to be determined is whether the plaintiff corporation, which
had " a capital stock represented by shares," was a corporation " organized for profit "
within the meaning of the act, and therefore subject to pay annually the special
excise tax provided for by section 38, with respect to the carrying on or doing business
by it during the years here in question.
The plaintiff corporation was established by, organized under, and its operations
conducted in accordance with a statute of Massachusetts passed June 9, 1896, and
entitled " an act to provide for a union station for passengers on railroads entering the
southerly part of the city of Boston. " It forms chapter 516 of the Massachusetts acts
of 1896. It is set forth in full as part of the agreed statement.
The five railroads named in section 2 of this statute subscribed for and paid in
$100,000 each of the $500,000 capital stock therein provided for. The Boston &
Albany Railroad Co. was leased to the New York Central & Hudson River Railroad
Co. in 1900, and thereafter operated by the lessee ; the New England Railroad Co. was
leased to the New York, New Haven & Hartford Railroad Co. in 1898, and was there
after operated by said lessee and subsequently merged with it in 1908 ; the Boston &
Providence Railroad Co. had been leased to the Old Colony Railroad Co. in 1888,
was operated by said lessee when the statute was passed, and thereafter until 1893 ,
when the New York, New Haven & Hartford Railroad Co. became lessee of both the
last-mentioned railroads and thereafter continued to operate them. During the years
here in question, therefore, the actual control of the five railroad companies men
tioned in the statute was vested in the New York Central & Hudson River Railroad
Co. and the New York, New Haven & Hartford Railroad Co. , which two companies
280
thereafter complied , on behalf of their respective lessors , and the last-mentioned

company on its own behalf, with the provisions and requirements of the above statute .
The plaintiff company proceeded under such statute to acquire the necessary
land and to build thereon the contemplated union station, which was thereafter
used by all the five railroads named or their respective lessees . The land was acquired
and the station built with the money paid in by them as capital stock, and with
money raised by the issue of its mortgage bonds, under section 4 of said statute, to
the amount of $ 14,500,000 .
To each of said five railroad companies there was issued for the $ 100,000 paid in by it
1,000 shares of the plaintiff company's stock, each share of the par value of $100 ,
making in all the total capital stock authorized by the Massachusetts statute. Each
railroad company has since retained all the stock issued to it as above and now owns
it. While they thus became and now are the only holders of all the shares into which
the plaintiff company's stock is divided , the nature of said stock in respect of the
rights belonging to and the liabilities incurred by its owners is made to differ widely
from that belonging to ordinary stock in a business corporation , by the following
provisions of said Massachusetts statute, which are believed to be the only provisions
especially significant upon the question whether or not the company is to be regarded
as "organized for profit, " within the meaning of the Federal act.
(a) As to the issue of the stock, while the statute provided only that the above
named railroads might take and pay for it as above , without requiring them to do so,
or prohibiting its issue to others , or in amounts different from the above , it authorized
the company to acquire the land necessary to its operations only when each said
railroad should have taken and paid for the amount of stock allotted to it by the
statute and the company's entire capital should have been so paid in by them.
(b) Ownership of the stock was not, of itself, to carry with it any voting power in
the choice of the company's officers. Management of the company, instead of being
in the hands of directors chosen by its stockholders , was placed by the statute in the
hands of five trustees, one to be appointed by each of said railroads, each trustee to
be a director of the railroad appointing him, and to hold his office as trustee at its
pleasure. Any vacancy was to be filled in like manner.
(c) The liability of each railroad for the company's debts and liabilities was, by
the statute, not to be confined to the ordinary liability of a stockholder in a business
corporation . The issue of bonds , to such amount as might be necessary and approved
by the railroad commissioners , was authorized ; and an issue largely exceeding the
capital stock in amount was clearly contemplated ; such bonds to be secured by
mortgage of the land to be acquired and the station to be thereon erected by the com
pany. The five railroads who were to take the stock as above were required , in the
event of foreclosure of such mortgage and a sale of the property mortgaged for less than
the principal and interest of the mortgage debt, to make good to the bondholders the
amount of such deficiency, each to contribute thereto, not in the proportions wherein
they had taken and paid for the stock (one-fifth each ) , but each in proportion to the
use which it or its lessees might then have of the property.
(d) The company was not given unrestricted power in the operations which the
statute authorized it to undertake . Plans prepared by the company for the con
struction of the station it was to build on such land as it might take for the purpose
were to be approved or changed as ordered by the municipal authorities of Boston with
the concurrence of the Massachusetts railroad commissioners . Rules made by the
company for the use of the completed station were to be subject to modification by
said railroad commissioners upon application of the Boston municipal authorities or
of the railroads themselves.
(e) The railroads who were to take the company's stock as above were required to
use the completed station it was to build, instead of their respective terminal facilities
then in use. For such use the statute further required them to make payment to the
company, such payments to be part of their operating expenses. The respective pro
281
portions in which the statute required each to pay were to depend upon the propor
tionate use made by it of the new facilities , not upon the proportion of stock held ;
and were to be fixed by agreement. or, in case of failure to agree, by said railroad
commissioners ; with provisions for revision , either by agreement or said commissioners,
at intervals of not less than three years. What the payments required as above from
the railroads were to cover is expressly provided by the statute ; which provisions,
though not very directly bearing upon the rights and liabilities attending the owner
ship of stock in the company, are next stated .
(f) The payments required to be made by said railroads for their use of said station
were to be made monthly to said company for its use. Said railroads were to pay
sec. 10)
Such amounts as may be necessary to pay the expenses of its corporate adminis
tration and of the maintenance and operation of said station, and of the facilities
connected therewith and owned by said terminal company, including insurance and
all repairs, all taxes and assessments which may be required to be paid by said terminal
company, the interest upon its bonds or other obligations issued under the provisions
of this act, as the same shall become payable, and a dividend , not to exceed 4 per cent
per annum, upon its capital stock.
It is to be noticed in connection with these provisions that in its last section (25)
the statute required the company to pay a franchise tax upon the true market value
of its capital stock without any deduction whatever. But the plaintiff company's
real estate used by said railroad companies is by the same section directed to be
assessed to them, not to said company , and the taxes thereon are to be paid , not by the
company, but by said railroad companies in the proportions wherein each should at
the time be making use thereof.
Although neither railroad company has sold any of the stock taken by it as above,
the statute nowhere prohibits such sale; and no obstacle to such sale at any time appears
to exist , other than the practical difficulty of obtaining a purchaser for stock without
voting power, entitled to dividends only in case trustees representing the railroads
who would have to furnish the money to pay them if declared should so determine,
and limited to 4 per cent even in that event. It can not be said that upon no terms
within the power of its present owners to offer could the difficulty ever be got over, nor
can it be said that the statute contemplates no sale of the stock in any event. That
its owners, whether said railroad companies or other persons, might at some time and
in some manner become entitled to dividends upon it is a possibility for which express
provision is made. The organization is therefore for profit, at least upon contingencies
which, however remote, are not wholly impossible of occurrence.
The plaintiff says that the railroads , its only stockholders as above, would them
selves have to pay into it the amount of any dividend declared , only to receive back
again as dividends the amounts so paid in. This would be true if each of the five used
the station in the same proportion as that which its holding of stock bears to the entire
capital . But it appears that, during the three years here in question at least, the only
use made by the New York, New Haven & Hartford Co. of the station has been as
lessee or owner of three of the five railroads named in the statute, while the only other
railroad making use of it has been the Boston & Albany, leased to the New York
Central ; so that the payments to be made according to actual use have been in the
proportions one-fourth by the latter railroad and three-fourths by the New Haven
on behalf of its three lessors and itself. The latter railroad, on behalf of itself and its
lessors , would thus have to pay in only 75 per cent of any amount used for dividends ,
while it would be entitled to 80 per cent ( four-fifths) thereof in dividends upon its
and their stock . It can hardly be said , therefore , that the prescribed organization
permits no profit in any event to any original stockholder.
But apart from any question as to dividends, the agreed facts show that the total
cost of corporate administration , maintenance and operation , etc. , is not in fact wholly
borne by the five stockholding railroad corporations. The provisions of section 10 of
282
the statute requiring payment by them of such amounts as might be needed to pay the
expenses of administration , etc. , have been cited above. From paragraph V of the
agreed facts it appears that the plaintiff company has leased space in the station and
has granted concessions and licenses therein to persons other than said stockholding
railroads, for the transaction on their own account of various kinds of business whose
transaction there might accommodate passengers there arriving or thence departing ,
but was not otherwise connected with its business, the amounts received by it in pay
ment for the privileges in the station so granted being applied in reduction of the
expenses of administration , etc. , to be met as above by the stockholding railroads .
And , as also agreed in paragraph V, the plaintiff has also itself operated facilities and
supplied power, heat, light, gas , etc. , manufactured by it for use in said station to
such other persons as well as to said railroads , deriving revenue directly therefrom,
which has been applied in like manner as above.
By means of revenue thus obtained by the company, not from said stockholding
railroads but from others , the cost to them of the administration , maintenance , and
operation for which the statute required them to provide has been very materially
reduced , as paragraph VI of the agreed facts more fully shows. There is no suggestion
that the above dealings by the plaintiff company with others than said railroads are
beyond its statutory powers . They were obviously for the better accommodation
of the traveling public who were to use the station, and may be regarded as incidental
to the maintenance and operation thereof by it which the statute expressly directed ,
and , therefore , as contemplated by the statutory provisions , establishing the com
pany's organization . Since the railroads have been thereby relieved from having
to meet out of their earnings a material part of the charges expressly ranked by the
statute among their operating expenses, and their net earnings applicable by them
to their own dividends have been to that extent augmented , that the company's
organization is in no respect for profit can hardly be reasonably said .
There appears to be no little ground for the conclusion that every organization
which does not belong to any one of these classes expressly mentioned in the proviso
which section 38 of the excise-tax act contains should be regarded as " organized for
profit " within the meaning of that section. In Sargent , etc. , Co. v. Baumbach
(207 Fed . , 423 , 428 ) the District Court in Minnesota expressed itself in favor of such a
construction. In its enumeration of the classes of organizations to be exempted
from the general liability to taxation under the act, the proviso adds: " No part of the
net income of which inures to the benefit of any private stockholder or individual . "
These words forbid the application of the proviso wherein they occur to any organi
zation mentioned therein whereto they do not apply, even though in all other respects
the proviso would entitle it to exemption . But I can not regard them as indicating
that no organization is to be treated as one " for profit " in the sense of the statute
unless it provides for or permits a net income inuring directly to the benefit of some
private stockholder or individual.
I therefore consider the scheme of the plaintiff's organization adapted to permit
the acquisition of what may fairly be called " profit," and hold that it was a corpora
tion organized for profit within the meaning of the Federal statute . I reach this
conclusion without regard to the fact that it pays , as required by the State statute
under which it is organized, a franchise tax upon the market value of its capital stock
to the State of Massachusetts ; and notwithstanding the fact that it has neither paid
any dividends on said capital stock nor accumulated any surplus from its operations.
(2) The next question is, whether the plaintiff corporation was " engaged in
business " within the meaning of the act during the years to which this case relates.
There being no dispute that during those years it carried on the operations it was
organized to carry on , in all respects as directed in or contemplated by the State
statute permitting its organization and regulating its operations, its contention upon
this point is only that said operations were not " for profit, " and that by " engaged in
283
business " the act can not mean business from which no profit is to result . This
contention is in effect disposed of in the defendant's favor by what has been above
said,
(3) It remains to consider the plaintiff's claim that it has been taxed upon an
amount greater than the true amount as its "net income " for the years in question.
The facts regarding its income for 1909 are as below, and determination of the correct
method of ascertaining its taxable net income for that year will determine the correct
method applicable to the figures dealt with in each of the two later years, which
figures differ little in either year, for purposes here material, from those of the year
1909.
In 1909 the plaintiff's gross receipts were
From N. Y., N. H. & H. R. R Co. (1 ) . $517, 848. 17
From the N. Y. C. & H. R. R. R. Cò. (2) . 172 , 616. 07
From other sources as above (3) . 312 , 673. 11
Total ....... 1,003, 137. 35
Its expenditures were

Interest on its bonds (4) . 490,000.00
Operating expenses (5) . 345, 551. 26
Repairs (6)..... 143, 512. 77
General expenses (7).. 15, 384. 57
Massachusetts franchise tax (8) . 8, 688.75
Total ...... 1,003, 137. 35
The plaintiff's annual return under the act for 1909 shows as " gross income " only
the above item (3) of its gross receipts, viz, $312,673.11 , which was stated to consist
of " amounts actually received for rent of offices and concessions, receipts for parcel
room, baggage storage, and lavatories, and proceeds of power, heat, light, Pintsch
gas, and ice. "
It claimed the same amount as a deduction authorized by the statute for "all the
ordinary and necessary expenses of maintenance and operation of the business and
properties of the corporation , " thus disclosing no taxable net income whatever.
Neither the amounts paid in by the railroads nor the equivalent amount of expendi
tures balanced thereby were included in the return as made, either as gross income
or as deductions therefrom.
But the tax commissioner, acting under the fourth clause of section 38 of the act,
amended this return by making it include in " gross income " not only the item of
receipts above identified as (3) , but items (1 ) and (2) also ; in other words, the entire
gross receipts . The " deductions " to be made therefrom, as approved by him, included
the items of expenditure (5)–( 8 ) , inclusive , but of the item (4) , interest paid on bonds
only $17,500 was allowed to stand as a deduction . Interest on bonded or other in
debtedness paid within the year is to be deducted from gross income, according to
the second clause of section 38 ; but only the interest paid upon such indebtedness to
an amount not exceeding the corporation's paid -up capital stock-in this case $500,000—
as already stated . The interest paid on this amount was the $17,500 allowed ; all the
remaining interest paid was disallowed as a deduction . (Agreed facts , par. IV . )
These amendments made by the commissioner had the result of leaving $472,500 of
the plaintiff's gross receipts, in fact used by it in paying interest on its bonds, to
stand as net income ascertained according to the second clause of section 38 , and of
estimating the tax payable by the plaintiff at 1 per cent upon that amount, less the
specific exemption of $5,000, allowed by the first clause of said section , i . e. , upon
$467,500, although its actual total receipts had been in fact wholly exhausted and
balanced by its actual total expenditures, as shown above.
The plaintiff contends that receipts devoted to the payment of interest on its bonds
were not income at all within the meaning of the act. But to take this position is to
284
say that no part of what the railroads paid in to it was gross income within the act.
The railroads were not required by the State statute to make, nor did they in fact
make , so far as appears, separate or specific payments identified as payments to meet
the interest semiannually becoming due from the plaintiff to holders of its outstand
ing bonds. A statement sent each railroad on the first day of each month gave the
plaintiff's total expenditure for the preceding month, including as one item thereof
one-twelfth of the total annual interest on said bonds. Each such statement gave
also the plaintiff's total revenue for the same month from sources other than said
railroads . Each railroad's proportion of the expenditure not covered by the revenue
shown as above was charged to and paid by it, month by month, the New York Cen
tral paying, during the years here in question , 25 per cent of said balance and the
New York, New Haven & Hartford 75 per cent thereof. (Agreed facts, par. VII . )
If allowed to offset its gross income by the entire amount of its expenditure or
disbursements, no net income affording a basis for taxation under the act would
remain and (assuming the correctness of the conclusions herein above adopted) the
plaintiff would have nothing to complain of. It is only the fact that the express
provisions of the second clause of section 38 forbid the inclusion of any interest paid
on bonds in the deduction allowed for " ordinary and necessary expenses-paid -out
of income in-maintenance and operation , " and , while allowing a deduction for
interest payments, forbid such deduction , when indebtedness exceeds paid-up
capital stock, of any interest paid upon such excess, which gives rise to the plaintiff's
complaint that a tax has been exacted from it, contrary to the intent of the act . But
if the plaintiff was a corporation taxable under the act, the question presented with
regard to the deduction for interest paid on its bonds is the same as that considered
by the Supreme Court in Anderson v. Forty-two Broadway Co. (239 U. S. , 69) . In
that case the interest on $600 only, being the amount of paid-up capital stock, was
allowed to be deducted , and the net income whereon the tax was computed included
receipts which had been in fact devoted to payment of the remaining interest on
a bonded indebtedness of $4,750,000 . In the opinion of the court, Congress deemed
that
The carrying of the indebtedness should be considered as a principal object of
the corporate activities, that the operations of such a corporation are conducted
more for the benefit of the creditors than of the stockholders, and that the contribu
tion of the corporation to the expenses of the Government should be admeasured
with this fact in view.
In the case above cited it had been held in the District Court and on appeal that,
as the plaintiff here contends, the entire interest paid on bonded indebtedness should
be treated as part of the cost of maintenance and operation and therefore be allowed
as a deduction from gross income (209 Fed . , 991 ; 213 Fed . , 777) . The contrary
construction of the act adopted by the Supreme Court as above determines this
question in the defendant's favor.
The plaintiff has further contended that the facts set forth in paragraph VI of the
agreed statement, relating to the returns of annual net income made by the railroads
themselves and the estimate of their own net incomes accepted by the tax com
missioner as the basis of the franchise taxes to be paid by them, show that they will
be subjected to double taxation in respect of some of the same items if the plaintiff's
net income subject to taxation is estimated as above. I am unable to sustain this
contention. If the railroads included in their expenditures to be deducted the
expenditures of the Terminal Co. , they also included in their gross income so much
of the Terminal Co.'s gross income as they had not themselves contributed , so that
the amount of tax to which they were liable independently of the Terminal Co. was
not, in the result, increased .
It follows from the conclusions above stated that the taxes here in issue were rightly
assessed by the tax commissioner, and that the plaintiff corporation has paid the
defendant no more than the Federal statute required it to pay.
I therefore find for the defendant.
INDEX .
A.
Dept. No.
Act of September 8, 1916 ; statute of limitations .. 2396
Actual owners ; Dutch administration offices ; income tax.. 2386
Adulterated butter; charge of court (Rosemary Creamery Co. v. Cole) .. 2347
Affixing stamps to cases or casks of imported wine .... 2414
Alcohol:
Exportation of, in tanks or tank cars .. 2368
Loss of, in transit.. 2348
Use of, for scientific purposes.. 2351
Alcohol, denatured , transferring from weighing tank to tank cars.. 2294
Alcohol from empty spirit packages (Western Extracting Co. v . Smietanka) . 2331
Alcoholic content of wines, wine maker responsible for.. 2400
Alcoholic medicinal preparations, added list of.... 2322, 2333, 2339
Alexander's wantage rod, increase in price of..... 2389
Amendment to definition of " peddler" of tobacco.... 2376
Amendment to section 3225, Revised Statutes, act of September 8, 1916 .. 2375
Annual inventories; cigar and tobacco manufacturers .. 2390
Annual inventory, in duplicate, of narcotic drugs... 2327
B.
Bankers; emergency revenue law (Real Estate Title, Insurance & Trust
Co. v. Lederer) . 2306
Beer, temperance . 2354, 2359, 2370, 2410
Bonded wineries, gaugers at .. 2380
Bonds:
Distilled spirits .. 2315
Emergency revenue law... 2277
Warehousing . 2307
Bonds given with seizures ; emergency revenue law. 2328
Bottling gin in bond for export..... 2371
Bottling house, pipe line to; temperance beer .. 2359
Brandy:
Coloring spirits .. 2342
Distillers of; certain exemptions .... 2373
Business in United States; corporation tax (Laurentide Co. , Ltd. , v . Durey
& Irwin).... 2346
Butter, sampling.. 2334
C.
Capital-stock tax:
Citations from decisions of Supreme Court .. 2418
Rulings..... 2417, 2423
Special excise tax.. 2424
Value of stocks, how ascertained . 2426
Cases containing spirits bottled in bond . 2419
Certificate for claiming deductions ; income tax .. 2412
Certificate of ownership ; income tax; T. D. 2382 revised . 2401
Certificates making effective provisions of T. D. 2313.. 2325
Certificates of naturalization; emergency revenue law.. 2329
Charge of court :
Adulterated butter ( Rosemary Creamery Co. v. Cole) .. 2347
Income tax ; depreciation of buildings .. 2343
Cigar and tobacco manufacturers ; annual inventories . 2390
Cigars, tobacco, and snuff, drawback on exported ... 2330
Cigars, tobacco, etc., forms of orders for stamps for. 2411
Claims for lost stamps .... 2357
(285)
286
Dept. No.
Clerks , income tax, or others, as deputy collectors .. 2293
Collections, deposits of, in current fiscal year . 2332
Coloring spirits; brandy.. 2342
Compensation of general storekeeper-gaugers . 2408
Compromises; income tax.. 2311, 2349
Conspiracy; narcotic law (United States v . O'Hara) . 2392
Constitutionality ; income tax (Tyee Realty Co. v. Anderson) . 2300
Conveyances ; emergency revenue law.... 2278, 2279, 2283, 2310
Cordials, liqueurs, wines, etc.; synopsis of decisions . 2387
Corporations exemptions ; income tax.. 2407
Corporation tax:
“ Business ” in United States, what constitutes ( Laurentide Co. , Ltd. ,
v. Durey & Irwin) .. 2346
Boston Terminal Co. v . Gill .. 2428
Suit to recover taxes (Roberts v. Lowe) . 2394
Cotton futures act, United States ; regulations No. 37 .... 2358
Coupons, etc. , packing; statutory packages of tobacco, etc. 2319
Courts, decisions of:
Adulterated butter; charge of court (Rosemary Creamery Co. v. Cole) . 2347
Alcohol from empty spirit packages (Western Extracting Co. v . Smie
tanka)... 2331
Conveyances ; emergency revenue law (Home Title Insurance Co. v.
Keith) .. 2310
Corporation tax (Boston Terminal Co. v . Gill) . 2428
Corporation tax business in United States (Laurentide Co. , Ltd. , v
Durey & Irwin) . 2346
Corporation tax; suit to recover taxes (Roberts v . Lowe) . 2394
Emergency revenue law ; bankers (Real Estate Title , Insurance &
Trust Co. v . Lederer) .... 2306
General provisions applicable (Dodge v. Osborn) . 2301
Income tax (Brushaber v . Union Pacific Railroad Co. ) .. 2290
Income tax; constitutionality (Tyee Realty Co. v. Anderson) . 2300
Income tax ; depreciation of buildings ; charge of court (Cohen v. Lowe) 2343
Income tax; enjoining payment (Stanton v. Baltic Mining Co. ) .. 2303
Income tax; jurisdiction (Dodge v . Brady) . 2302
Narcotic law; conspiracy (United States v. O'Hara) . 2392
Narcotic law (United States v. Jin Fuey Moy) ... 2340
Narcotic law (Wilson v. United States) .... 2280
Special excise tax on corporations ; second assessment (Camp Bird,
Ltd., v. Howbert) .... 2366
Special excise tax on corporations (Middlesex Banking Co. v . Eaton) .. 2320
Special excise tax on corporations (Rio Grande Junction Railway Co.
v. United States)... 2345
Special excise tax; suit for collection (United States v . Minneapolis
Threshing Machine Co. ) .. 2285
Court officers making sales of narcotic drugs, etc... 2299
Customhouse brokers ; emergency revenue law .. 2321
D.
Dealers in leaf tobacco, registry of....... 2420
Declarations of intentions ; emergency revenue law. 2329
Deductions, certificate for claiming ; income tax .. 2412
Definition of head of a family; income tax .. 2427
Denaturation of alcohol ; formula No. 23 .. 2379
Denatured alcohol :
Central denaturing warehouse ; T. D. 2246 modified .. 2312
Formaldehyde...... 2326
Modification of denaturant in No. 4.. 2356
Phenacetin ..... 2381
Sulphuric ether; T. D. 2246 modified . 2312
Tincture of iodine.... 2413
Transferring from weighing tank to tank cars . 2294
Withdrawal permits ... 2305
Deposits of collections in current fiscal year.. 2332
Depreciation of buildings ; income tax; charge of court .. 2343
287
Deputy collectors : Dept. No.

Income tax or other clerks as .. 2293
Personal receipts .... 2341
Distilled spirits :
Bonds .. 2315
Loss of, in bonded warehouse.. 2409
Samples of..... 2397
Undergauging . 2405
Distilled spirits for export, loss in transit of.. 2335, 2350
Distilleries, surveys of; filtration-aeration process . 2393
Distillers of brandy; certain exemptions .. 2373
Drawback on exported tobacco, snuff, and cigars .. 2330
Dutch administration offices ; actual owners ; income tax . 2386
E.
Emergency revenue law:
Bankers (Real Estate Title, Insurance & Trust Co. v. Lederer) . 2306
Bonds.. 2277
Bonds given with seizures. 2328
Conveyances .. 2278, 2279, 2283, 2310
Customhouse brokers .. 2321
Declarations of intention ; certificates of naturalization . 2329
Insurance policies; hail ... 2318
Leaf-tobacco dealers ; special-tax liability . 2296
Marriage certificates exempt .. 2308
Policies of insurance . 2281 , 2282, 2286, 2287
Stamping jugs ; T. D. 2078 modified . 2352
Theaters .. 2297 , 2314
Wine, tax on; T. D. 2078 modified .. 2338
Empty spirit packages, alcohol from (Western Extracting Co. v. Smie
tanka) . 2331
Enjoining payment ; income tax (Stanton v . Baltic Mining Co.) . 2303
Equalizing wantage ; undergauging distilled spirits ... 2405
Estate tax .. 2406, 2415, 2421
Executor or administrator. 2372
Regulations , act of September 8 , 1916 . 2378
Revenue act of September 8, 1916 . 2361
Taxable transfers .. 2385
Executor or administrator; estate tax . 2372
Exempt corporations , etc .; income tax . 2407
Exemption of certain public officials ; narcotic law. 2304
Exportation of—
Alcohol in tanks or tank cars .. 2368
Domestic wines free of tax... 2416
F.
Fiduciaries under trust estates ; income tax…… . 2289

Filling orders for narcotic drugs ; unregistered broker . 2298
Filtration-aeration process ; surveys of distilleries ... 2393
Foreign governments ; income tax .. 2425
Form 22; income tax; normal and additional tax . 2316
Form 1012 ; nonresident alien corporations; income tax . 2388
Formaldehyde ; denatured alcohol ... 2326
Forms of orders for stamps for cigars, tobacco, etc .. 2411
Forms of revenue agents, inspectors, and special agents . 2398
rm No. 23 ; denaturation of alcohol ... 2379
Fusel oil, testing, before removal from distillery . 2336
G.
Gaugers at bonded wineries ... 2380
General provisions applicable to income tax (Dodge v . Osborn) . 2301
Gin, bottling, in bond for export ... 2371
Grape cheese brandy ; certain exemptions . 2373
288
H.
Dept. No.
Hail-insurance policies; emergency revenue law . 2318
Head of a family, definition of; income tax.. 2427
Honey wine ; special-tax liability . 2295
I.
Imported wines ; internal-revenue tax... 2391
Income tax :
Brushaber v . Union Pacific Railroad Co .. 2290
Certificate for claiming deductions…… 2412
Certificate of ownership ; T. D. 2382 revised . 2401
Certificates making effective provisions of T. D. 2313 . 2325
Clerks as deputy collectors ... 2293
Compromises. 2311 , 2349
Constitutionality (Tyee Realty Co. v . Anderson) . 2300
Corporations exemptions.... 2407
Depreciation of buildings; charge of court.. 2343
Dutch administration offices ; actual owners . 2386
Enjoining payment (Stanton v. Baltic Mining Co. ) .. 2303
Estate tax .. 2406
Fiduciaries under trust estates . 2289
Foreign Governments .. 2425
Form 22 ; normal and additional tax .. 2316
Form 1012 ; nonresident alien corporations .. 2388
General provisions applicable to (Dodge v. Osborn) . 2301
Head of a family, definition of.. 2427
Jurisdiction (Dodge v. Brady) . 2302
Nonresident alien corporations , etc .. 2374
Nonresident aliens .. 2313, 2317, 2324, 2402
Ownership certificates . 2344, 2353, 2377, 2382, 2399
Partnership profits .... 2337
Prorating; T. D. 2005 amended 2291
Regulations No. 39 .... 2384
Regulations ; revenue act of September 8, 1916 . 2367
Revenue act of September 8, 1916. .. 2360
Inheritance taxes deductible . 2395
Inspectors' , revenue agents ', and special agents ' forms . 2398
Insurance policies ; emergency revenue law.. 2281 , 2182.2286, 2287, 2318
Interpretation of section 6, act December 17, 1914 ; narcotic law.. 2309
Inventories, annual ; cigar and tobacco manufacturers .. 2390
Inventory, annual, in duplicate, of narcotic drugs .. 2327
Iodine, tincture of; denatured alcohol.... 2413
J.
Jugs, stamping ; T. D. 2078 modified . 2352
Jurisdiction ; income tax (Dodge v . Brady) . 2302
L.
Leaf-tobacco dealers:
Registry of.. 2420
Special-tax liability . 2296
Leave of absence of revenue agents and inspectors . 2369
Liqueurs, vermuth, etc. , act of September 8, 1916. 2403, 2404
Liquid preparations in pints, quarts, or gallons ; narcotic law. 2355
List of alcoholic medicinal preparations, additional …. 2322, 2333, 2339
Loss in transit of distilled spirits for export . 2335, 2350
Loss of distilled spirits in bonded warehouse . 2409
Loss of alcohol in transit .. 2348
Lost stamps, claims for.. 2357
M.
Marriage certificates exempt; emergency revenue law . 2308

Medicinal preparations, alcoholic , added list of .. 2322, 2333, 2339
Miscellaneous provisions ; revenue act of September 8, 1916 .. 2365
289
Miscellaneous taxes: Dept. No.

Special taxes; revenue act of September 8, 1916 . 2364
Wines; revenue act of September 8, 1916 .. 2363
Modification of denaturant in No. 4; denatured alcohol .. 2356
Munition manufacturers' tax; revenue act of September 8 , 1916 . 2362
N.
Narcotic law:
Annual inventory, in duplicate, of narcotic drugs .. 2327
Conspiracy (United States v. O'Hara) . 2392
Court officers making sales of narcotic drugs, etc .. 2299
Exemption of certain public officials... 2304
Filling orders for narcotic drugs ; unregistered broker . 2298
Interpretation of section 6, act of December 1 , 1914 . 2309
Liquid preparations in pints, quarts, or gallons.. 2355
Official order forms.. 2244, 2292, 2323
Registered person (United States v. Jin Fuey Moy) . 2340
Wilson v. United States .... 2280
Nonresident alien corporations, etc.; income tax .. 2374, 2388
Nonresident aliens ; effective date of withholding at source ; income tax 2313,
2317, 2324, 2402
0.
Official order forms.. 2244, 2292, 2323
Official exemption; narcotic law. 2304
Order forms, official ; narcotic law. 2224, 2292, 2323
Ownership certificates:
Actual owner of stock. 2382
Income tax .... 2344, 2353, 2377, 2399
P.
Packages ; temperance beer . 2410
Packing coupons , etc.; statutory packages of tobacco, etc. 2319
Partnership profits; income tax .. 2337
Peddler of tobacco, amendment to definition of.. 2376
Permits, special , for removal of tobacco material.. 2422
Personal receipts, deputy collectors to give... 2341
Phenacetin ; denatured alcohol ... 2381
Pipe line to bottling house ; temperance beer.. 2359
Policies of insurance; emergency -revenue law. 2281, 2282, 2286, 2287
Profits from partnership; income tax... 2337
Prorating; income tax; T. D. 2005 amended . 2291
R.
Receipts, deputy collectors to give personal . 2341

Record cards; tobacco; Form 685 .. 2284
Rectification ; act of September 8, 1916 .. 2403
Registered person; narcotic law (United States v. Jin Fuey Moy) . 2340
Registry of dealers in leaf tobacco .. 2420
Regulations No. 38 ; special excise tax on corporations .. 2383
Regulations No. 39 ; income tax.. 2384
Retail liquor dealer ; special tax.. 2288
Revenue act of September 8, 1916 :
Estate tax... 2361
Income tax .... 2360
Income-tax regulations . 2367
Miscellaneous provisions. 2365
Miscellaneous taxes; special taxes . 2364
Miscellaneous taxes; wines . 2363
Munition manufacturers' tax . 2362
Revenue agents and inspectors , leave of absence of.. 2369
Revenue agents ' , inspectors' , and special agents' forms . 2398
Rulings ; capital-stock tax . 2417, 2423
24433 ° -VOL 18-16- -19
290
S.
Dept. No.
Samples of distilled spirits .. 2397
Sampling butter .. 2334
Special excise tax:
Capital-stock tax . 2424
Suit for collection (United States v. Minneapolis Threshing Machine
Co.) .. 2285
Special excise tax on corporations:
Middlesex Banking Co. v. Eaton .. 2320
Regulations No. 38... 2383
Rio Grande Junction Railway Co. v. United States . 2345
Second assessment (Camp Bird, Ltd. , v . Howbert) . 2366
Special permits for removal of tobacco material .. 2422
Special tax :
Alcoholic medicinal preparations, added list .. 2322, 2333, 2339
Miscellaneous taxes ; act of September 8, 1916 .. 2364
Retail liquor dealers... 2288
Special-tax liability:
Honey wine.... 2295
Leaf tobacco dealers .. 2296
Spirits bottled in bond, cases containing . 2419
Spirits, coloring; brandy .. 2342
Stamping jugs ; T. D. 2078 modified . 2352
Stamping wines; T. D. 2078 modified .. 2338
Stamps:
Affixing, to casks or cases of imported wine . 2414
Cigars, tobacco, etc., forms of orders for.. 2411
Lost, claims for…... 2357
Statute of limitations ; act of September 8, 1916 . 2396
Storekeeper-gaugers, compensation of general.. 2408
Suit for collection of additional tax (United States v. Minneapolis Thresh
ing Machine Co .) ... 2285
Suit to recover taxes; corporation tax ( Roberts v . Lowe) . 2394
Sulphuric ether ; denatured alcohol ; T. D. 2246 modified . 2312
Supreme Court, citations from decisions of; capital-stock tax . 2418
Surveys of distilleries ; filtration-aeration process .... 2393
Synopsis of decisions:
Theaters...... 2297
Wines, liqueurs, cordials, etc .. 2387
T.
Tanks or tank cars, exportation of alcohol in. 2368

Taxable transfers; estate tax.. 2385
Temperance beer. (See Beer. )
Testing fusel oil before removal from distillery .. 2336
Theaters; emergency revenue law; T. D. 2297 revoked . 2297, 2314
Tincture of iodine ; denatured alcohol .. 2413
Tobacco, cigars, etc. , statutory packages of; coupons. 2319
Tobacco material, special permits for removal of.. 2422
Tobacco, peddler of, amendment to definition of. 2376
Tobacco; record cards, Form 685 .... 2284
Tobacco, snuff, and cigars, drawback on exported .. 2330
U.
Undergauging distilled spirits ... 2405
United States cotton futures act ; Regulations No. 37 . 2358
Use of alcohol for scientific purposes..... 2351
V.
Value of stocks, how ascertained ; capital-stock tax.. 2426

Vermuth, liqueurs, etc. , act of September 8, 1916 .. 2403, 2404
291
W.
Dept. No.
Wantage, equalizing ; undergauging distilled spirits.. 2405
Wantage rod, Alexander's, increase in price of.. 2389
Warehousing bonds...... 2307
Wine, affixing stamps to cases or casks of imported .. 2414
Wine maker responsible for alcohol content of wines. 2400
Wine, tax on ; T. D. 2078 modified ; emergency revenue law….. 2338
Wineries, bonded, gaugers at... 2380
Wines:
Domestic, exportation of, free of tax…….. 2416
Imported ; internal revenue tax . 2391
Liqueurs, cordials, etc.; synopsis of decisions 2387
Miscellaneous taxes ; revenue act of September 8 , 1916 . 2363
Withdrawal permits; denatured alcohol ..... 2305
о
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UNDER INTERNAL-REVENUE LAWS

JANUARY- DECEMBER, 1916

How . Henry I. Thayer,

Emergency revenue law- Bonds.

A bond executed by a corporation for the payment of a specific sum of money

Emergency revenue law -Conveyances.

Stock in a corporation is a valuable consideration for the transfer of real

Emergency revenue law-Conveyances.

Deeds executed and delivered on or after December 1, 1914, conveying property

Narcotic law-Decision of court.

UNITED STATES CIRCUIT COURT OF APPEALS , SECOND CIRCUIT.

Tom Wilson, plaintiff in error, v. United States, defendant in error.

Before LACOMBE, WARD, and ROGERS, Circuit Judges.

would be unlawful. Therefore, Congress saved them in the proviso by relieving

Emergency revenue law- Policies of insurance.

Additional tax due on payment of second or subsequent premium on continuing

Emergency revenue law-Policies of insurance.

Exempting provision of the proviso in Schedule A of the emergency revenue

Emergency revenue law - Conveyances.

under the act of October 22 , 1914. It is the duty of the grantor to

Tobacco-Record cards , Form 685.

Instructions relative to preparation and presenting of record cards, Form 685,

(c) The location of factory, or, in case of a peddler, his residence,

Special excise tax-Suit for collection of additional tax-Memo

1. An action of debt may be brought against a corporation to recover back

It is contended by the defendant that an action such as the present, which

The eighth paragraph of said section 38 contains the following clause :

Emergency revenue law -Insurance policies.

Policies of insurance issued in England on property in the United States

fire insurance issued by Lloyds, of London, and delivered in the

Emergency revenue law-Continuing policies of insurance, bonds,

The increased tax due by reason of the payment of a subsequent premium on

A retail liquor dealer incurs liability as wholesale liquor dealer on account of

The converse of the above ruling is to the effect that a wholesale

Amendment of T. D. 2231 of July 26, 1915, requiring return and payment of

Income tax act of October 3, 1913 -Decision of the Supreme Court.

1. CONSTITUTIONALITY OF THE LAW.

Frank R. Brushaber, appellant, v. Union Pacific Railroad Co.

[January 24, 1916. ]

Mr. Chief Justice WHITE delivered the opinion of the court :

Amendment of T. D. 2005 of July 8, 1914, changing prorating from the yearly to a

17, 1914, the quantity of narcotic drug to the fluid or avoirdupois

Income-tax or other clerks as deputy collectors.

agents, inspectors , and special employees as deputy collectors with

Alcohol may be transferred directly from weighing tank, at distillery warehouse, to

Emergency revenue law.

Emergency revenue law.

Where the owner of a building pays special tax as proprietor of a

narcotics under attachment proceedings, you are advised that such

Income-tax act of October 3, 1913 - Decision of the Supreme Court.

Income-tax act of October 3, 1913-Decision of the Supreme Court.

is published for the information of internal-revenue officers and

John F. Dodge and Horace E. Dodge, appellants, v. William H. Osborn, Commissioner

Income-tax act of October 3, 1913 -Decision ofthe Supreme Court.

John F. Dodge and Horace E. Dodge, appellants, v . James J. Brady, collector of