Full text of Commercial and Financial Chronicle : July 4, 1936 : Revenue Act of 1936, Vol. 143, No. 3706

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TWO SECTIONS—SECTION

TWO

1936

REVENUE ACT OF
\

SECTION OF THE

Commercial

Financial Chronicle

Copyrighted in 1936, according to Act of Congress, hy WILLIAM B. DANA COMPANY, in office of

Librarian of Congress, Washington, D. C.

NO. 3706.

NEW YORK, JULY 4 1936.

VOL. 143.

REVENUE ACT OF! 936
FULL TEXT OF LAW APPROVED

JUNE 22 1936

INDEX TO TITLES
TITLE

I—Income Tax

Page

Subtitle A—Introductory Provisions

Subtitle B—General Provisions.
Part

I—Rates of Tax..

Part
Part

TITLE

IV—Accounting Periods and Methods of Accounting

I'.Page IS
IS
Supplement M—Interest and Additions to the Tax
20
Supplement N—Claims Against Transferees and Fidu¬

Supplement L—Assessment and Collection of Deficiencies

ciaries

VI—Miscellaneous Provisions...

Subtitle C—Supplemental Provisions..

...

1'—

Supplement C—Credits Against Tax

Supplement D—Returns and Payment of Tax

Supplement E—Estates and Trusts

TITLE

III—Tax

TITLE

IV—Export,

TITLE
TITLE

Supplement H—Non resident Alien Individuals

TITLE

Supplement

AN ACT TO PROVIDE

...

21
21

Unjust Enrichment.

Charitable,
Adjustment

&c., Refunds and Floor
Under Agricultural Ad¬

justment Act

Stocks

J—Possessions of the United States

—

II—Capital Stock and Excess-Profits Tax

TITLE

Supplement G—Insurance Companies

Supplement

IA—Additional Income Taxes

TITLE

Supplement F—Partnerships

I—Foreign Corporations

...

Supplement O—Overpayments

Supplement B—Computation of Net Income

C—(Concluded)—

Supplement K.—China Trade Act Corporations

V—Returns and Payment of Tax

Supplement A—Rates of Tax

(Concluded)—

Subtitle

II—Computation of Net Income
III—Credits Against Tax

Part

...

V—Amendments to Taxes

Certain Oils

VI—Miscellaneous Provisions.
VII—Refunds of Amounts Collected Under the Agri¬
cultural Adiustment Act

TITLE VIII—General Provisions

REVENUE, EQUALIZE TAXATION,

AND FOR OTHER PURPOSES
Be it enacted

bjj the Senate and House of Representatives of the United States of America in Congress assembled, That this

according to the following Table of Contents,

TABLE
TITLE

be cited

the "Revenue Act of 1936";

TAX

Application of title.
Cross references.

Sec. 3.

Classification of provisions.

Sec. 4.

Special classes of taxpayers.
SUBTITLE

Normal tax

Sec. 12.

Surtax

Sec. 13.

Normal tax

Sec. 14.

Surtax

Sec. 21.

Net income.

individuals.

corporations.

undistributed profits.

Part

Sec. 52.

Corporation returns.

Sec. 53.

Time and place for filing returns.

Sec. 54.

Records and special returns.

Payment of Tax

•

Publicity of returns.

Sec. 56.

Payment of tax.

Sec. 57.

Examination of return and determination of tax.

Sec. 58.

Additions to tax and penalties.

Sec. 59.

Administrative proceedings.

Sec. 61.

Laws made applicable.

Sec. 62.

Rules and regulations.

Sec. 63.

Taxes in lieu of taxes under

Sec. 64.

Short title.

Part VI—Miscellaneous Provisions

II—Computation of Net Income

SUBTITLE

1934 Act.

C—SUPPLEMENTAL

PROVISIONS

Supplement A—Rates of Tax

Sec. 22.

Gross income.

Sec. 23.

Deductions from gross income,

Sec. 24.

Items not deductible.

Sec. 25.

Credits of individual against net income.

Sec. 26.

Credits of corporations.

Sec. 27.

Corporation credit for dividends paid.
Part III—Credits

Sec. 101.

„

Exemptions from tax on corporations.

Sec. 102.

Surtax on corporations improperly accumulating surplus.

Sec. 103.

Rates

tax

citizens

and

countries.

corporations

of certain

foreign

Sec. 104.

Banks and trust companies.

Sec. 105.

Sale of oil or gas properties.

Against Tax

Sec. 31.

Taxes of foreign countries and possessions of United States.

Sec. 32.

Taxes withheld at

Sec. 33.

Credit for overpayments.

Part

B—GENERAL PROVISIONS

individuals.
on

Individual returns.

Sec. 51.

Part I—Rates of Tax

Sec. 11.

;

Part V—Returns and

Sec. 55.

Sec. 2.

Act, divided into titles and section

CONTENTS

I—INCOME

A—INTRODUCTORY PROVISIONS

SUBTITLE
Sec. 1.

may

source.

IV—Accounting Periods and Methods of Accounting

Supplement B—Computation of Net Income

Sec. 111.

Determination of amount of, and recognition of, gain or loss..

Sec. 112.

Recognition of gain or loss.

Sec. 113.

Adjusted basis for determining gain or loss.

Sec.

1J4. Basis for

depreciation and depletion.

Sec. 41.

General rule.

Sec. 115.

Distributions by corporations.

Sec. 42.

Period in which items of gross income included.

Sec. 116.

Exclusions from

Sec. 43. Period for which deductions and credits taken.

Sec. 117.

Capital gains and losses.

Sec. 44.

gross

income.

Sec. 118.

Loss from wash sales of stock or securities.

Sec. 45. Allocation of income and deductions.

Sec. 119.

Income from sources within United States.

Installment basis.

Sec. 46.

Change of accounting period.

Sec. 120.

Unlimited deduction for charitable and other contributions.

Sec. 47.

Returns for

Sec. 121.

Deduction of dividends paid on certain preferred stock of certain

Sec. 48.

Definitions.

period of less than twelve months.

corporations.

THE

REVENUE ACT OF 1936

Sec. 501.

Taxes of foreign countries and possessions of United St.tes.

Supplement D—Returns and Payment of Tax
Sec. 141.

Consolidated returns of railroad corporations.

Sec. 142.

Fiduciary

Sec. 143.

Withholding of tax at

Sec. 144.

Payment of corporation income tax at

Sec. 145.

Penalties.

returns.
source.

Tax

certain sources.

net income from

UNJUST ENRICHMENT

III—TAX ON

TITLE

Supplement C—Credits Against Tax
Sec. 131.

Sec. 502.

Credit for other taxes on income.

Sec. 503.

Administrative provisions.

Sec. 504.

Taxable years to which

Sec. 505.

Application of title to possessions.

Sec. 506.

Closing agreements.

title is applicable;

source.

TITLE

Sec. 146.

Closing by Commissioner of taxable year.

Sec. 147.

Information at

Sec. 148.

Information by corporations.

Sec. 149.

Returns of brokers.

Sec. 150.

Collection of foreign items.

IV—EXPORT, CHARITABLE, &C., REFUNDS AND FLOOR
ADJUSTMENT UNDER AGRICULTURAL ADJUST¬

STOCKS

ACT

MENT

source.

Sec. 601. Refunds under Agricultural Adjustment

Supplement E—Estates and Trusts

of January 6, 1936.

Sec. 602.

Floor stocks

Sec. 603.

Proclamation, &c.y made applicable.

Sec. 604. Repeals.
'

Sec. 161.

Imposition of tax.

Sec. 162.

Net income.

Sec. 163.

Credits against net income.

Sec. 164.

Different taxable

Sec. 701.

years.

Sec. 703.

OILS

certail oils.

Miscellaneous provisions.

Sec. 704. Effective date.

Sec. 167.

Income for benefit of grantor.

Sec. 168.

Taxes of foreign countries and possessions of United States.

Sec. 169.

Common trust funds.

/
VI—MISCELLANEOUS PROVISIONS

TITLE

Sec. 801. Exemption from admissions tax

Supplement F—Partnerships

Sec. 182.

Tax on certain oils.

Sec. 702. Processing tax on

Sec. 166. Revocable trusts.

\/r

V—AMENDMENTS TO TAXES ON CERTAIN

TITLE

Sec. 165. Employees'trusts.

Sec. 181.

Act on exports, deliveries

distribution or use, etc.

for charitable
i

Partnership not taxable.
Tax of partners.

Sec. 183.

Computation of partnership income

Sec. 184.

Credits against net income.

Sec. 802.

Suits to enforce liens for taxes.

Sec. 803.

Interest on erroneous refunds.

Sec. 804.

Interest

Sec. 185.

Earned income.
Taxes of foreign countries and possessions of United States.

Sec. 187.

Partnership returns.

Sec. 188.

Different taxable years of partner and partnership.

overpayments.

Sec. 805. Estate taxes—Revocable

Sec. 186.

of certain concerts.

transfers.

Sec. 806.

Registration under the narcotic laws.

Sec. 807.

Reconsideration of refund claims.

Sec. 808.

Interest on judgments.

Sec. 809.

Termination of jewelry tax.

Sec. 810.

Tax on furs.

Sec. 811.

Importation of shingles.

Supplement G—Insurance Companies
TITLE

AMOUNTS COLLECTED UNDER THE

VII—REFUNDS OF

Sec. 201.

Tax

Sec. 202.

Gross income of life insurance companies.

Sec. 203.

Net income of life insurance companies.

Sec. 901.

Sec. 204.

Insurance companies other than life or mutual.

Sec. 902.

Conditions on allowance of refunds.

Sec. 205.

Taxes of foreign countries and possessions of United States

Sec. 903.

Filing of claims.

Sec. 206.

Computation of

Sec. 904.

Statute of limitations.

Sec. 207.

Mutual insurance companies other than life.

life

insurance

gross

companies.

THE AGRICULTURAL ADJUSTMENT

income.

Sec. 905. Jurisdiction of courts.
Sec. 906. Procedure on claims for

Sec. 908.

Tax

Sec. 212.

Gross income.

Sec. 213.

Deductions,

Sec. 214.

Credits against net income.

nonresident alien individuals.

Sec. 215. Allowance of deductions and credits.
Sec. 216.

Credits against tax.

Sec. 217.

Returns.

Sec. 218.

Payment of tax.

Sec. 219.

Partnerships.

Sec. 231.

Tax

refunds of processing taxes.

Sec. 907. Evidence and presumptions.

Supplement H—Nonresident Alien Individuals
Sec. 211.

ACT

Repeals.

Interest

claims.

review.

Sec. 909.

Limitations

Sec. 910.

Liability of collectors.

Sec. 911.

Inapplicability to certain refunds.

Sec. 912.

Period not extended.

Sec. 913.

Definitions.

Sec. 914. Authority of Commissioner.

Sec. 915.

Salaries and administrative expenses.

Sec. 916.

Personnel.

VIII—GENERAL PROVISIONS

TITLE

Supplement I—Foreign Corporations
on

foreign corporations.

Sec. 232.

Deductions.

Sec. 233.

Allowance of deductions and credits.

Sec. 234.

Credits against tax.

Sec. 235.

Returns.

Sec. 236.

Payment of tax.

Sec. 237.

Foreign insurance companies.

Sec. 238.

Affiliation.

Sec. 1001.

Definitions.

Sec. 1002.

Separability clause.

Sec. 1003.

Effective date of Act.

TITLE

Sec.

Supplement Ji—Possessions of the United States
Sec. 251.

Income from

Sec. 252.

Citizens of possessions of United States.

sources

within possessions of

The

after

United States.

I—INCOME TAX

A—INTRODUCTORY PROVISIONS

SUBTITLE

Application of Title

provisions of this title shall apply only to taxable years beginning

Dec.

1935.

31,

taxable years

war-profits,

Income,

and excess-profits taxes for

beginning prior to Jan. 1, 1936, shall not be affected by the

provisions

provisions of this title, but shall remain subject to the applicable

Supplement K—-China Trade Act Corporations

enacted

Sec. 261.

Taxation in general,

Sec. 262.

Credit against net income.

Sec. 263.

Credits against the tax.

revenue

Acts, except as such provisions are modified by legislation

subsequent to this Act.

;

„

....

Sec.
The

Sec. 264. Affiliation.
Sec. 265.

prior

cross

References

references in this title to other portions of the

word "see" is used, are

Income of shareholders.

Cross

title, where the

made only for convenience, and shall be given no

legal effect.

Supplement L—Assessment and Collection
Sec. 271.

Definition of deficiency.

Sec. 272.

Procedure in general.

Deficiencies

Sec.

Subtitle B—General provisions,

Sec. 274.

Bankruptcy and receiverships.

Sec. 275.

Period of limitation upon assessment and collection.

Sec. 276.

Same—Exceptions.

Sec. 277.

Suspension of running of statute.

Failure to file return.
Interest

Sec. 293.

Additions to the tax in

Subtitle
.

Sec. 4.

case

(a)

deficiency.

Time extended for paymeht of tax shown on return.

Sec. 296.

Time extended for payment of deficiency.

Sec. 297.

Interest in

applicable to such class, as follows:
Estates and trusts and the beneficiaries thereof,—Supplement E.

(b)

Members of partnerships,—Supplement F.

(c)

Insurance companies,—Supplement G.

(d) Nonresident alien individuals,—Supplement H.

jeopardy assessments.

Sec. 298. Bankruptcy and receiverships.
Sec. 299.

and of Supplements A to D,

subject to the exceptions and additional provisions found in the Supple¬

deficiencies.

case

Special Classes of Taxpayers

inclusive, to each of the following special classes of taxpayers, shall be

the Tax

Sec. 294. Additions to the tax in case of nonpayment.

Sec. 295.

sections.

ment
on

divided into Parts and sections,

C—Supplemental provisions, divided into Supplements and

The application of the General Provisions

Supplement M—Interest and Additions

Sec. 292;

herein classified and designated as—

Subtitle A—Introductory provisions,

Sec. 273. Jeopardy assessments.

Sec. 291.

Classification of Provisions

The provisions of this title are

(e)

Foreign corporations,—Supplement I.

(f)

Individual citizens of

any

possession of the United States who
and who

not otherwise citizens of the United States

Removal of property or departure from United States.

are

are not residents of the

United States,—Supplement J.

(g)

Supplement N—Claims Against Transferees and Fiduciaries

Individual citizens of the United States or domestic corporations,

satisfying the conditions of section 251 by reason of deriving a large portion
Sec .311.

Transferred assets.

of their gross income from sources

Sec. 312.

Notice of fiduciary relationship.

—Supplement J.

Sec. 321.

Overpayment of installment.

Sec, 322.

Refunds and credits.

(h)

Supplement O—Overpayments

TITLE
Sec. 351.

Surtax

IA—ADDITIONAL INCOME

Sec. 401.

Capital stock tax.
Excess-profits tax.

PROVISIONS

SUBTITLE B—GENERAL
PART

TAXES

TITLE II—CAPITAL STOCK AND EXCESS-PROFITS

China Trade Act corporations,—Supplement K.

Sec.

personal holding companies.

Sec. 402.

within a possession of the United States,

11.

I—RATES OF TAX

Normal

There shall be levied, collected,

TAX

net income of every

individual

Tax

Section 25.

year upon

the

normal tax of 4 per centum of the amount

of the net income in excess of the credits
,

Individuals

and paid for each taxable

against net income provided in
„

THE
Sec.

12.

Surtax

Definition of "Surtax Net

(a)

REVENUE ACT

Individuals

(2)

Income."—As used in this section the

term "surtax net income" means the amount of the net
income in

the credits against net income
provided in Section 25

(b)

excess

Dividends Received—The credit provided in Section 26

Dividends Paid—In the

credit provided in Section
thereof

surtax as

(b)

•

case

a surtax net income of

net incomes in excess of

such

$4,000 there shall be

$4,000 and not in

surtax; upon surtax

case

mutual investment company the

27, computed without the benefit of subsection (b)

Imposition of Tax—There shall be levied, collected,

$6,000 and

not in

excess

$8,000, 5

per

excess.

centum in addition of

such

$8,000 and

not in

excess

$10,000, 6

excess..

$800

upon surtax net incomes

excess

incomes in

$1,590

$10,000 and not in

per centum

excess

in addition of

surtax net incomes

upon

normal-tax

upon

$15,000 and not in excess of $40,000, 13 per centum

$4,840

upon

normal-tax net incomes of $40,000; and upon normal-tax

net incomes in excess of

$40,000, 15

per

centum in addition of such excess.

Exempt Corporations—For corporations exempt from taxation under

(c)

this title, see Section 101.

$12,000 and not in

of $14,000, 8 per centum in addition of

excess

Banks and Trust Companies—For rate of tax on certain banks and

(d)

$440 upon surtax net incomes of $12,000; and upon surtax net incomes in
of

of $15,000, 11 per centum in

normal-tax'/net incomes of $15,000; and

net incomes in excess of

$12,000, 7 pqr centum in addition

of such excess.

excess

upon

excess.

in addition of such excess.

$10,000; and

of $2,000 and not in excess

excess

addition of such

•

$180 upon surtax net incomes of $8,000; and
upon surtax net incomes in
excess of

of $2,000, 8 per centum.

excess

$160 upon normal-tax net incomes of $2,000; and upoHffeormal-tax net

$80 upon surtax net incomes of $6,000; and
upon surtax net incomes in
of

and paid for

of every corporation, a

follows:

Upon normal-tax net incomes not in

excess.

excess

such

normal tax

of $6,000, 4 per centum of

excess

Such

(relating to dividend carry-over).

each taxable year upon the normal-tax net income

Upon

(b).

mutual investment company, as

defined in Section 48.

(3)

Rates of Surtax—There shall be levied, collected, and paid for each

credit shall not be allowed in the

(b).

taxable year upon the surtax net income of
every individual
follows:
*

OF 1936

trust

companies,

see

Section 104.

such excess.

$600
excess

Sec. 14.
upon surtax net incomes of

$14,000 and not in

$14,000; and
of

excess

upon surtax net

$16,000, 9

excess

$16,000 and

not in excess of

upon surtax net incomes of

$18,000, 11

in addition

per centum

excess

$18,000 and not in

$18,000; and
of

excess

surtax net incomes

upon

$20,000, 13

$1,260
in

excess

upon surtax net incomes of

$20,000; and

$20,000 and not in

excess

incomes

upon surtax net

$22,000, 15

$22,000 and

not in

$22,000; and

incomes

upon surtax net

$2,240 upon surtax net incomes of $26,000; and upon surtax net incomes
excess of $26,000 and not in excess of
$32,000, 19 per centum in addition

(D) In the

excess

$38,000; and

of $38,000 and not in excess of

credit provided in Section 26

$44,000 and

net incomes

upon surtax

$44*000, 24

excess

$44,000; and

to the sum of the

not in excess of

incomes

$50,000, 27

$50,000; and upon surtax net incomes

$50,000 and not in

excess

$56,000, 31

per centum

excess

$56,000 and

$56,000; and

not in excess of

incomes

upon surtax net

$62,000, 35

$11,660
in

excess

$62,000 and not in

$62,000; and

$14,000

excess

$68,000, 39

per centum in

excess

$68,000 and

$74,000, 43

addition

per centum in

of such excess.

$16,580

of 40 per centum

$74,000 and not in

$74,000; and
of

excess

per centum

of the portion of the undistributed net income which is in

of 60 per centum

of the adjusted net income.

(1) Specific Credit—If the adjusted net income is less than $50,000,
a specific credit equal to the portion of the undis¬

tributed net income which is in excess of 10 per centum of the adjusted net

income and not in

per centum

in addition

(2).

excess

applied

of $5,000, such credit to be

provided

Application of Specific Credit—If the corporation is entitled to a

(2)

upon surtax net incomes

$80,000, 47

undistributed net income which is in

and not in excess of 60 per centum of the adjusted

in paragraph

upon surtax net incomes of

in excess of

which is in

and not in excess of 40 per centum of the adjusted

there shall be allowed

$68,000; and upon surtax net incomes

not in excess of

net income.

addition

upon surtax net incomes of

•

22 per centum of the portion of the

upon surtax net incomes

of such excess.

undistributed net income which is in

and not in excess of 20 per centum of the adjusted
•

of 20 per centum

excess

upon surtax net incomes of

income which is not

of the adjusted net income.

net income.

addition

per centum in

surtax equal

17 per centum of the portion of the undistributed net income

excess

upon surtax net incomes of

of 10 per centum

net income.

in addition

of such excess.

(c):

of 10 per centum

12 per centum of the portion of the

excess

of such excess.

excess

addition

per centum in

upon surtax net incomes of

$9,560

collected, and paid for

corporation

following, subject to the application of the specific credit

provided in subsection

addition

per centum in

upon surtax net

of such excess.

$7,700

(c), relating to contracts restricting dividends.

Imposition of Tax—There shall be levied,

(b)

excess

upon surtax net incomes of

national mortgage association created under Title

Housing Act, the amount allowed as a credit under

each taxable year upon the net income of every

of such excess.

case of a

National

7 per centum of the portion of the undistributed net

upon surtax net incomes of

$6,080

holding company affiliate (as defined in Section 2

(2) The term "undistributed net income" means the adjusted net income
sum of the dividends paid credit provided in Section 27 and the

of such excess.

excess

minus the

$3,380 upon surtax net incomes of $32,000; and upon surtax net incomes
in excess of $32,000 and not in excess of
$38,000, 21 per centum in addition

case

Banking Act of 1933), the amount allowed as a credit under Section

Section 26 (e).

excess of $26,000, 17 per centum in addition

of such excess.

$4,640

credit provided in Section 26 (a), relating to interest on certain

26 (d).

in addition

per centum

of such excess.

The

III of the

upon surtax net incomes of

excess

The normal tax imposed by Section 13.

(B)

of the

of such excess.

$1,560

(A)

obligations of the United States and Government corporations.

centum in addition

per

of such excess.

of—

sum

of such excess.

The term "adjusted net income" means the net income minus the

(1)

$780 upon surtax net incomes of $16,000; and upon surtax net incomes

$1,000

Undistributed Profits

(a) Definitions—As used in this title—•

such excess.

Surtax

incomes in

addition of

per centum in

specific credit, the tax shall be equal to the sum of the following:

of such excess.

A tax computed under subsection (b) upon the amount of the un¬

(A)

$19,400
in

excess

upon surtax net incomes of

$80,000 and not in

$80,000; and

upon surtax net incomes

$24,500
excess

(d)

upon surtax net incomes of

$90,000 and

not

excess

$90,000; and

upon surtax net incomes

surtax

upon

incomes in

excess

net

incomes

$100,000;

$100,000 and not in

excess

and

of $150,000, 58 per centum

in addition of such excess.

$59,000
in

of $150,000

excess

addition of such

$89,000
in

excess

not in

$120,000
incomes in

$150,000; and
of

excess

per

centum in

$200,000 and not in

$250,000, 62

per

centum in

excess.

net

incomes

$250,000 and not in

$250,000;

excess

incomes in

surtax

upon

excess

net

$218,000

and

incomes in

(3)

$300,000 and not in

surtax

upon

excess

$461,000

incomes in

net

incomes

excess

and upon surtax net

$400,000, 66

per centum

(e)

(f)

$400,000;

excess

incomes

and upon surtax net

$506,000,

of $500,000;
excess of

and

surtax

upon

$750,000 and not in

$750,000;

excess of

Exempt

Tax

(g)

and

surtax

upon

incomes in

(c)

Tax

$1,000,000; and

$1,000,000 and not in

PART

II—COMPUTATION

(d)

excess

"Net income" means the gross

$2,000,000; and
excess of

upon surtax net

$5,000,00, 74

$5,000,000

$5,000,000; and

per centum

upon surtax net

75 per centum in addition of such
on

excess.

personal hold¬

General

Incorporation—For surtax
to

surplus

means

(1)

Normal

avoid

Tax

Definition—As used in this title the
the net income minus the

Interest

sum

surtax

corpora¬

stockholders,

see

Corporations
term "normal-tax net income"

of—

Obligations of the United States and its Instrumentalities

—The credit provided in Section 26

income"

(a)

includes

income derived from salaries, wages, or compensation
of whatever kind and in whatever form

paid,

gains,

profits,

and

for persoanl service,

from professions,

vocations,

sales, or dealings in property, whether real

personal, growing out of the ownership or use of or interest in such

property; also from interest, rent, dividends, securities, or the
of any business

carried on for gain

In the

1932, the compensation received
all

Acts fixing the

transaction

gains or profits and income

case

of Presidents of the United

profit,

States and judges of courts of the United States taking office

and

13.

Gross Income

Definition—"Gross

derived from any source whatever.

Advoidance of Surtaxes by
which

Sec.

INCOME

income computed under Section 22, less

Sec. 22.

73 per

Section 102.

(a)

NET

upon surtax net

of $2,000,000,

Personal Holding Companies—For surtax

accumulate

Net Income

Sec. 21.

net

per centum

ing companies, see Section 351.

tions

which

net

(a)

$2,000,000 and not in

taxation

surplus to avoid surtax on stockholders, see Section 102.

trades, businesses, commerce,

excess

from

personal holding

the deductions allowed by Section 23.

upon surtax net incomes of

exempt

101.

in addition of such excess.

$3,591,000

corporations

Corporations—For

Personal Holding Companies—For surtax on

Improper Accumulation of Surplus—For surtax on corporations

per centum

$1,000,000, 72

Federal Farm Loan

companies, see Section 351.

per centum

$750,000, 70

Stock Land Banks organized under the

amended.

'■

upon surtax net incomes of

excess

under this title, see Section

centum in addition to such excess.

incomesin

of their

United States, are

Corporations organized under the China Trade Act, 1922.

$300,000;

$500,000 and not in

income from sources within a possession of the

accumulate

net

upon surtax net incomes

$1,371,000

Corporations which, by reason of deriving a large portion

Joint

in addition of such excess.

$641,000

Foreign corporations.

(5)

(6)

•

surtax net incomes

upon

excess

207.

(4)

gross

in addition of such excess.

incomes in

Insurance companies subject to the tax imposed under Section 201,

(7)

excess of

$400,000 and not in

surtax

upon

any court

net

surtax

upon

in addition of such excess.

$286,000

the District of Columbia.

Act,
incomes

in addition of such excess.

incomes in excess of

of the United States or of any State, Territory,

receivership in

204,

portion of the taxable year

any

under the laws of the United States, or are insolvent and

of $300,000, 64 per centum

in addition of such excess.

$152,000

defined in Section 104.

entitled to the benefits of Section 251.

surtax

upon
excess

$200,000; and upon surtax net incomes

excess

Banks

Domestic corporations which for

in bankruptcy

upon surtax net incomes

$200,000, 60

(1)
(2)
are

excess.

upon surtax net incomes of
of

addition of such
•

and

upon surtax net incomes of

net

surtax

upon

Exemption from Surtax—The following corporations shall not be

subject to the surtax imposed by this section:

of $100,000, 55 per centum in addition

of such excess.

$30,000

7 per centum of the amount of the specific credit.

(B)

of such excess.

of the specific credit, plus

distributed net income reduced by the amount

of $90,000, 51 per centum in addition

excess

after June 6,

such shall be included in gross income;

compensation of such Presidents and judges are

hereby amended accordingly.
(b)

Exclusions from

Grcss

Income—The following items shall

included in gross income and shall be exempt from taxation

(1)

Life Insurance—Amounts received under

not be

under this title;

life insurance contract

paid by reason of the death of the insured, whether in a single sum or other¬
wise

(but if such amotints

are

held by the insurer under an agreement to

THE REVENUE ACT
the interest

interest thereon,

pay

shall

payments

included in

income);

(2)

(other than

&.c.—Amounts received
amounts received

endowment contaact,

paid

amounts

annuities) under

life insurance

but if such amounts (when added to amounts received

before the taxable year under such contract)
or

connected with the trade or business; or

of the death of the insured and interest payments on such amounts

and other than

exceed the aggregate premiums

shall be included in gross income.

under

annuity

Amounts received

annuity

as an

endowment contract shall be included in

as a

tax purposes

estate

in the estate tax return.

sustained

Of) Losses by Corporations—In the case of a corporation, losses
during the taxable

otherwise.

and not compensated for by insurance or

year

allowed

Wagering Losses—Losses from wagering transactions shall be

(g)

loss

shipwreck, or other casualty, or from theft. No
deduction under this paragraph if at the time of

such loss has been claimed as a deduction for

the filing of the return

income;

gross

Of property not connected with the trade or business, if the

(3)

arises from fires, storms,
loss shall be allowed

consideration paid (whether or not paid during the taxable year) then the

excess

though nol

(2) If incurred in any transaction entered into for profit,

gross

Annuities,

reason

OF 1936

except that there shall be excluded from gross income the excess of the

only to the extent of the gains from such transactions.

amount received in the taxable year over an amount

(h) Basis for Determining Loss—The basis for determining the amount of
deduction for losses sustained, to be allowed under subsection (e) or (f).

equal to 3 per centum

of the aggregate premiums or consideration paid for such annuity (whether
or

not

gross

paid during such year), until the aggregate amount excluded from

income under this title or prior income tax laws in respect of such

the aggregate premiums

annuity equals

In the case of a transfer for

annuity.
ment or

any

consideration paid for

valuable consideration, by assign¬

otherwise, of a life insurance, endowment, or annuity contract, or

interest therein, only the actual value of shch consideration and the

amount of the

premiums and other

feree shall be exempt

(3)

sums

from taxation under paragraph (1)

this paragraph;.

Interest—Interest

Tax-Free

(B) obligations of

(A)

upon

the

obligations

State,

corporation organized under Act of Congress, if such

corporation is an instrumentality of the United States;
gations of the United States or its possessionst
the obligations

Every

(C)

person

of such

enumerated in clause (A), (B), or (C) shall, in the return

obligations owned

by him

and

such form and with such information
case

the income received therefrom, in
the Commissioner may require.

obligations of the United States issued after Sept. 1, 1917 (other

than postal savings

certificates of deposit) and in the

case

of obligations of a

corporation organized under Act of Congress, the interest shall be exempt

only if and to the extent provided in the respective Acts authorizing the
issue thereof as

amended and supplemented, and shall be excluded from

income only if and to the extent it is wholly exempt from the taxes

imposed by the title;

Compensation for Injuries or Sickness—Amounts received, through
health insurance or under

workmen's

compensation for personal injuries or sickness,

damages received whether by suit
or

compensation acts, as

plus the amount of any

or agreement on account

of such injuries

sickness;
(6)

thereof furnished to

(7)

minister of the gospel as part of his compensation;

Income Exempt Under Treaty—Income of

any

Miscellaneous Items—The following items, to the extent provided in

sources

Receipts of shipowners' mutual protection and indemnity associations;

for life
computed as if
the life tenant were the absolute owner of the property and shall be allowed
to the life tenant.
In the case of property held in trust the allowable deduc¬
tion shall be apportioned between the income beneficiaries and the trustee

Inventories—Whenever in the opinion of the Commissioner the

Commissioner, with the approval of the Secretary,
as

nearly

business and

as may

most

use

be to the best accounting practice in the trade

(e)

case

other dis¬

to be

(f)

Gross Income from Sources Within and Without United States—For

see

is ascertained as

that the recoverable units

work

estimate thereof, then

Section 119.

result of operations or of develop¬
greater or less than the prior

are

depletion)

such prior estimate (but not the basis for

subsequent
In the case of

and the allowance under this subsection for

be revised

taxable years shall be

In the

lessee.

case

based upon such revised estimate.
apportioned between the lessor

and
remainder

of property held by one person for life with

the deduction shall be computed as if the life tenant were

the absolute owner of the property and shall be

allowed to the life tenant.

of property held in trust the allowable

case

deduction shall be appor¬

accordance with

in the
allocable to
allowable under this subsection, see

pertinent provisions of the instrument creating the trust, or,
(For

percentage

the basis of the trust income

depletion

and (4).)

114

(b),

(3)

Basis

for

Depreciation

Section

and

Depletion—The

respect of any property shall be as provided in Section

basis

which
allowed in

upon

114.

Charitable and Other Contributions—In the case of an

(0)

contributions

individual,

gifts made within the taxable year to or for the use

and

animals,

foundation,

operated exclusively for religious, charitable, scientific,
educational purposes, or for the prevention of cruelty to children

organized

no part

of the net earnings of which inures to the

ebnefit of any

private shareholder or individual, and no substantial part of the

activities

propaganda, or otherwise attempting, to influence

legislation;

•

(3) The special fund for vocational rehabilitation authorized by
Act, 1924;

Section 12

of the World War Veterans'

(4) Posts or organizations of war veterans, or auxiliary units or
Sec.

Deductions

23.

of any such posts or organizations, if

Gross Income

from

societies
In computing net income there shall be allowed as deductions:

(a)

Expenses—All the ordinary and

during the taxable

in carrying

year

reasonable allowance for salaries

actually rendered; traveling

necessary expenses

on any

trade

paid

if
or

incurred

business, including a

other compensation for personal

expenses

services

(including the entire amount expended

are

organized in the United States or any of its possessions,

part of their net earnings inures to the benefit

holder

religious, charitable, scientific, literary, or educational purposes, or for
to an amount which in

to the continued vise or

possession, for purposes of the trade or business, of

per centum

all the above cases combined does not

of the taxpayer's net income
Such contributions

gifts shall be allowable as deduc¬

of this subsection.

which he has

tions only if verified under rules and regulations

equity.

Interest—All interest paid

carry

accrued within the taxable year on

indebtedness incurred

continued to purchase or

obligations (other than obligations of the Untied States issued after.

(For unlimited deduction if
the net income, see Section

120.)

(p) Pension Trusts—An employer establishing or maintaining a

(c)

trust to

which is wholly exempt from the taxes imposed by this title.
Taxes Generally—Taxes paid

accrued within

the taxable year,

Federal income, war-profits, and excess-profits taxes (other than the

Income, war-profits, and excess-profits taxes imposed by the auth¬

ority of

(if such trust is exempt from tax under Section

165, relating to trusts
allowed as a deduc¬

any

foreign country

tion
to

excess-profits tax imposed by Section 106 of the Revenue Act of 1935);
(2)

pension

provide for the payment of reasonable pensions to his employees

created for the exclusive benefit of employees) shall be

except—

(1)

prescribed by the Com¬

missioner, with the approval of the Secretary.
contributions and gifts exceed 90 per centum of

Sept. 24, 1917, and originally subscribed for by the taxpayer) the interest
upon

the

exceed 15

computed without the benefit

property to which the taxpayer has not taken or is not taking title or in

(b)

of any private share¬

individual; or

prevention of cruelty to children or animals;

other payments required to be made as a condition

and

(5) A fraternal society, order, or association, operating under the lodge
system, but only if such contributions or gifts are to be used exclusively for

business; and rentals

societies

such posts, organizations, ugits, or

for meals and lodging) while away from home in the pursuit of a trade or

indebtedness, except

of:

(1) The United States, any State, Territory, or any political subdivision
or the District of Columbia, for exclusively public purposes;

thereof,

computation of gross income from sources within and without the United

States,

Secretary.

prescribed by the Commissioner, with the approval of the

In any case in which it
ment

of which is carrying on

111.

deprecia¬

according to the peculiar conditions in each case;
reasonable allowance in all cases to be made under rules and regulations

literary, or

sale

position of property, the gain or loss shall be computed as provided in
Section

other natural

(m) Depletion—In the case of mines, oil and gas wells,
tion for improvements,

(2) A corporation, or trust, or community chest, fund, or

provided in Section 115.
Loss—In the

the

allocable to each.

clearly reflecting the income.

Determination of Gain

possession of the United States; but this

(in additon to the contributions to such trust during the taxable year
cover the pension liability accruing during the year, allowed as a deduc¬

tion under subsection
or

(a) of this section)

reasonable amount transferred

paid into such trust during the taxable year in excess of such contribu¬

(3)

Estate, inheritance, legacy, succession, and gift taxes; and

been allowable as a
period of ten con¬
secutive years beginning with the year in which the transfer or payment is
made.
Any deduction allowable under Section 23 (q) of the Revenue Act
of 1928 or the Revenue Act of 1932 or the Revenue Act of 1934 which under

(4)

Taxes assessed against local benefits of

such section was apportioned to any

deduction shall be allowed in the
his return

his desire

case

have to

any

taxpayer who does not signify in

extent

the benefits of Section

(relating to credit for taxes of foreign countries

131

and possessions of the

United States);

kind tending to increase the

value of the property assessed; but this paragraph shall
allowance

as a

maintenance

(d)

deduction of

much of such taxes

not exclude the

is properly

allocable to

tions, but only if such amount (1) has not theretofore

deduction, and (2) is apportioned in equal parts over a

1935, shall be allowed

corporation in the case of

shareholder of the corporation

upon

his interest as

corporation, contributions

for the

use

munity chest, fund,
religious,

deduction shall be allowed the share¬

Losses by Invididuals—In the

case

individual, losses sustained

during the taxable year and not compensated for by insurance
(1)

If incurred in trade or business; or

otherwise—■

to.

gifts made within the taxable year to or

domestic trust, or domestic com¬

foundation, organized and operated exclusively for

charitable, scientific, literary,

prevention of cruelty to children

holder for the amount of such taxes.

(e)

domestic corporation, or

the

cases no

apportioned

had remained in force with

(q) Charitable and Other Contributions by Corporations—In the case
of

shareholder which are paid by the corporation without reimbursement from

shareholder, but in such

taxable year beginning after Dec. 31,

deduction in the years to which so

respect to such year.

interest charges.

imposed upon

as a

to the extent allowable under such section if it

Taxes of Shareholder Paid by Corporation—The deduction for taxes

allowed by subsection
taxes

basis of the trust income

deposits, and timber, a reasonable allowance for depletion and for

prescribe as

may

Distributions by Corporations—Distributions by corporations shall

be taxable to the shareholders

the deduction shall be

trust, or, in the absence of such provisions, on the

(n)

taxpayer, inventories shall be taken by such taxpayer upon such basis as

(d)

of property held by one person

pertinent provisions of the instrument creating

in accordance with the

of inventories is necessary in order clearly to determine the income of any

conforming

case

depletion, exhaustion, wear and tear, and obsolescence are to be

Compensation of employees of foreign governments.

In the

for obsolescence.

with remainder to another person,

Dividends from China Trade Act corporations;

the

Depreciation—A reasonable allowance for the exhaustion, wear and
used in the trade or business, including a reasonable allow¬

(1)
ance

each.

Income of States, municipalities, and other political subdivisions;

tear of property

absence of such provisions,

in an

deduction.

the

Salaries of certain Territorial employees;

(c)

the Commissioner may allow such debt,

the part charged off within the taxable year, as

tioned between the income beneficiaries and the trustee in

without the United States;

The income of foreign governments;

reserve

amount not in excess of

In the

Section 116:

Earned income from

(or, in the discretion of the Commissioner, a reasonable
for bad debts); and when satisfied that a debt is

the taxable year

recoverable only in part,

to another person,

required by any treaty obligation of the United States;
(8)

charged off within

leases the deductions shall be equitably

kind, to the extent

shall

provided in Section 117 (d).

Bad Debts—Debts ascertained to be worthless and

(k)

shall

Ministers—The rental value of a dwelling house and appurtenances

substantially

Capital Losses—Losses from sales or exchanges of capital assets

(j)

the

Section 118.

be allowed only to the extent

such

(5)

accident

after the date of the sale the taxpayer has acquired

identical property, see

the obli¬

owning any of

required by this title, submit a statement showing the number and amount

gross

deduction in
before

provided in Section 113 (b) for determining

other disposition of property.

Wash Sales of Stock or Securities—For disallowance of loss
the case of sales of stock or securities where within 30 days

addition to

Territory, or any political subdivision thereof, or the District of Columbia;

the

(i) Loss

Gifts, Requests, and Devises—The value of property acquired by

gift, bequest, devise, or inheritance (but the income from such property

loss from the sale

subsequently paid by the trans¬

shall be included in gross income);

(4)

shall be the adjusted basis

such

educational purposes or the

(but in the case of contributions or gifts

trust, chest, fund, or fundation, only if such

to be

contributions or gifts are

used within the United States exclusively for such purposes), nb part

of the net

earnings of which inures to the benefi t of any private

shareholder

„

THE REVENUE
individual, and

propaganda,

substantial part of the activities of which is
carrying

otherwise

attempting,

influence legislation; to

amount which does not exceed 5
per centum of the
as

Such contributions

only if verified

regulations prescribed by the

Commissioner,

under rules

with the

approval

and

of the

Secretary.

(r)

For deduction of dividends paid by certain banking corporations,

Section

(b)

24.

Items

Deductible

not

General Rule—In computing net income

(2)

this title.

Any amount paid

for permanent improve¬

ments or betterments made to increase the value of
any property or

(3) Any amount expended in restoring property
exhaustion thereof for which

(4) Premiums paid
office

business

employee,
carried

indirectly

on any

allowance is

by the

financially interested in any trade

taxpayer,

(5) Any amount otherwise allowable
or

when the

is directly or

taxpayer

classes

amount of income

of income

as a

deduction which is allocable to

other than

of that class

interest

(whether

classes is received

not any

accrued)

wholly

exempt from the taxes imposed by this title; or

(6) Loss from sales

exchanges

(A) between members of

family,

of property,

directly

(B) except in the

case

indirectly,

of distributions

liquidation, between an individual and a corporation in which such
individual owns, directly or
indirectly, more than 50 per centum in value of
outstanding stock.

For the purpose of this paragraph
—(C) an indivi¬

dual shall be considered

only

on its

income from

gross

receiving

sources

States,

half blood), spouse, ancestors, >

Contracts Restricting Payment of Dividends—

(1)

Prohibition

Payment of Dividends—An

vision of

income to the holder of

life

terminable

bequest, or inheritance shall not be reduced or
diminished by any deduction for
shrinkage (by whatever name called) in
the value of such interest due to the
lapse of time, nor
by any deduction

allowed by this Act (except the deductions
provided for in subsections (1)
and (m) of Section 23) for the
purpose of computing the net income of an
estate

trust

District of

but not allowed under the lawB of such

Columbia, possession of

(c)

of tax withheld

State, Territory,

the United States, or foreign country

Tax-Free Covenant Bonds—For
nondeductibility

tax-free covenant bonds, see Section 143

(a)

25.

Credits for Normal Tax Only—There shall be allowed for

of the normal tax, but not for the
surtax, the

debt,

aside

year) to be paid within the taxable year in dis¬
be irrevocably set aside within the taxable year for
debt; to the extent that such amount has been so paid or

or to

the discharge of a
set aside.

For the purposes of this
paragraph, a requirement to pay or set
amount

considered

equal to a percentage of earnings and profits shall be
requirement to pay pr set aside such percentage of earnings

the purpose

following credits against the

Obligations of Instrumentalities of the United States—
as

interest

under the Act of Congress, if

obligations of

corporation organized

(A) such corporation is

As used in this paragraph, the word "debt" does

Double Credit not Allowed—If both paragraph

only

States; and (B) such interest is included in gross income under
Section 22; and (C) under the Act
authorizing the issue thereof, as amended

and

(1) and paragraph

one

(d)

of such paragraphs shall be applied.

Bank

Affiliates—In

the

case

holding

affiliate

company

(as

defined in Section 2 of the Banking Act of
1933), the amount of the earnings
or profits which the Board of Governors of the
Federal Reserve
certifies to the Commissioner has been devoted

System
by such affiliate during the

taxable year to the acquisition of readily marketable assets
other than bank
stock in compliance with Section 5144 of the Revised
Statutes. The aggre¬

gate of the credits allowable under this subsection for all taxable years shall

required to be devoted under such Section 5144 to

such purposes.

National Mortgage Associations—In the
created

under

earnings

Title

III

the

case

national mortgage

ational

Housing

Act, the
profits whidh the Federal Housing Administrator

certifies to the Commissioner has been devoted by such association
during
the taxable year to the acquisition of such reserves as the

Administrator

require under the provisions of Section 303 of that Act.
Sec. 27.

Corporation Credit for Dividends PaidV

(a)

Dividends Paid Credit in General—For the

(b)

Dividend Carry-Over—In computing the dividends paid credit for

purposes of this title,
the dividends paid credit shall be the amount of dividends
paid during the
taxable year.

instrumentality of

the United

not include a

(2) apply, the one of such paragraphs which allows the greater credit shall
be applied; and, if the credit allowable under each
paragraph is the same,

(e)

(1) Interest on United States Obligations—The amount received as
interest upon obligations of the United States which
is included in gross
income under Section 22.
on

and profits of the taxable

charge of

may

Interest

credit under this paragraph because of a

(2) Disposition of Profits of Taxable Year—An amount
equal to the
portion of the earnings and profits of the taxable year which is
required
(by a provision of a written contract executed by the corporation
prior to
May 1,1936, which provision expressly deals with the disposition of earnings

amount of the

net income:

(2)

provisions, only the largest of such credits shall be allowed, and for such
purpose if two or more credits are equal in amount
only one shall be taken

(a) (3).

Credits of Individual Against Net Income

The amount received

excess
can

contract provision and also to one or more credits because
of other contract

association

Sec.

the

written contract executed by the corporation
prior to May 1,

not exceed the amount

computing the income to which such holder is entitled.

Tax Withheld

equal

1936, which provision expressly deals with the payment of dividends.

interest acquired by gift,

for the purpose of

amount

distributed within the taxable year as dividends without
violating a pro¬

(3)
Interest—Amounts paid under the

Territory, District of Columbia, possession of the United

foreign country

gross income from sources within a

(c)

debt incurred after April 30, 1936.

Terminable

within the United States by reason

large percentage of its

and profits.

(1) or (2).

received

The credit allowed by this subsection shall not be allowed in

brothers and sisters (whether by the whole

Holders of Life

amount

a corporation organized under the China
Trade Act, 1922, or from a corporation which under Section
251 is taxable

and lineal descendants.

(b)

the

domestic corporation which is subject to taxation under

owning the stock owned, directly or indirectly,
by his family; and (D) the family of an individual shall include
only his

laws of any State,

centum

into account.

beneficiary under such policy;

per

corporation would be entitled to

life insurance policy covering the life of any

or of any person

estate;

in making good the

has been made;

Received—85

of the adjusted net income over the
aggregate of the amounts which

buildings

new

organized under Act of Congress which Is allowed to

credit for purposes of normal tax by Section 25
(a)

possession of the United States.

family expenses;

out for

respect of dividends received from

deduction shall in any

as a

Dividends

dividends from

of its

(1) Personal, living,

the

individual

be allowed in respect of—

case

one

see

121.
Sec.

(a)

of corporations

taxpayer's net income

computed without the benefit of this subsection.
shall be allowable as deductions

gifts

ACT OF 1936

any

taxable year, if the dividends paid during the taxable

the adjusted net income, there shall be allowed

year are

less than

part of the dividends paid

supplemented, such interest is exempt from normal tax.
(3) Earned Income Credit—10 per centum of the amount of the earned
net income, but not in excess of 10
per centum of the amount of the net

credit, and in the following order:

income.

dividends paid credit for the taxable year preceding the taxable
year the
tax for which is being computed; and

(4)

Earned Income Definitions—For

(A)

"Earned income"

amounts received

means wages,

the purposes of this section—

Dividends paid during the second preceding taxable

(1)

of the adjusted net income for such year,

salaries, professional fees, and other

of the adjusted net income for such year.

part of the compensation derived by the taxpayer for personal services
rendered by him to a corporation which represents a
distribution of earnings

first taxable year under this title.

profits rather than

reasonable allowance

sonal services actually rendered.
trade

income

In the

compensation for the per¬

case

taxpayer engaged in

business in which both personal services and
capital are material

producing factors,

reasonable allowance

compensation for the

personal services actually rendered by the taxpayer, not in excess of 20
per centum of his share of the net profits of such trade or
business, shall be
considered

earned income.
means

such deductions

by Section 23 for the purpose of computing net income, and
allocable to

to be

over

are

properly

chargeable against earned income.

"Earned net income'"

income

allowed

are

means

the

excess

If the taxpayer's net
than $3,000, his entire net income shall be considered

income, and if his net income is

than $3,000, his

earned net income shall not be considered to be less than
$3,000.
case shall the earned net Income be considered to be more
than

$14,000.

Credits for Both Normal Tax and Surtax—There

(b)

the purposes of the normal tax and the surtax the

(1)

Personal

Exemption—In

person

in the

living with husband

the
case

wife,

case

single

of the head of
a

wife) dependent

upon and

of the payment, or the

fair market value of the property at the time of the

payment, whichever is the lower.

Dividends in Obligations of the Corporation—If a dividend is paid
obligations of the corporation, the amount of the dividends paid credit

(d)

with respect thereto shall be the face value of the obligations, or their fair
market value at the time of the payment,

whichever is the lower.

If the

one

person

redeemed by the corporation, the excess of the amount for which redeemed
over

the fair market value at the time of the dividend payment

extent not allowable as a

(to the
deduction in computing net income for any taxable

year) shall be treated as a dividend paid in the taxable

year

in which the

redemption occurs.
Taxable Stock Dividends—In case of a stock dividend

which is

stock right

taxable dividend in the hands of shareholders under Section 115

(f), the dividends paid credit with respect thereto shall be the fair market
value of the stock or the stock right at the time of the payment.
(f) Distributions in Liquidation—In the case of amounts distributed In

personal exemption.

(other than husband

receiving his chief support from the taxpayer

if such dependent person is under eighteen years of
age or is incapable of

self-support because mentally

or physically defective.
(3) Change of Status—If the status of the taxpayer. Insofar as it affects
the personal exemption or credit for dependents, changes
during the taxable

year,

a dividend is paid in property other than
(including stock of the corporation if held by the corporation as an

liquidation the part of such distribution which is properly chargeable to the

$2,500. If such husband
and wife make separate returns, the personal
exemption may be taken by
either or divided between them.
Credit for Dependents—$400 for each

Dividends in Kind—If

(c)

money

personal

The amount of such personal exemption shall be

(2)

excess

or a married

person,

family

personal exemption of $2,500.

husband and wife living together shall receive but

allowed for dividends paid by a corporation
prior to its

credit shall be

(e)

shall be allowed for

following credits against

net income:

exemption of $1,000;

fair market value is lower than the face value, then when the obligation is

of the amount of the earned

the sum of the earned income deductions.

is not

earned net

excess

investment) the dividends paid credit with respect thereto shall be the
adjusted basis of the property in the hands of the corporation at the time

"Earned income deductions"

(B)

Dividends paid during the first preceding taxable year in

(2)

compensation for personal services actually rendered,
but does not include any amount not included in
gross income, nor that
as

year

to the extent not needed

the personal exemption and credit shall be apportioned, under rules

earnings

profits accumulated after Feb. 28, 1913, shall, for the purposes

of computing

the dividends paid credit under this section, be treated

as a

taxable dividend paid.

^ (g)

Preferential Dividends—No dividends paid credit shall be allowed
distributin unless the distribution is pro rata, equal in

with respect to any

amount, and with no preference to any share of stock

compared with

other shares of the same class.

Nontaxable Distributions—If any part of a distribution (including
stock dividends and stock rights) is not a taxable dividend in the hands
(h)

of such of the shareholders as are subject to taxation under this title for the

period in which the distribution is made, no dividends paid credit shall be
allowed with respect to such part.

and regulations prescribed by the Commissioner with the
approval of the

Secretary, in accordance with the number of months before and after such
change. For the purpose of such apportionment a fractional part of a month
shall be disregarded unless it amounts to more than half a-month in
which
case it shall be considered as a month.

PART III—CREDITS AGAINST TAX
Sec. 31.

Taxes of Foreign Countries and Possessions of United States

The amount of income, war-profits, and excess-profits taxes imposed by

foreign countries or possessions of the
Sec. 26.
In the case of
extent

(a)

Credits of Corporations

corporation the following credits shall be allowed to the

provided in the various sections imposing tax—

Interest

Interest upon obligations of the United States

Sec. 32.

Taxes Withheld

Source

Obligations of the United States and its Instrumentalities

—.The amount received

United States shall be allowed

credit against the tax, to the extent provided in Section 131.

The

amount

of tax withheld at the

source

shall be allowed as a credit against the tax.

under

Section

143

144

THE

REVENUE ACT OF 193G-

separate return shall be made for the period
for which return was made and

calendar year to fiscal year, a

of taxes imposed by this title

other taxable years, see Section 322.

between the close of the last calendar year

year

to another fiscal year a

General Rule

shall

income

net

basis of the taxpayer's

computed upon tbe

calendar year, as the case may be)
accordance! with the method of accounting regularly employed in keeping

annual accounting period (fiscal year or
in

but if no such method of accounting has been

the books of such taxpayer;

clearly reflect the income,
the computation shall be made in accordance with such method as in the
opinion of the Commissioner does, clearly reflect the income.
If the tax¬
payer's annual accounting period is other than a fiscal year as defined in
employed, or if the method employed does not

accounting period or does not

Section 48 or if the taxpayer has no annual

computed on the basis of the calendar

keep books, the net income shall be

(c>.)

(For use of inventories, see Section 22

year.

subsection (a) on account of a change

mitted, by regulations

made.

income

death of

permitted under Section 41, any such amounts

accounted for as of a different period.

be properly

are to

which received by the taxpayer, unless,

taxable year in

the

for

under methods of accounting

In the case of the

included in computing net income for the

taxpayer there shall be

falls the date of his death, amounts accrued up to
his death if not otherwise properly includible in respect of such

taxable period in which
the date of

period

or a

basis of the period for which separate return

Income Placed on Annual Basis—If a separate return is made (except
corporation) under subsection (a) on account of a

(c)

returns of the income of a

income, computed on the basis

change in the accounting period, the net
of the period for

which separate return is made, shall be placed on an

annual

twelve and dividing by the
included in the period for which the separate return is

by multiplying the amount thereof by

basis

income shall be included in the gross

The amount of all items of gross

made for a fractional part of a year, then the income

of the Secretary, to be

shall be computed on the

The tax shall be such part of the tax

made.

Income Included

Period—Where a separate
in the accoimting
is required or per¬
prescribed by the Commissioner with the approval
Basis of Short

Computed: on

Income

period, and in all other cases where a separate return

number of months

Period in Which Items of Gross

Sec. 42.

the

and the date designated

the close of the new fiscal year.

(b)

return is made under

The

separate return shall be made for

period between the close of the former fiscal year

ACCOUNTING

Sec. 41.

If the change is from one

designated as the close of the fiscal year.

the date

fiscal

METHODS

PERIODS AND

IV—ACCOUNTING

PART

If the change is from

and the following Dec. 31.

for which return was made

Credit for Over-Payments

Sec. 33.

For credit against the tax of overpayments

the number of months in such

computed on such annual basis

period is of twelve months.

Commissioner with the approval of the
Secretary shall by regulations prescribe the method of applyin f the pro¬
visions of subsections (b) and (c)
(relating to computing income on the
basis of a short period, and placing such income on an annual basis) to
cases where the taxpayer makes a separate return under subsection (a) on
account of a change in the accounting period, and it appears that for the
period for which the return is so made he has received earned income.
(d)

Income—The

Earned

(e) Reduction of Credits Against Net Income—In the case of a return
a fractional part of a year, except a return made under subsection

prior period.

made for

Sec.

Period

43.

for

Deductions

Which

The deductions and credits

Credits Taken

and

(other than the dividends paid credit provided

provided for in this title shall be taken for the taxable year

in Section 27)

incurred", dependent upon the
method of accoimting upon the basis of which the net income is computed,
unless in order to clearly reflect the income the deductions or credits should
be taken as of a different period. In the case of the death of a taxpayer there
shall be allowed as deductions and credits for the taxable period in which
falls the date of his death, amounts accrued up to the date of his death if
"paid

"paid or accrued" or

which

(a), on account of a change in the accounting period, the personal exemption
shall be reduced respectively to amounts which

and credit for dependent

bear the same ratio to the full credits
the period for

of jeopardy, see Section 146.

case

Sec.

Dealers in Personal Property—Under

(a)

sells

regulations prescribed by the

any

plan may

price.

Sales of Realty and Casual Sales of Personality—In the case (1) of a
sale or other casual disposition of personal property (other than

(b)
casual

would properly be included in the inventory of the

property of a kind which
taxpayer if on

made for

a return

prescribed by the Commissioner with the

for which such return is made.

months ending on the last day

(c)

of any month other than December.

Incurred, Accrued—The terms "paid or incurred" and "paid
the method of accounting upon

Paid,

accrued" shall be construed according to

the basis of which the net income

(d)

Trade

Business—The

is computed under this Part.

"trade

term

hand at the close of the taxable year), for a price esceeding

(e)

Mutual Investment Companies—

other disposition of real property, if in either case
do not exceed 30 per centum of the selling price (or,
other disposition was in a taxable year beginning prior to

(1)

General Definition—The term "mutual

corporation (whether chartered or

investment company" means
created as an investment trust, or

the initial payments

any

in case the sale or

otherwise), other than a personal holding company as

prescribed' in the law
applicable to such year), the income may, under regulations prescribed by
the Commissioner with the approval of the Secretary, be returned on the
basis and in the manner above prescribed in this section.
As used in this
section the term "initial payments" means the payments received in cash
1934,

percentage

the

of the selling price

property other than evidences of

the taxable period

subsection (a) elects for any

income
of

change

the instalment basis, then in computing his
any

subsequent year, amounts actually received during any

such year on account of

prior

year

income for the year

sales or other dispositions of property made in any

Loss Upon Disposition of Instalment Obligations—If an
obligation is satisfied at other than its face value or distributed,

instalment

otherwise disposed of, gain or loss shall result to the

difference^between the basis of the obligation and (1) in the
at other than face value or a sale or exchange—the

extent of the

of satisfaction

case

realized,

amount

transmission, or dis¬
of the
or disposition.
resulting shall be considered as resulting from the sale
property in respect of which the instalment obligation
(2) in case of a distribution,

position otherwise than by sale or exchange—the fair market value

obligation at the time of such distribution, transmission,
Any gain or loss so
or

exchange of the

value of the

returnable

obligation over an amount equal to the income which would be

were

the obligation satisfied in full.

with the Commissioner, at such time as he may by

bond in such amount and with such sureties as

is filed

he may deem necessary,

clearly

tion is

(B)

not

affiliated) owned

reflect

the

income

not organized in the
or

United States, and

controlled directly or indirectly by the

such organizations,

any

such

organizations,

trades,

accounting period from fiscal year to calendar

basis of such new

or regulation prescribed by the
Secretary, for the purpose of
outstanding stock.

It fails to comply with any rule
the approval

with

of the

return

purpose

for

Short

this title and

(1)

if single,

if married and not living with husband or wife;

Every individual having a net income for the taxable year of $2,500

over,

if married and living with husband or

regardless of the amount of his net income.

Husband and Wife—If a husband and wife living together have an

aggregate net income for the taxable year

The income of each shall be

Period of Less than Twelve Months

Period Resulting from

Change

of Accoimting

made for the period between the close of the last fiscal year

Persons Under

included in a single joint return, in which

computed on the aggregate income.

Disability—If the taxpayer is unable to make his

return, the return shall be

guardian

made by a duly authorized agent or by the

other person charged with the care of

of such taxpayer.

(d)

of $2,500 or over, or an aggregate

income for such year of $5,000 or over—

the tax shall be

wife; and
taxable year of $5,000

Every individual having a gross income for the

over,

(b)

the Commissioner with

by regulations prescribe—

(2)
a

each make under oath
income and the deductions

such other information for the

Every individual having a net income for the taxable year of $1,000

over,

(2)
or

Returns

of carrying out the provisions of this title as

Each shall make such a return, or

basis of computing net income from fiscal year to calendar year a separate

under

(1)

taxpayer, with the approval of the Commissioner, changes the

return shall be

allowed

the approval of the Secretary may

PAYMENT OF TAX

51. Individual

stating specifically the items of his gross

and credits

case

Returns

AND

V—RETURNS

gross

Returns for

Sec. 47.

indebtedness in excess of 10 per

assets taken at cost; or

be computed

Section 47.

(a)

10 per centum of the outstanding stock or

accounting period, subject to the provisions of

the net income shall, with the approval of the Commissioner

Period—If

than

Requirement—The following individuals shall

(a)

(3)

from calendar year to fiscal year, or from one fiscal year to another,

the

It had aiiy outstanding bonds or

Commissioner,

both, of any one corporation; or

ascertaining the actual ownership of its

Change of Accounting Period

taxpayer changes his

centum of its gross

Sec. 46,

instrumentality of the United States; or

owned

securities,

Allocation of Income and Deductions

businesses.

year,

Sec.

allocation is necessary in order to prevent evasion of taxes or

subsequent to

businesses, if he determines that such distribution, apportion¬

(1) a corporation^

mutual investment company if,

after the date of the enactment of this

PART

interests, the Commissioner is authorized to distribute, apportion, or

ment,

as a

decedent if he had lived and had received

allocate gross income or deductions between or among

trades,

year;and

Act, at any time
during the taxable year—V.;..
(A) More than 5 per centum of the gross assets of the corporation, taken
at cost, was invested in stock or securities, or both, of any one corporation,
government, or political subdivision thereof, but this limitation shall not
apply to investments in obligations of the United States or in obligations
of any corporation organized under general Act of Congress if such corpora¬

date thirty days

of two or more organizations, trades, or businesses (whether

incorporated, whether

whether

income is dis¬

taxable dividends during the taxable

Limitations—Despite the provisions of paragraph

(2)

shall not be considered

Sec. 45.
In any case

same

Its shareholders are, upon reasonable notice,

obligations, of the same proportion of such payment as would

be returnable as income by the

such payment.

not

less than 90 per centum of its net

entitled to redemption
of their stock for their proportionate interests in the corporation's properties,
or the cash equivalent thereof less a discount not in excess of 3 per centum

regulation prescribe, a

conditioned upon the return as income, by the person receiving any pay¬
ment on such

not

An amount

(E)

This subsection shall not

apply to the transmission at death of instalment obligations if there

(D)

tributed to its shareholders

the face

The basis of the obligation shall be the excess of

received.

was

securities; and

derived from dividends,
of stock or securities; and
(C) Less than 30 per centum of its gross income is derived from the sale
other disposition of stock or securities held for less than six months; and
At least 95 per centum of its gross income is

(B)

interest, and gains from sales or other disposition

transmitted, sold,

of, and substantially all its business

of, holding, investing, or reinvesting in stock or

thereof.

shall not be excluded.

(d) Gain

It is organized for the purpose

(A)

consists

Accrual to Installment Basis—If a taxpayer entitled
taxable year to report his net

from

to the benefits of

defined in Section

351., if—

indebtedness of the purchaser during

in which the sale or other disposition is made.

includes the

business"

performance of the functions of a public office.

$1,000, or (2) of a sale or

Jan.

period of twelve

Fiscal year.—"Fiscal year" means an accounting

(b)

or the
of which the

the calendar year,

"Taxable year" includes, in the
fractional part of a year under the provisions

approval of the Secretary, the period

means

during such calendar year, upon the basis

computed under this Fart.

of this title or under regulations

taxable year that proportion of the install¬

which the gross profit realized

case

when payment is completed, bears to the total contract

to be realized

payments actually received in that year

ment

who regularly

otherwise disposes of personal property on the installment

return as income therefrom

Year—"Taxable year"

Taxable

(a)

net income is

Commissioner with the approval of the Secretary, a person

Definitions

48.

When used in this title—

fiscal year ending

Installment Basis

Sec. 44.

the number of months in

Jeopardy—For closing of taxable

(f) Closing of Taxable Year in Case of
year

properly allowable in respect of such period or a prior period.

not otherwise

provided

which return is made bears to twelve months.

the person or property
,

Fiduciaries—For returns to be made by fiduciaries, see Section 142.

REVENUE ACT OF

THE
Sec.

52.

instalment

Corporation Returns

ment

Every corporation subject to taxation under this title shall make

return,

stating specifically the items of its gross income and the deductions and
credits allowed by this title and such other information for the purpose of

the provisions of this title

carrying out

approval of the Secretary
be

The return shall

by regulations prescribe.

may

by the president, vice president, or other principal officer and

sworn to

by the treasurer, assistant treasurer,
where receivers,

trustees

In cases

chief accounting officer.

bankruptcy,

assignees

operating the

are

property or business of corporations, such receivers, trustees, or assignees
shall make returns for such corporations in the same manner

corporations

required to make returns.

are

such return^ made by
the

same manner

receivers, trustees,

Any tax due

and form as
the basis of

assignees shall be collected in

if collected from the corporations of whose business or

(c)

Time for Filing—

(1)

General Rule—Returns made

made

before the

calendar year.
on

Returns made

the

before

15th

the tax

instalment thereof.

the basis of

fiscal year shall be made

(2)

td)
the

Commissioner

Time—The

grant

may

shall prescribe

with the approval of the Secretary.

taxpayers who are abroad,

To Whom Return Made—

Individuals—Returns

paid

before the date of the expiration of

on or

see

Section

146.

payment in

Tax Withheld at Source—For requirement of withholding tax at the

<g)
a

the taxpayer, prior to

prescribed for its payment.

in the

case

of nonresident aliens and foreign

of so-called "tax-free covenant bonds."

corporations, and in the

Sections 143 and 144.

see

Fractional Parts of Cent—In the payment of any tax under this title

fractional part of a cent shall

half cent

more,

in which

be disregarded unless it amounts to oneit shall be increased to 1 cent.

case

Receipts—Every collector to

whom

payment of

any

income tax

any

is made shall upon request give to the person making such payment a
written

full

printed receipt therefor.

Sec.

than six

(1)

prescribed for the payment of the tax or

In such case the amount in respect of which the

Advance Payment in Case of Jeopardy—For advance
of jeopardy,

case

months.

(b)

determined

instalment thereof, for a period not to

Except in the case of

such extension shall be for

reasonable

regulations as he

or any

Voluntary Advance Payment—A tax imposed by this title, or any

date

(h)

Extension

notice and demand from

instalment thereof, may be paid, at the election of

fiscal year.

extension of time for filing returns, under such rules and

upon

the period of the extension.

day of March following the close of the

by the taxpayer,

exceed six months from thj date

(f)

day of the third month following the" close of the

be paid

Extension of Time for Payment—At the request of the taxpayer, the

source

the basis of the calendar year shall

If any

before the date fixed for its payment, the

extension is granted shall be

Time and Place for Filing Returns

(a)

day of the sixth month, and the fourth instal¬

day of the ninth month, after such date.

paid

Commissioner may extend the time for payment of the amount,
as

case

not

the collector.

(e)
53.

whole amount of the tax unpaid shall

property they have custody and control.

Sec.

the fifteenth

instalment

the

Commissioner with

the

1936

57.

soon

Examination of Return and Determination of Tax

practicable after the return is filed the Commissioner shall

examine it and shall determine the correct amount of the tax.

(other

than

shall

returns)

corporation

made to the collector for the district in which is located the legal

residence

Sec.

Additions to Tax and Penalties

58.

principal place of business of the person making the return, or, if he

has

legal residence

then to the collector at Baltimore,

(2)

(b)

Corporations—Returns of corporations shall be made to the collector

of the district in which is located the principal

place of business
no

or agency

of the corporation, or, if it has

principal office

For additions to the tax in

principal

For criminal penalties for nonpayment of tax

therefor,

Section

see

principal place of business

fraud in the

non-

Baltimore, Maryland.

failure to file return

Administrative Proceedings

59.

For administrative proceedings

145.

Sec.

in the United States, then to the collector at

or agency

of negligence

case

payment of tax or failure to file return therefor, see Supplement M.

Maryland.

office
or

(a)

principal place of business in the United States,

in respect of the nonpayment or over¬

payment of a tax imposed by this title, see as follows:
Sec.

Records

54.

By Taxpayer—Every

(a)

and

(a)

Special Returns

liabile to

person

any tax

imposed by this title

for the collection thereof, shall keep such records, render under oath such

statements, make such returns, and comply with such rules and regulations,
the

Commissioner, with the approval of the Secretary,

to time

prescribe.

Supplement L, relating to assessment and collection of deficiencies.

(b)

Supplement M, relating to interest and additions to tax.

(c)

Supplement N, relating to claims against transferees

(d)

Supplement O, relating to overpayments.

from time

may

PART

•

Sec.

Commissioner necessary he may require any person, by notice served upon

him, to make
records,

return, render under oath such statements, or keep such

the Commissioner deems sufficient to show whether

not such

is liabile to tax under this title.

person

Made

Laws

61.

Applicable

All administrative, special, or stamp provisions of law,

relating to the assessment of taxes,
to

and made

far

applicable,

including the law

are

hereby extended

part of this title.

Sections

(d)

147 to 150.

Copies of Returns—If
fails to file such

copy at

any

person,

required by law

regulations

sessed against such person
case

the time required, there shall be due and

$5 in the

fiduciary, partnership,

case

individual return

and

with whom the return is filed shall prepare such copy.

and

Regulations

with the approval of the Secretary, shall prescribe

publish all needful rules and regulations for the enforcement of this

title.

as¬

Sec.

63.

Taxes in Lieu of Taxes Under 1934 Act

$10 in

The taxes imposed

corporation return, and the collector

Rules

62.

The Commissioner,

made pursuant to law to file a copy of any income return for any taxable
year,

Sec.

assist in determining the tax liability of another person,

one person to

the

PROVISIONS

Information at the Source—For requirement of statements and returns

(c)

VI—MISCELLANEOUS

To Determine Liability to Tax—-Whenever in the judgment of the

(b)

see

and'fudiciaries.

Such amount shall

by this title and Title IA shall be in lieu of the taxes

posed by Titles I and IA of the Revenue Act of 1934,

as amended.

be collected and paid, without interest, in the same manner as the amount
of tax due in
of

mathematical

returns filed

for

appearing

error

period of not less than two

the face of the return.

Copies of

prepared pursuant to this subsection shall remain

Sec.

of that shown by the taxpayer upon a return in the case

excess

from the date they

years

This title may

be cited

Title

the "Income Tax Act of 1936."

file

required to

are

Short

64.

SUBTITLE

be filed, and may be destroyed at any time thereafter under the direction

C—SUPPLEMENTAL

SUPPLEMENT

of the Commissioner.

A—RATES

PROVISIONS
OF

TAX

[Supplementary to Subtitle B, Part I]
Sec.

55.

Publicity of Returns
Sec.

(a)

Returns made under this title shall be

including penalties,
1926:
and

open to

the same extent, and subject to the

manner,

as returns

inspection in the

The

provisions of law,

same

made under Title II of the Revenue Act of

and all returns made under this Act shall constitute public records

(b)

(1)

by the President.

All income returns filed under this title (or copies thereof, if

prescribed by regulations made under this subsection),
inspection by

any

shall

be open

official, body, or commission, lawfully charged with the

administration of any State tax law, if the inspection is for the purpose of
such

administration

furnished

local

for

the

inspection shall be permitted only
such

purpose

taxing authorities

obtaining

information

provided in paragraph

upon written request

of the

mission to make
mission.

The

the inspection

(2)

may

com¬

manner, and at such times

be used only for the administration of the

commission
tax laws

such

information

may

be furnished to

any

mission of any political subdivision of such State,

administration of the tax laws of such
furnished only

for the

purpose

tration of such tax laws.

of, and

when called upon to

which the

body,

through

State

commission,
an

Any officer, employee, or agent of

testify in

judicial

any

such, is

com¬

may

any

State or

authorized in this subsection,
or administrative

such

State

proceeding

local official,

party) any information acquired by him

inspection permitted him

or another under this subsection shall

be guilty of a misdemeanor and shall upon conviction be punished
of not

be used only for, the adminis¬

political subdivision,
as

body,

political subdivision, but

may

political subdivision, who divulges (except
to

official,

lawfully charged with the

than $1,000, or by imprisonment for not more than

by
one

fine

year,

under

this

Mutal savings banks not having

Fraternal beneficiary societies, orders,
lodge system

horticultural organizations;
a

capital stock represented by shares;
associations, (A) operating

for the exclusive benefit of the members of

fraternity itself operating under the lodge system; and (B) providing for the
payment of life, sick, accident, or other benefits to the members of such,

society, order, or association or their dependents;

(4)

Domestic building and loan associations substantially all the business

of which is confined

without

capital

without

profit;

(5)

making loans to members; and cooperative banks

stock organized

and

tliat

of any

(6)

for

solely

purposes

and

burial

purposes

purpose, no part

any

profit; and any corporation

cemetery

corporation and

not

business not necessarily incident

of the net earnings of which inures

the benefit

private shareholder or individual;

Corporations,

organized
literary
or

mutual

Cemetery companies owned and operated exclusively for the benefit

chartered

for

operated

of their members or which are not operated for

such State, except that upon written request of the Governor of such State
any

Labor, agricultural,

(2)

(3)

permitted by its charter to engage in

Any information thus secured by any official, body,
State

by regulations made by the Commissioner

with the approval of the Secretary

of any

The

governor

behalf of such official, body,

inspection shall be made in such

and places, as shall be prescribed

Corporations

be exempt from taxation

(1)

under the

(2).

State, designating the representative of such official, body,

Exemptions from Tax

following organizations shall

title—

shall be open to public examination and inspection to such extent as

shall be authorized in rules and regulations promulgated

101.

same

and

operated

and

community

any

exclusively

for

chest,

religious,

fund,

foundation,

charitable,

scientific,

onal purposes, or for the prevention of cruelty to children
part of the net earnings of which inures to the benefit of any

or educat

animals,

private shareholder of individual, and no substantial part of the activities
of which is carrying on propaganda, or otherwise

legislation;

(7)

Business

leagues,

chambers

commerce,

boards of trade, not organized for profit and

I which inures to the benefit of
(8)

attempting, to influence

any

real-estate

boards,

part of the net earnings of

private shareholder

individual;

Civic leagues or organizations not organized for profit but operated
for the promotion of social welfare, or local associations iof

exclusively

employees, the membership of which is limited to the employees of a de¬
a particular municipality, and the net earnings
of which are devoted exclusively to charitable, educational, or recreational

signated person or persons in

both.

Sec.

56.

Payment of Tax

purposes;

(a)

Time of Payment—The total amount of tax imposed by this title
shall be paid on the fifteenth day of March following the close of the calendar
year, or,

if the return should be made

the basis of

fiscal year, then on

the fifteenth day of the third month following the close of the fiscal
year.

(b) Instalment Payments—The taxpayer may elect to pay the tax in
four equal instalments, in which case the first instalment shall be
paid on
the date prescribed for the payment of the tax by the

taxpayer, the second

instalment shall

be paid on the fifteenth day

of the third month, the third

(9)
and

Clubs organized and operated exclusively for pleasure, recreation,
nonprofitable purposes, no part of the net earnings of which

other

inures to the benefit of any private shareholder;

(10) Benevolent life insurance associations of
mutual

ditch

companies,

irrigation

companies,

mutual

like organizations; but only if 85

purely local character,
cooperative

telephone

per centum or more of the

income consists of amounts collected from members for the sole
purpose ofT

meeting losses and expenses;

THE REVENUE ACT OE 1936

8
(11)

Farmers'

companies

other mutual hail, cyclone, casualty,

writers) the income of which is used

Section 26 (e).

amount allowed as a credit under

held for the purpose of paying losses

(2) Retained Net Income—The term "retained net income" means the
like associations organized and operated

special adjusted net income minus the sum of the dividends paid credit

cooperative basis (a) for the purpose of marketing the products of

provided in Section 27 and the credit provided in Section 26 (c), relating to

(12) Farmers', fruit growers',
a

association

or expenses;

(E) National Mortgage Associations—In the case of a national mortgage
created under Title III of the National Housing Act,. the

fire insurance

(including inter!nsurers and reciprocal under-

associations

members

other producers,

and turning back to them the proceeds of

quantity

the value of the products furnished by them,

other persons, and turning over

actual cost, plus necessary expenses.

Exemption shall not be denied

any

income" wherever appearing in such sections

adjusted net income".

the words "special

such supplies and equipment to them at

computed by substituting in Section 26 (c) and in Section 27

for the words "adjusted net

(b) for the

for the use of members

purpose of purchasing supplies and equipment

For the purposes of this subsection, such

dividends.

contracts restricting

credits shall be

sales, less the necessary marketing expenses, on the basis of either the

(d) Payment of Surtax on Pro Rata Shares—The tax imposed by this
section shall not apply if (1) all the shareholders of the corporation include

such association because it has capital stock, if the dividend rate of such

(at the time of filing their returns)

in their gross income their entire pro

whether distributed or not, of the retained net income of the

stock is fixed at not to exceed the legal rate of interest in the State of incor¬

rata shares,

poration

corporation for such year, and (2) 90 per centum or more of such retained

8 per centum per annum, whichever is greater,

the consideration for which the stock was issued, and if

the value of

not entitled or

are

permitted to participate, directly or indirectly, in the profits

Any amount so included in the gross income of a shareholder
shall be treated as a dividend received.
Any subsequent distribution made
corporations.

of the association, upon dissolution or otherwise, beyond the fixed dividends)

by the corporation out of earnings or

is owned

by producers who market their products or purchase their supplies

distributed

and equipment through the association; nor shall exemption be denied any

his prorata

such association because there is accumulated and maintained by it a reserve

required by State law
Such

reasonable

or a

for any

reserve

necessary purpose.

the value of which does not exceed the value of the products marketed for
may

amount the value of which does not exceed the value of the

15 per centum
United States

who are neither members nor producers does not exceed

ofjbhe value of all its purchases.

any of its agencies shall be

Business done for the

disregarded in determining the

ordinary

operations of such members

crop

the

operated in conjunction with such association.

purpose of

financing

other producers, and

Exemption shall not be

denied any such corporation because it has capital stock, if the dividend
rate of such stock is fixed at not to exceed the

State of incorporation or

legal rate of interest in the

per centum per annum,

whichever is greater,

the value of the consideration for which the stock was issued, and if

substantially all such stock
of which

owners

shall, if
income

(e) Tax on Personal Holding Companies—For surtax on personal holdcompanies, see Section 351.
✓

Sec.

103.

of Tax

Rates

entitled

not

are

(other

nonvoting preferred stock, the

than

permitted to participate, directly

indirectly, in the profits of the corporation, upon dissolution

beyond the fixed dividends)

Citizens and Corporations of Certain

Foreign Countries
Whenever the President finds that, under the laws of any foreign country,
citizens

corporations of the United States are being subjected to dis¬

criminatory or extraterritorial taxes, the
the rates of tax imposed by

President shall

proclaim and

Sections 11, 12, 13, 201 (b), 204 (a), 211 (a),

(a) shall, for the taxable year during which such proclamation is

and 231

made and for each taxable year thereafter, be doubled in the case of each

Corporations organized by an association exempt under the pro¬

visions of paragraph (12), or membres thereof, for

year
gross

supplies and

right to exemption under this paragraph;

the

profits for such taxable

shareholder who has so included in hi6

purchase supplies and equipment for nonmembers in

equipment purchased for members, provided the value of the purchases
made for persons

(13)

to any

share, be exempt from tax in the amount of the share so included.

association may market the products of nonmembers.in an amount

members, and
an

income of shareholders other than

net income is so included in the gross

substantially al

such stock (other than nonvoting preferred stock, the owners of which

citizen and

corporation of such foreign country; but the tax at such doubled

rate shall be

211 (a), or

considered

to this

imposed by Sections 11, 12, 13, 201 (b), 204 (a),

In no case shall this section operate
imposed by such sections (computed without regard

231 (a), as the case may be.

to increase the taxes

section) to an amount in excess of 80 per centum of the net income of

Whenever the President finds that the laws of any foreign

the taxpayer.

President has made

country with respect to which the
the

proclamation under

preceding provisions of this section have been modified so that dis¬

criminatory and extraterritorial taxes applicable to

citizens and corpora¬

tions of the United States have been removed, he shall so proclaim, and the

otherwise,

provisions of this section providing for doubled rate? of tax shall not apply

is owned, by such association, or members

to any

thereof; nor shall exemption be denied any such corporation because there is

citizen or corporation of such foreign country with respect to

taxable year beginning after

any

such proclamation is made.

accumulated and maintained by it a reserve required by State law or a

easonable

for any necessary purpose;

reserve

Sec.

Corporations organized for the exclusive

(14)

purpose

of holding title to
or

thereof, less expenses, to an organization which itself is exempt from the
tax

imposed by this title;

(15)
are

instrumentalities of the United States and if, undersuch Act, as amended

and supplemented, such corporations are exempt from Federal income taxes;

(16)

Voluntary

employees'

beneficiary

associations

providing

(otjher
holders

individual,,and (B) 85

per centum or more

(17)

Teachers' retirement fund associations of

no part

of jriaking such

be at the rate of 15 per centum

purely local character, if

even

by prospecting or exploration or discovery work done
the portion of the tax

treasury or

a common

asso¬

not, of the net income of the association

poration for such year.
member shall be treated

Sec. 102.

(a)

Surtax

Any amount
as a

included in the

gross

dividend received.

■,

Sec. 111.

.....

Imposition of Tax—There shall be levied, collected, and paid for

personal holding company

defined in Section 351) if such corporation, however created or organized,

is formed or availed of for the purpose of

corporation,

through the medium of permitting earnings or profits to accumulate instead

(1) In the

case

of corporations not subject to the surtax on undistributed
a

excess

$100,000.

(2) In the

case

of corporations subject to the surtax on undistributed
a surtax

equal to the

sum

excess

Realized—The

market value of the property

(other than money) received.

Sales—Nothing in this section shall be construed to
sold under contract providing for payment

instalments) the taxation of that portion of any instalment payment

representing gain

profit in the year in which such payment is received.
112.

General

amount of the

nized, except

Recognition of Gain

hereinafter provided in this section.

(b) Exchanges Solely in Kind—
shall be recognized if property
or

Net

term

sum

"special

adjusted

net

of—

Taxes—Federal income, war-profits, and excess-profits taxes paid
accrued during the taxable year, to the extent not allowed as a deduction

by Section 23, but not including the tax imposed by this section
responding section of
(B)

in Section 23

as a

(o), for the

deduction, to

purposes

for the

are

disallowed

as a

ubo

gifts,

case

exchanges of capital assets

holding company affiliate

held

interest,

other securities or evidences of indebtedness

productive use in trade or business or for investment.

(2) Stock for

Stock of Same

Corporation—No gain or loss shall be

recognized if common stock in a corporation is exchanged solely for common
stock in the same corporation, or if preferred stock in a corporation is
exchanged solely for preferred stock in the same corporation.

(3) Stock for Stock on Reorganization—No gain or loss shall be recog¬
in pursuance

of the plan of reorganization, exchanged solely for stock or

securities in such corporation or in another corporation a

(as

defined in Section 2 of the Banking Act of 1933), the amount allowed as
credit under Section 26 (d).

(not including stock in trade or other property

nized if stock or securities in a corporation a party to a reorganization are,

deduction by Section 117 (d).

(D) Bank Affiliates—In the

investment

interest) is exchanged solely for property of a like kind to be held either

for

of donees described

therein specified.

or a cor¬

prior income-tax law.

Disallowed Charitable, &c.. Contributions—Contributions

not otherwise allowed

for

trust or beneficial
or

(A)
or

(1) Property Held for Productive Use or Investment—No gain or loss
held for productive use in trade or business

primarily for sale, nor stocks, bonds, notes, choses in action, certificates of

Income—The

income" means the net income minus the

Losji

gain or loss, determined under Section 111, shall be recog¬

facie evidence of

purpose to avoid surtax upon shareholders.

Rule—Upon the sale or exchange of property the entire

any corporation is a mere
holding or investment company, or that the earnings or profits are permitted
to accumulate beyond the reasonable needs of the business, shall be
prima

Special

other

prevent (in the case of property

(b) Prima Facie Evidence—The fact that

(1)

provisions of Section 112.

Sec.

$100,000.

realized from the sale

(c) Recognition of Gain or Loss—In the case of a sale or exchange, the
which the gain or loss determined under this section shall be

(a)
excess

amount

extent to

$100,000, plus
25 per centum of the amount of the retained net income in

■

adjusted basis provided in Section 113 (b) for determining

(b) Amount

of the following:

15 per centum of the amount of the retained net income not in

a"'

(

Loss—The gain from the sale or other

Of Gain or

disposition of property shall be the sum of any money received plus the fair

profits imposed by Section 14,

of, and Recognition of, Gain

gain, and the loss shall be the excess of the adjusted basis provided in such

(d) Instalment
of

excess

Loss

section for determining loss over the amount realized.

$100,000, plus
35 per centum of the amount of the retained net income in

recognized for the purposes of this title, shall be determined under the

surtax equal to the sum of the following:

25 per centum of the amount of the retained net income not in

INCOME

;/■

disposition of property shall be the excess of the amount realized there¬
from over the

of being divided or distributed—

profits imposed by Section 14,

(a) Computation

preventing the imposition of the

surtax upon its shareholders or the shareholders of any other

Determination of Amount

AC.

Corporations Improperly Accumulating Surplus

corporation (other than

■

[Supplementary to Subtitle B, Part II]

cor¬

income of
J:

OF NET

SUPPLEMENT B—COMPUTATION

(at the

each taxable year (in addition to other taxes imposed by this title) upon the
net income of every

of the selling price of such property or interest.

community treasury,

corporations engage in business for the common

benefit of the members, but only if the members thereof include

distributed

by the taxpayer,

imposed by Section 12 attributable to such sale shall

not exceed 30 per centum

time of filing their returns) in their gross income their entire pro-rata shares,

whether

Gas Properties
f-

the teaching salaries of members,

apostolic associations or corporations, if such

corporations have

if such associations

fide sale of any oil or gas property, or any interest

therein, where the principal value of the property has been demonstrated

and income in respect of investments.

ciations

Sale of Oil

Sec. 105.

„

In the case of a bona

(B) the income consists solely of amounts received from public taxation,

(18) Religious

instead of at the rates provided in such

section.
a

of their net earnings inures (other than through payment of

amounts received from assessments upon

imposed

by Section 14, and except that the normal tax imposed by Section 13 shall

retirement benefits) to the benefit of any private shareholder or individual,
and

(k) of the Federal Reserve Act, as amended, and which is subject

corporations, except that they shall not be subject to the surtax

of the income consists

payments and meeting expenses;

(A)

ing fiduciary powers similar to those permitted to national banks under

(b) Rate of Tax—Banks shall be taxable in the same manner as other

any private share¬

of amounts collected from members for the sole purpose

consists of

supervision over banking institutions.

their dependents, if (A) no part of their net earnings inures

than through such payments) to the benefit of

(including laws relating to the District of Columbia) of any
part of the business of which
receiving deposits and making loans and discounts, or of exercis¬

by law to supervision and examination by State or Federal authority having

payment of life, sick, accident, or other benefits to the members of such
association

of any Territory, a substantial

Section 11

for the

and Trust Companies

United States

State,

Corporations organized under Act of Congress, if such corporations

Banks

104.

(a) Definition—As used in this section the term "bank" means a bank
trust company incorporated and doing business under the laws of the

property, collecting income therefrom, and turning over the entire amount

party to the

-reorganization.

a
a

(4) Same—Gain of Corporation—No gain or loss shall be recognized if
a party to a reorganization exchanges property, in pursuance

corporation

THE REVENUE ACT OF 1936

of the plan of reorganization,
solely for stock or securities in another corpora¬

part of the money is not so expended, the gain, if any, shall be recognized,

tion

but in

party to the reorganization.

(5) Transfer to Corporation Controlled by Transferor—No gain
shall

be recognized if property is

transferred to

loss

(g)
113—

corporation by one or

and
the

amount not in

persons solely in exchange for stock or securities in such corporation,
immediately after the exchange such person or persons are in control of
corporation; but in the case of an exchange by two or more persons this

of the

excess

The term "reorganization"

for all

part of its voting stock:

or a

classes of stock of another

(6) Property

Received

Corporation

Liquidation

Complete

Another—No gain or loss shall be
recognized upon the

receipt by

of its

corporation,

assets

transferor

a cor¬

poration of property distributed in complete liquidation of another,.corpora¬
tion. " For the purposes of this
paragraph a distribution
to be in complete liquidation
only if—

shall be considered

the

(C)

stockholders

assets

The

term

party

and the

owner

(h)

of at least

are

(D)

of the

control

corporation

recapitalization, or

(E)

from

includes

and

reorganization

includes

both

corporation

corporations

the

reorganization resulting from the acquisition by one corporation

Definition of Control—As used in this section the term "control"
the ownership of stock possessing at least 80 per centum of the total

means

80 per centum of the total number of shares of all other classes of stock

immediately after the transfer the

reorganization"

of stock or properties of another.

(in such other cor¬

of the total combined voting

per centum

of substantially all the properties

both

transferred,

are

until the receipt of the
property, the owner of stock

of all classes of stock entitled to vote

con¬

transfer by a corporation of all or a part

resulting

poration) possessing at least 80

of the total number of shares of all other

corporation;

(A) The corporation receiving such property was, on the date of the
adoption of the plan of liquidation, and has continued to be at all times

power

merger

change in identity, form, or place of organization, however effected.

(2)

case

a statutory

pf at least 80 per centum of the voting

another corporation if

its

which

mere

expended.

the acquisition by one corporation in exchange solely

(B)

stock and at least 80 per centum

of another

(A)

means

by each is substantially in proportion to his interest in the property prior
the exchange.

used in this section and Section

mdtX-JI

(1)

solidation,

paragraph shall apply only if the amount of the stock and securities received

which is not

money

Definition of Reorganization—As

combined voting power of all classes of stock entitled to vote and at least

(except non-voting stock which is limited and preferred as to dividends),

80 per centum of the total number of shares of all other classes of stock

and

of the

was

time

on or

after the date of the adoption of

the plan of liquida¬

tion and until the receipt of the
property the owner of a greater percentage
of any class of stock than the
percentage of such class owned at the time
of the receipt of the
property; and

(B) No distribution under the liquidation
of the first taxable year of the
corporation

(i)

made before the first day

was

beginning after Dec. 31, 1935;

and e'ther:

distribution is

other

corporation

complete

the taxable

in such

year;

by the stock-

the adoption

case

date

of the
or

(6),

(b)

(3)

not

be considered

the

assets

of such

corporation in complete cancellation or redemption

though

no time for the

Such distribution is

one

corporation in complete cancellation
with

ance

series

of distributions

Sec. 113.

(а)

Basis

(1)

•

last

by such other

of Property—The

basis

1920—If the

31,

after Dec. 31, 1920, the basis shall be the

basis

except that if such transfer is not completed within such

or if the taxpayer does not continue qualified under subparagraph
(A) until the completion of such transfer, no distribution under the plan

of the gift,

shall be considered

to the

purpose

^whichever is lower.

the last preceding owner are unknown

donee, the Commissioner shall, if possible, obtain such facts from

in the hands of such donor

value

found by the Commissioner

If the

necessary to
insure, if the transfer of the property is not com¬
pleted within such three-year period, or if the taxpayer does not continue
qualified under subparagraph (A) until the completion of such transfer,

the assessment and collection of all
income, war-profits, and
taxes then imposed
by law for such taxable
year

constituting

distribution in

as not
a

(3)

of the date

according to the best information that

preceding

was

bequest

devise) the basis shall be the

liquida¬

applicable to the
(4)

Gift

same

it would be in the

year

in which the transfer

was

made.

Transfer in Trust Before Jan. 1, 1921—If the property

acquired by gift or transfer in trust

not constituting

distribution (or

one of a series of distributions) in complete cancellation or
redemption of all the stock of such other corporation, merely because the

bequest, devise,

(5)

the transfer under the plan to the

taxpayer by such other corporation of
property, not attributable to shares
owned by the
taxpayer, upon an exchange described in paragraph (4) of
this

subsection, and (ii) the complete cancellation

plan,

as a result of

(c)

such

(5) of this section if it

acquisition.

In the

case

reserved to the grantor at all
the basis of such property

were not

acquisition.

acquired

of property transferred in trust to pay the

of the

terms

will executed

trust

for the fact that the property

right

times prior to his death to revoke the trust,

in the hands of the

instrument

shall, after such death, be the

(b)

of subsection

was

by the decedent's estate from the deced¬

income for life to or upon the order or direction of the grantor, with the

redemtpion under the

exchanges described in paragraph (3) of this subsection,

Gains from Exchanges not Solely in Kind—
If an exchange would be within the provisions

(1)

inheritance,

ent, the basis shall be the fair market value of such property at the time of

of the shares not owned
by the taxpayer.

(1). (2), (3),

Property Transmitted at Death—If the property
or

was

before Dec. 31, 1920, the basis

carrying out of the plan involves

(i)

acquired

recognized to the grantor upon such transfer under the law

shall be the fair market value of such property at the time of such

the

owner.

Transfer in Trust after Dec. 31, 1920—If the property

amount of loss

transfer of property of such

other corporation to the taxpayer shall not be
considered

the basis

hands of the grantor, increased in the amount of gain or decreased in the

constituting such

tion within the
meaning of the corporate law under which the distribution is

made; and for the purposes of this paragraph

obtain such facts,

last preceding owner shall be the fair market

after Dec. 31, 1920, by a transfer in trust (other than by a transfer in trust

A distribution

of such property

last

excess-profits

distribution

Commissioner finds it impossible

Commissioner is able to obtain, such property was acquired by such donor

complete liquidation "within the

meaning of this paragraph shall not be considered
distribution merely because it does not constitute

last preceding owner, or any other person cognizant thereof.

approximate date at which,

subsequent taxable

years, to the extent attributable to property so received.

otherwise

If the facts necessary to determine the
or

statute

deem

gift

value of the property at the time

such donor

both, as he may

acquired by

was

it would be in the hands

of determining loss the basis shall be the

the fair market

basis in the hands of the donor

distribution in complete liquidation.

property
same as

If such transfer of all the
property does not occur within the taxable year
the Commissioner may
require of the taxpayer such bond, or waiver of the
or

shall

the last preceding owner by whom it was not acquired

determined

period,

collection,

Loss

property

Inventory Value—If the property should have been included in the

gift, except that for the

and

the

inventory, the basis shall be the last inventory value thereof.

(2).Gifts after Dec.

redemption of all its stock in accord¬

during which is made the first of the series of distributions

assessment

(4),

foreign corporation shall

Adjusted Basis for Determining Gain

(Unadjusted)

of the taxable year

(3),

the cost of such property; except that—

under the liquidation is to be completed within three
years from the close

of limitations

gain

(made after the

corporation unless, prior to such exchange, it has

of the donor

which

extent

much of subsection (c) as refers to subsection

described in subsection (d),

plan of liquidation under which the transfer of all the property

under the plan,

the

of the exchanges

described in subsection (b)

avoidance of Federal income taxes.

plan of liquidation, even

(5),

Act)

is not in pursuance of a plan having as one of its principal purposes
-

completion of the transfer of the property is specified

in such resolution; or

(D)

adoption of

described in

determining
of any

case

of this

enactment

(5),

holders of the resolution under which is authorized the distribution of all

all its stock, shall be considered

Corporations—In

be recognized in the

been established to the satisfaction of the Commissioner that such exchange

can¬

redemption of all its stock, and the transfer of all the property

within

occurs

by such

corporation.

Foreign

shall

the property

same as

entitled under the

persons

after the grantor's death

if the trust instrument had been

the day of the grantor's death.

For the purpose of this

received

only of property permitted by such
paragraph to be received without the recognition of gain, but also of other

paragraph property passing without full and adequate consideration under

property

or money,

property passing from the individual exercising such power by bequest or

but in

exchange

consists

not

excess

of the

sum

within the provisions of
paragraph
of the distribution of a taxable

plan of reorganization is

(1) of this subsection but has the effect

dividend, then there shall be taxed

dividend to each distributee such
excess

(б)

distribution made in pursuance

paragraph (1) as is not in

general power of appointment exercised by will shall be deemed to

amount of the

gain recognized under

of his ratable share of the undistributed

earnings and profits of the corporation accumulated after Feb.
28,

1913.

Tax-free Exchanges Generally—If the property

the

in the

same as

case

of the property

(15) of this subsection) shall be

exchanged, decreased in the

of any

money

gain

decreased in the amount of loss to the taxpayer that

exchange

type of property permitted by Section 112

any, of the gain recognized under paragraph (1) shall be
gain from the exchange of property.
(d) Same—Gain of Corporation—If an exchange would be within the
provisions of subsection (b) (4) of this section if it were not for the fact that
the property received in
exchange consists not only of stock or securities

permitted by such paragraph to be received without the recognition of
gain, but also of other property or money, then—
(IFIf the corporation receiving such other property
it in pursuance

of the plan of reorganization,

distributes

gain to the corporation

shall be recognized from the
exchange, but

(2)

If the corporation receiving such other property or money does
distribute it in pursuance of the plan of
reorganization, the gain, if
any, to the corporation shall be recognized, but in an amount not in excess
of the

sum

of such money and the fair market value of such
other property

received, which is
(e)

not so

distributed.

if it
not

were

exchange would be

(1) to (5), inclusive, of this section

not for the fact that the
property

received in exchange consists

only of property permitted by such paragraph to be received without

the recognition of gain or
no

(b)

loss, but also of other property

money,

then

loss from the exchange shall be
recognized.

(f)

Involuntary Conversions—If property (as

condemnation,

or the threat or imminence

involuntarily converted into property similar
to

result of its destruction

thereof) is cumpulsorily
or

related in service

use

the

property so converted, or into money which is forthwith in good
faith, under regulations prescribed by the Commissioner with the approval
of the Secretary, expended in the
acquisition of other property similar or
related in service
of control of
ment of

or use

to the property so

converted, or in the acquisition

corporation owning such other property, or in the establish¬

replacement fund, no gain

pro¬

money) received, and for the purpose of the allocation there shall be assigned
to such other property an amount equivalent to its fair market value at the
by

exchange.

This paragraph shall not apply to property acquired

corporation by the issuance of its stock

in whole

securities

1917, by

the consideration

in part for the transfer of the property to it.

Transfers to Corporation—If the property

corporation in connection with

shall be the

same as

the amount of

gain

was

acquired after Dec. 31,

reorganization, then the basis

it would be in the hands of the transferor, increased in
or decreased

in the amount of loss recognized to the

transferor upon such transfer under the law applicable to the
year in which
the transfer was made.
This paragrpah shall not apply if the

acquired consists of stock

loss shall be recognized.

If any

or securities in

corporation

organization, unless acquired by the issuance of stock
transferee

(8)

the consideration in whole

Property Acquired by Issuance of Stock

By the issuance of its stock

or as

As paid-in surplus
same

transferor upon
the transfer

(9)

1913,

or as a contribution to

it would be in the hands of the

of gain

decreased! in the

Paid-in Surplus—If the

cases

trans¬

where part of

securities),

was

capital, then the basis shall

transferor, increased in the

loss
recognized to the
such transfer under the law applicable to the year in which

was

amount

made.

Involuntary Conversion—If the property
as

re¬

corporation—

property to the corporation

property or money, in addition to such stock

(B)

(including, also,

the consideration for the transfer of such

be the

party to the

securities of the

securities in connection with

action described in Section 112 (b) (5)

amount

in part for the transfer.

property was acquired after Dec. 31, 1920, by

(A)

in whole or in part, theft or seizure, or an exercise of the
power of requisition
or

(b) to be received without the

vided in this paragraph shall be allocated between the properties
(other than

property

Loss from Exchanges Not Solely in Kind—If

within the provisions of subsection

If the property so acquired consisted in part of the

made.

recognition of gain or loss, and in part of other property, the basis

(7)

not

was

date of the
or money

amount

was recognized
exchange under the law applicable to the year in which the

such

upon

received by the taxpayer and increased in the

The^remainder, if
a

acquired, after

was

Feb. 28,1913, upon an exchange described in Section 112 (b) to (e), inclusive
the basis (except as provided in paragraph

taxed

devise.

of such money and the fair market

value of such other
property.

(2)

then the gain, if any, to the recipient shall be recognized,

an amount not

the result of

compulsory

was

acquired, after Feb. 28,

involuntary conversion described in

THE REVENUE ACT

10
Section 112 (f), the basis shall be the

same as

in the

which

not expended in accordance with the provisions of law (applicable

was

to the year

in which such conversion

status of the
of

made) determining the taxable

was

gain or loss upon such conversion, and increased in the amount

gain or decreased in the amount of loss to the taxpayer recognized upon

such conversion under the law applicable to the year in which such con¬

version was made.

Wash Sales of Stock—If the property consists of stock

(10)

the acquisition
in

the

of which (or the contract

nondeductibility

(under

Section

securities

whom the basis is to be determined.

substituted basis, then the ad¬
shall be made after
such substituted basis proper adjustments of a
similar nature in respect of the period during which the property was held
by the transferor, donor, or grantor, or during which the other property
was held by the person for whom the basis is to be determined.
A similar
rule shall be applied in the case of a series of substituted bases.
property in the hands of the taxpayer

Sec. 114

corresponding

substantially identical stock

securities,

sold

disposed

of, increased or decreased, as the case may be, by the difference, if any,
between the price at which the property was acquired and the price at which

substantially

identical

stock

securities

disposed of.
(11)

were

sold

acquired by

During

corporation, during

the adjusted basis

provided in Section 113 (b) for the purpose of determining

the gain upon the

sale or other disposition of such property.

(b) Basis for Depletion—
(1) General Rule—The basis upon which depletion is to be
respect of any property shall be

Affiliation—In

the

case

period of affiliation, from

property

corporation

with which it was affiliated, the basis of such property, after such period of

by the Commissioner witn the approval of the Secretary, without regard to
inter- company transactions in respect of which gain or loss was

not

recog¬

For the purposes of this paragraph, the term "period of affiliation"

means

the period

during which such corporations

in accordance with

beginning

taxable year
basis in

after Jan.

return was made, nor any

affiliated (determined

were

the law applicable thereto)

but does not include any

1922,

unless

consolidated

taxable year after the taxable year 1928.

The

of property acquired by a corporation during any period, in

case

the taxable year 1929 or any

subsequent taxable

in respect of which

year,

consolidated return is made by such corporation under Section 141 of this
Act

the Revenue Act of 1928 or the Revenue Act of 1932 or the Revenue

Act of 1934, shall be determined in accordance with

regulations prescribed

under Section 141 (b) of this Act or the Revenue Act of 1928

the Revenue

The basis in tti& Case of

Act of 1932 or the Revenue Act of 1934.

property

held by a corporation during any period, in the taxable year 1929 or any

subsequent taxable years, in respect of which

consolidated return is made

by such corporation under Section 141 of this Act
1928

the Revenue Act of 1932

the Revenue of Act

regulations prescribed under Section 141

(b) of this Act

the Revenue

Act of 1928 or the Revenue Act of 1932 or the Revenue Act of 1934, applic¬
able to such period.

Basis Established by Revenue Act of 1932—If

(12)

any

the

property was

taxable year beginning prior to Jan. 1,

1934, and the basis thereof, for the pruposes of the Revenue Act of 1932

prescribed by Section 113 (a) (6), (7),
poses

(9) of such Act, then for the

of this Act the basis shall be the

same as the basis therein

was

pur¬

(13)

acquired, after Feb. 28,

was

any

1913.

of the

paragraphs (1) to (12), inclusive, of this subsection, then the basis shall be
the

same

it would

amount of

gain

be in the hands

of the transferor,

increased in the

decreased in the amount of loss recognized to the trans¬

feror upon such transfer under the law applicable to the year in which the

transfer

If the property was distributed in kind by a partner¬

made.

was

(2) Discovery Value in Case of Mines—In the case of mines (other than
discovered by the taxpayer after Feb. 28,

1913, the basis for depletion shall be the fair market value of the property
within 30 days thereafter, if such mines were not

at the date of discovery or

acquired

the result of purchase of a proven tract or lease, and if the

fair market value of the property is materially disproportionate to the cost.
The depletion

allowance under Section 23 (m) based on discovery value pro¬

vided in this paragraph

shall not exceed 50 per centum of the net income

(computed without allowance for depletion) from the prop¬
which the discovery was made, except that in no case shall the

of the taxpayer

erty upon

depletion allowance under Section 23 (m) be less than it would be if com¬

reference

without

puted

discovery value.

ship to any partner, the basis of such property in the hands of the partner

existing mine or mining tract by the taxpayer after Feb. 28,

1913, if the vein or deposit thus discovered was not merely the uninterrupted
extension

continuing commercial vein

(3) Percentage Depletion for Oil and Gas Wells—In the case of oil and
wells the allowance for depletion under Section 23 (m) shall be 21 Yx

gas

of the gross income from the property during the taxable year,

per centum

excluding from such gross income an amount equai to any rents or royalties
ance

incurred by the taxpayer in respect of the property.
Such allow¬
shall not exceed 50 per centum of the net income of the taxpayer (com¬
or

puted without allowance for depletion) from the property, except that in
shall the depletion allowance under Section 23 (m) be less than

case

(4) Percentage Depletion for Coal and Metal Mines and

of sulphur

amount

equal to any rents or royalties paid or incurred by the taxpayer

Such allowance shall not exceed 50 per centum

respect of the property.

(computed without allowance for deple¬

of the net income of the taxpayer

A taxpayer making his first return under this

tion) from the property.

shall state whether he elects to have the deple¬

title in respect of a property

is made

of property

acquired before March 1, 1913, if the basis otherwise determined under this
subsection, adjusted (for the period prior to March 1, 1913)

provided in

subsection (b), is less than the fair market value of the property as of March

1, 1913, then the basis for determining gain shall be such fair market value.
In determining the fair market value of stock

iufa

corporation

of March 1,

1913, due regard shall be given to the fair market value of the assets of the

corporation

(15)

of that date.

Property Received by

Corporation

Another—If the property was received by a corporation upon a distribution
in complete

liquidation of another corporation within the meaning of Sec¬

tion 112 (b)

(6), then the basis shall be the

same as

it would be in the hands

of the transferor.

(16)

Basis

by Revenue Act of 1934—-If the property

was

acquired, after Feb. 28, 1913, in any taxable year beginning prior to Jan. 1,
1936, and the basis thereof, for the pruposes of the Revenue Act of 1934 was

prescribed by Section 113 (a) (6), (7),
poses

of this Act «,he basis shall be the

(1)

other disposition of property, whenever acquired, shall be

General Rule—Proper adjustment in respect of the property shall in

cases

capital

or other items, properly chargeable
including taxes and other carrying charges on un¬

account,

improved and unproductive real property, but
made for taxes

basis in the hands of such taxpayer, either directly

through one or more substituted bases, as

such adjustment shall be

other carrying charges for which

depletion allowance follows the property, be considered a continuation

tion in

cases

(b) (4) of the Revenue Act of 1934, and as giving no new elec¬
applied, give no new election.

where such section would, if

Sec.

Distributions by

115.

title

when used in this
(3) and Section 207 (c) (1), relating to in¬

(except in Section 203 (a)

surance

companies) means any distribution made by a corporation to its

(1) out of its earnings
1913, or (2) out of the earninsg or
(computed as of the close of the taxable year

shareholders, whether in money or in other property,
or

profits accumulated after Feb. 28,

without diminution by reason of any

„•

depletion!

to the extent allowed

(but not less than the amount allowable) under this Act
Where for

any

depletion allowance
then the

was

taxable

based

year

prior to the

discovery value

adjustment for depletion for such

year

pletion which would have been allowable for such
reference to

discovery value

and tear,

any

or a percentage

prior income tax

taxable

or a

wear

year

1932 the

percentage of income,

shall be based
year

1913, for exhaustion,

obsolescence, amortization and depletion, to the extent

sustained;

1913, may be distributed exempt
accumulated after

Feb. 28,

of the stock

have been distributed, but any such

provided in Section 113.

Liquidation—Amounts

the

recognized shall be taken into account in computing net

income, except in the case of amounts
of

service corporation

under the provisions of the Revenue Act of 1918

corporation, which

1921, out of its earnings or profits which

were

was

classified

(2) Substituted Basis—The term "substituted basis"

section

means a

this section

personal

taxable in accordance with the

provisions of Section 218 of the Revenue Act of 1918
.

used in this sub¬

basis determined under any provision of subsection

(a) of

under any corresponding provision of a prior income tax law,

By reference to the basis in the hands of

grantor,

transferor, donor, or
,

distributed in complete liquidation

For the purpose of the preceding sentence,

"complete

distributions made by a corpora¬
redemption of all of its stock in accordance

liquidation" includes any one of a series of
tion in complete
with

cancellation or

bona fide plan of

in the plan, not

liquidation and under which the transfer of the

be completed within a time specified

exceeding two years from the close of the taxable year

during which is made the first of the series of distributions under the plan.
In the case of amounts distributed (whether before Jan. 1, 1934, or on or
after such

providing that the basis shall be determined—
(A)

gain

corporation.

property under the liquidation is to

1921).
as

The

be recognized only to the extent provided

under the law applicable to the year in which the distribution was made,

in exchange for the stock.

Despite the provisions of Section 117 (a), 100 per centum

in Section 112.

either were tax-free or were

complete

loss to the distributee resulting from such exchange shall be deter¬

subparagraphs) for the amount of distributions previously made which,

distributions made

shall be treated as in part or full payment

distributed

corporation shall be treated as in full payment in exchange
stock, and amounts distributed in partial liquidation of a corporation

liquidation of

gain

Any earnings or profits
March 1,

from tax, after the earnings and profits

1913,

applicable in reduction of basis (not including

profits.

applied against and reduce the adjusted basis

mined under Section 111, but shall

(D) In the case of stock (to the extent not provided for in the foregoing

in value of property accrued, before

tax-free distribution shall be

for the

of income;

period prior to March 1,

recently accumulated earnings or

accumulated or increase

the de¬

if computed without

earnings and profits at the time

(b) Source of Distributions—For the purposes of this Act every distri¬
profits to the extent thereof, and from the

deductions have been

period since Feb. 28, 1913, for exhaustion,

distributions made during the taxable

year), without regard to the amount of the
the distribution was made.

most

years;

and tear, obsolescence, amortization, and

Corporations

Definition of Dividend—The term "dividend"

prior taxable

laws.

The

graph shall, for the purpose of determining whether the method of computing
of Section 114

bution is made out of earnings or

any

defined in that section.

right of election shall be subject to the qualification that this para¬

above

taken by the taxpayer in determining net income for the taxable year or

(B) In respect of

of any other person if the basis of the

\for determining gain) in his hands is, under Section 113, deter¬

mined by reference to the

profits of the taxable year

made—

(A) For expenditures, receipts, losses,
to

applied in the case of the property for all taxable years in which

it is in the hands of such taxpayer, or

(a)

the basis determined under subsection (a). adjusted as herinafter provided.
all

depletion allowance for such property

the basis therein prescribed

(b) Adjusted Basis—The adjusted basis for determining the gain or loss
or

the return, the

shall be computed without reference to percentage depletion.

method, determined as above, of computing the depletion allowance

The

shall be

in the Revenue Act of 1934.

from the sale

for which the return

If the taxpayer fails to make

puted according to the election thus made.
for such year

(8) of such Act, then for the pur¬

same as

year

depletion allowance in respect of such property for such year shall be com¬
such Statement in

the

Established

taxable

computed with or without regard to percentage depletion, and the

property

Complete Liquidation of

mines, 15 per centum, and, in

mines or deposits, 23 per centum, of the gross income

during the taxable year, excluding from such gross income

from the property

Sulphur—The

Section 23 (m) shall be, in the base of coal

mines, 5 per centum, in the case of metal
the case

reference to this paragraph.

would be if computed without

tion allowance for such property for the

case

deposit already known to

they could be separately mined and marketed at a profit.

that

properly allocable to such property.
Property Acquired Before March 1, 1913—In the

exist, and if the discovered minerals are of sufficient value and quantity

shall be such part of the basis in his hands of his partnership interest as is

(14)

Discoveries shall include
dis¬

minerals in commercial quantities contained within a vein or deposit
covered in

allowance for depletion under

Partnerships—If the property

partnership and the basis is not otherwise determined under

(4) of this

metal, coal or sulphur mines)

prescribed,

in the Revenue Act of 1932.

property, except as provided in paragraphs (2), (3) and

of such

subsection.

paid

acquired, after Feb. 28, 1913, in

allowed in

the adjusted basis provided in Section 113 (b)

determining the gain upon the sale or other disposition

for the purpose of

the Revenue Act of 1934, shall be ad¬

justed in respect of any items relating to such period, in accordance with

and

allowed in respect of any property shall bei

tear, and obsolescence are to be

affiliation, shall be determined, in accordance with regulations prescribed

nized.

Basis for Depreciation and Depletion

(a) Basis for Depreciation—The basis upon which exhaustion, wear

otherwise

V
Acquired

Property

option to acquire which) resulted

118 of this Act

then the basis shall be the basis of the stock or securities

such

justments provided in paragraph (1) of such subsection

first making in respect of

provisions of prior income tax laws, relating to wash sales) of the loss from
the sale or other disposition of

By reference to other property held at any time by the person for
Whenever it appears that the basis of

(B)

of the property so

case

converted, decreased in the amount of any money received by the taxpayer

OF 1936

the

date) in partial liquidation

(other than a distribution within

provisions of subsection (h) of this section of stock or securities in con¬

nection

with

reorganization)

the

part

of such

distribution

which is

THE BEVENUE ACT
•properly chargeable to capital account shall not be considered
of

earnings

operation of the public utility for the taxable year would, irrespective of

Other Distributions from Capital—Tf any distribution (not in partial

(d)

complete liquidation)

made

corporation

not out of increase in value/of property

is not

shareholders

its

accrued before March 1, 1913, and

dividend, then the amount of such distribution shall be applied

against and reduce the adjusted basis of the stock provided in Section 113,
and

if in

manner

of such

excess

made

basis, such

gain from the sale

Distributions by

(e)

shall be taxable in the

excess

Service

personal

Territory, political subdivision,

service

cor¬

directly to or for the use of such State,

the District of Columbia, then the tax

the net income of such person from the operation of such public utility

upon

Shall be levied,

collected, and paid in the manner and at the

assessed,

rates prescribed in this title.

(e) Bridges to Be Acquired by State or Political Subdivision—Whenever
State

any

Corporations—-Any distribution

classified

was

the tax imposed by this title, accrue

same

exchange of property.

Personal

corporation, which

If by the terms of such contract no part of the proceeds from the

(2)

distribution

profits.

OF 1936

political subdivision thereof, in pursuance of a contract to

which it is not

party entered into before the enactment of the

Revenue

Act of 1928, is to acquire a bridge—

the Revenue

(1)

If by the terms of such contract the tax imposed by this title is

Act of 1921, out of its earnings or profits which were taxable in accordance

to be

paid out of the proceeds from the operation of such bridge prior to

with the provisions of Section 218 of the Revenue Act of 1918 or Section 218

any

of the Revenue Act of

imposed by this title,

poration under the provisions of the Revenue Act of 1918

(f)

corporation to its share¬

rights to acquire its stock shall not be treated

dividend to the extent that it does not constitute income to the share¬

holder within the meaning of the Sixteenth Amendment to the Constitution.

Election

(2)

Shareholders

Medium

Payment—Whenever

distribution by a corporation is, at the election of any of the shareholders

(whether exercised before
(A) in its stock

after the declaration thereof), payable either

in rights to acquire its stock, of

class which if dis¬

tributed without election would be exempt from tax under paragraph
or

(B) in

acquire its stock, of
not

other property (including its stock

money or any

be exempt "from tax under paragraph

constitute

(1),

in rights to

class which if distributed without election would

(1), then the distribution shall

of the medium in which paid.

(g)

such stock

or not

such

manner

demption in whole
a

issued

was

redeems its stock

stock dividend)

at such time

lations

distribution

Earnings

distribution of earnings

and

Profits

(whether before Jan.

Distributions

1, 1936,

securities in another corporation shall not

curities

(2)

profits of

taxable

Stock—The

after such date)

on or

distributee by or on behalf of a corporation of its stock

of earnings or

securities

was

Secretary)

which

bears the same relation to the amount of

the amount which

(but for the imposition of the tax imposed

be considered

to a

distribution

be applied for the benefit

Amendment

him under Section 115
a

or se¬

(f)

the

paid

corresponding

"stock

securities" includes

political subdivision, then the tax upon

partial

liquidation"

means

distribution

redemption of

series of distributions in

shareholder

amounts distributed as dividends to or for his benefit by

any

term

of the corporation is in good faith vested

in him.

(g)

Protection and Indemnity Associations—The receipts

Shipowners'

of shipowners' mutual

protection and indemnity associations not organized

of any private shareholder; but such corporations shall

benefit

other

the tax upon their net income from interest, dividends, and rents.

(h)

Compensation of Employees of Foreign Governments—

(1)

Rules for Exclusion—Wages, fees,

matic

received

representative)

salary of an employee of a

compensation

for official services to

complete cancellation

redemption

(A)

If such employee is not

(B)

If the services

are

citizen of the United States; and

a
a

character similar to those performed by

employees of the Government of the United States in foreign countries;
and

.
^

'V;

-i(.

If the foreign government whose employee is claiming exemption

(C)

medium

part

any

grants

other

than

be included

money

in gross

(2)

equivalent exemption to employees of the Government of the

dividend is

the property

income

its

fair

of which it becomes income to the shareholder.

Certificate

Secretary

State—The

Secretary

State

shall

certify to the Secretary of the Treasury the names of the foreign countries
which grant an equivalent exemption to the employees of the Government
of the United States performing services in

such foreign countries, and the

employees of the Government of

the United States in foreign countries.

specified in Section 22 (b), the following items

be included in gross income and shall be exempt from taxation

not

be subject

foreign government (including a consular or other officer, or a nondiplo-

part of its stock,

Exclusions from Gross Income

In addition to the items

shall

cor¬

resident of China, and the equitable right to the

income of the shares of stock

character of the services performed by
Sec. 116.

1922, if, at the time of

poration organized under the China Trade Act,

United States performing similar services in such foreign country.

other than money shall

market value at the time

Corporation—In the case of

Dividend from "China Trade Act"

(f)

person,

rights

portion of its stock.

received

State

such government—

Valuation of Dividend—If the whole
to

of the bridge for the taxable year would, irrespective of the

imposed by this title, accrue directly to or for the use of or be applied

for the benefit of such

securities.

distributed

one

(j)

or a

exempt to

Definition of Partial Liquidation—As used in this section the

"amounts

of all

because

of the Revenue Act of 1934

corporation in complete cancellation
or

Constitution

prior Revenue Act.

stock

for the acquisition of such bridge.

If by the terms of such contract no part of the proceeds from the

(2)
tax

of such bridge for such

No such refund shall be made unless the entire amount of

the refund is to be applied in part payment

persons to

in this subsection the term

to acquire

of such State or political subdivision, bears to

the amount of the net income from the operation

for profit, and no part of the net earnings of which inures to the

corporation—

any

recognized by law,

Sixteenth

provision of

(i)

amount

would have accrued directly to or for the use of or would

taxable year.

If the distribution was not subject to tax in the hands of such dis¬

As used

by this title)

tributee because it did not constitute income to him within the meaning
of the

regu¬

the tax

stock

gain to such distributee from the receipt of such stock

(under rules and

by the Commissioner with the approval of the

such distribution, he is a

Effect

be prescribed

collected, and paid

prescribed in this title, but there shall

State or political subdivision

collected, and paid in the manner and at the rates prescribed in this title.

cancellation

profits accumulated after Feb. 28, 1913, shall be treated

(1)

the rates

in part essentially equivalent to the distribution of

and

dividend.

and

the net income from the operation of such bridge shall be levied, assessed,

the distribution

stock, to the extent that it represents

(h)

political subdivision, then a tax upon the net income from

manner

be refunded to such

taxable dividend, the amount so distributed in redemption or cancellation

of the
or

the

re¬

make

corporation cancels

part of such proceeds for the taxable year would

for the use of or would be applied for the benefit of

the operation of such bridge shall be levied, assessed,

operation

Redemption of Stock—If

(whether
and

directly to

such State

taxable dividend in the hands of all shareholders, regardless

division of such proceeds, and if, but for the imposition of the tax

accrue

•

General Rule—A distribution made by

(1)

1921, shall be exempt from tax to the distributees.

Stock Dividends—

holders in its stock

Sec. 117^,

Capital Gains and Losses

under this title:

(a)
of

Sources Without United States—In the

Earned Income from

citizen of the United

individual

States,

the United States for more than six months
received

from

without

sources

the

bona fide nonresident of

during the taxable year, amounts

United

States

(except amounts paid

by the United States or any agency thereof) if such amounts would
stitute earned income

defined in Section 25 (a) if received from

United States; but such individual shall

within the

deduction from

his gross income

any

not

gross

only the following
sale

100 per centum if the capital asset has been held for not more than 1 vear

60 per centum if the capital asset has
but not for

section.

(b)

ployed by Alaska

Hawaii

case

shall

not

exempt

individual

political subdivision thereof

or any

educational institution, the compensation received

subsection

compensation paid directly

as a

em¬

(c)

Income of Foreign

Governments—The

income

of foreign

interest

by such foreign governments,

govern¬

bonds,
or

from

on deposits in
banks in the United States of moneys belonging
foreign governments, or from any other source within the United

to such

Municipalities, &c.—Income derived from

Income of States,

public utility
accruing

any

State,

Territory,
State

the

District of Columbia,

Territory,

income accruing to

government of any possession of the United States,

any

the

political sub¬

division thereof.

Whenever

in good

to be

any

State,

faith into

Territory,
State

the District of Columbia,

capital asset has been held for more than 5 years
10 years;

means

has been held for more than 10 years.

property held by the taxpayer

his trade

business),

(whether or not connected

but does not include stock in trade of the

taxpayer or other property of a kind which would properly be
in

the inventory of the taxpayer

the

included

if on hand at the close of the taxable

held by the taxpayer primarily for sale to customers in

year, or property

ordinary course of his trade or business.
Determination of Period for which Held—For the purpose of sub¬

(c)

contract with any person, the object and purpose of

acquire, construct, operate, or maintain

If by the terms

public utility—

of such contract the tax imposed

by this title is

paid out of the proceeds from the operation of such public utility,
person and the

received

exchange there shall be included the period for which he

held the property

exchanged, if under the provisions of Section 113,.the

property received has, for the purpose
sale

of determining gain

loss from

exchange, the same basis in whole or in part in his hands as the

by this title,

but

part of such proceeds

for the taxable year would accrue directly to or for the use of such State,

Territory, political subdivision, or the District of Columbia, then

tax

the net income from the operation of such public utility shall be

was

scribed in this title, but there shall be

refunded to such State, Territory,

Secretary)

amount which

bears the same relation to the amount of

the tax

the amount which

(but for the imposition of the tax imposed

by this title) would have accrued directly to or for the

use

of such State,

Territory, political subdivision, or the District of Columbia, bears to the
amount of the net income from the

taxable year.

dperation of such public utility for such

be included the period for which such property

held by any other person,

property has, for the purpose

if under the provisions of Section 113, such

of determining gain

loss from

sale or

exchange, the same basis in whole or in part in his hands as it would have
in the hands of such other person.

In determining the period for which the taxpayer has held stock or

(3)

securities received upon

the distributee under the

provisions of Section 112 (g) of the Revenue Act

1928

for which

the
he

distribution where

Revenue Act of 1932, there

gain

was

recognized to

shall be included the period

held the stock or securities in the distributing

corporation

prior to the receipt of the stock or securities upon such distribution.
In determining the period for which the taxpayer has held stock

(4)

levied, assessed, collected, and paid in the manner and at the rates pre¬

political subdivision, or the District of Columbia (under rules and regulations to be prescribed by the Commissioner with the approval of the

In determining the period for which the taxpayer has held property

(2)

however acquired there shall

State,

Territory, political subdivision, or the District of Columbia, and if,
for the imposition of the tax imposed

In determining the period for which the taxpayer has held property

(1)

any

Territory, prior to Sept. 8, 1916, entered

prior to any division of such proceeds between the

upon

more than

property exchanged,

political subdivision of

(1)

assets"

any

the exercise of any essential governmental function and

political subdivision of

which

1 year

than 2 years

section (a)—

States.

(d)

Definition of Capital Assets—For the purposes of this title, "capital

(b)

This

been held for

than 5 years;

30 per centum if the capital asset

with

ments received from investments in the United States in stocks,
other domestic securities, owned

but not for

teacher

such.

indirectly by

the Government of the United States.

40 per centum if the

Teachers in Alaska and Hawaii—In the

in any

capital asset shall be taken into account in computing

but not for more than 2 years;

income under this sub¬

of the gain or loss recognized upon the

percentages
a

80 per centum if the capital asset has been held for more than

sources

be allowed

exchange of

net income:

con¬

deductions properly allocable to

chargeable against amounts excluded from

va) General Rule—In the case of a taxpayer, other than a corporation,

case

securities the

which)
or

acquisition of which (or the contract or option to acquire

resulted in the nondeductibility

the Revenue Act of 1934,
or

(under

Section 118 of this Act
of 1932 or

Section 118 of the Revenue Act of 1928 or the Revenue Act

other disposition

relating to wash sales) of the loss from the sale

of substantially identical stock or securities, there

shall be included the period for
loss from the sale or other

(d)

Limitation

which he held the stock or securities the

disposition of which was not deductible.

Capital

Losses—Losses from sales or exchanges of

capital assets shall be allowed only to the extent of $2,000 plus the gains

THE REVENUE

12
from such

sales

exchanges.

bank

under the laws of the United States

whose business is the receipt of deposits, sells

stantial part of

debenture, note, or certificate
by

corporation

any

trust company incorporated

of any State or Territory, a sub¬

subdivision thereof)

issued by

one

with interest coupons

political

government or

in registered form,

bond,

resulting from such sale (except such portion of the loss

any

loss

shall

be included in

not

determining the applicability

of such

&c.—For the

of this

States

Short Sales,

purpose

gains

losses from short sales of property shall be considered

losses from sales

(2) Gains

exchanges of capital assets; and

losses attributable to the failure to exercise privileges or

options to buy
sales

sell property shall be considered

exchanges of capital assets held for

(f) Retirement of Bonds, &c.—For the

gains

losses from

of this title, amounts

purposes

(including those issued by

government or political subdivision thereof),

States;

Rentals

States

use

royalties

from

of or for the privilege of

secret

using without the United States, patents,

and formulas,

processes

the United

without

located

property

such property, including rentals or royalties

from any interest in

copyrights,

trade-marks, trade

goodwill,

brands, franchises, and otheb like properties; and
Gains, profits, and income from the sale of real property located

(5)

bther evidences of indebtedness issued by any corporation

provided in subsection (a) (2) of this section;

for the

without the United States.

received by the holder upon the retirement of bonds, debentures, notes,

certificates

within the United

sources

Compensation for labor or personal services performed without the

United

less.

one year or

income from sources without

Dividends other than those derived from sources within the United

(2)

(4)

(1) Gains

provided in subsection (a) (1) of this section;

States

(3)

Gains and Losses from

income shall be treated

Interest other than that derived from

(1)

title

of gross

the United States:

limitation to other losses.

(e)

Gross Income from Sources Without United States—The following

the par or face value thereof) shall not be subject to the foregoing limita¬
tion and

shall be included in full as net income from sources

The remainder, if any,

within the United States.

does not exceed

the amount, if any, by which the adjusted basis of such instrument exceeds

be allocated to some item or class of gross income.

which cannot definitely

of indebtedness issued

other evidence

(including

any

ACT OF 1936

Net Income from Sources Without United States—From the items

(d)

of gross

income specified in subsection

deducted the expenses, losses,

and other deductions properly apportioned

allocated thereto, and a ratable part of any expenses,

losses, or other

with interest coupons or in registered form, shall be considered as amounts

received in exchange therefor.

deductions which cannot definitely be allocated to some item or class

(a) In the

Securities

disposition of shares of stock

that, within

securities where it appears

period beginning 30 days before the date of such sale

disposition and ending 30 days after such date, the taxpayer has acquired
(by purchase
loss
to

exchange upon which the entire amount of gain or

recognized by law), or has entered into

was

acquire, substantially identical stock

for the loss shall be allowed under Section 23
duction be allowed

corporation,

under Section 23

dealer in stocks

(f)

contract or option so

securities, then no deduction

(e)

(2);

nor

shall such de¬

unless the claim is made by a

securities, and with respect to

trans¬

action made in the ordinary course of its business.

(b) If the amount of stock
contract or

sold

(or covered by the

of, then the particular shares of stock

securities

the loss from the sale or other disposition of which is not deductible shall
be determined under rules and regulations prescribed by the Commissioner
with the

contract

securities

acquired

(or covered by the

option to acquire) is not less than the amount of stock

or se¬

curities sold or otherwise disposed of, then the particular shares of stock
or

(e)

those spcified in subsections (a) and (c)
or

securities the acquisition of which (or the contract or option to acquire

and

regulations

prescribed

the

Commissioner

with

the

within

sources

deductions, other than

of this section,, shall be allocated

without the United States, under rules

Commissioner with the approval of the

Where items of gross income are separately allocated to sources

Secretary.

within the United States, there shall be deducted (for the purpose of com¬

puting the net income therefrom) the expenses, losses, and other deductions
properly approtioned or allocated thereto and
penses,

ratable part of other ex¬

losses, or other deductions which cannot definitely be allocated to

item or class of gross income.

in full

The remainder, if

any,

shall be included
In the case of

net income from sources within the United States.

income derived from sources partly within and partly without the

gross

United States, the net income may first be computed by
penses,

losses,

deducting the ex¬

other deductions apportioned or alllocated thereto and a

ratable part of any expenses, losses, or

other deductions which cannot defin¬

items or class of gross income; and the portion

some

of such net income attributable to sources

be determined by processes or

within the United States

income

Gains, profits,

from—

Transportation or other services rendered partly within and partly

(1)

without the United States, or

(in whole or in part)

From the sale of personal property produced

(2)

approval of the Secretary.

may

formulas of general apportionment prescribed

by the Commissioner with the approval of the Secretary.
and

which) resulted in the nondeductibility of the loss shall be determined
under rules

apportioned to

and regulations prescribed by the

Without United

Within and Partly

Sources Partly

Income from

itely be allocated to

approval of the Secretary.

shall be treated in full as net income

States—Items of gross income, expenses, losses and

some

securities acquired

option to acquire) is less than the amount of stock

otherwise disposed

any,

from sources without the United States.

of any loss claimed to have been sustained from any

case

sale or other

The remainder, if

income.

gross

Loss from Wash Sales of Stock

Sec. 118.

by the taxpayer within and sold without the United States, or produced
Sec. 119

(in whole

Income from Sources Within United States

in part) by the taxpayer without and sold within the United

States, shall be treated

(a) Gross Income from Sources in United States—The
of gross income shall be treated as

income from

following items

within the United

sources

from

sources

rived from the

(1) Interest—Interest from the United States,
subdivision of

bonds, notes,
otherwise,

Territory,

any

Territory,

any

political

the District of Columbia, and interest

other interest-bearing obligations of residents, corporate or

including—

not

(A) Interest

the banking business

paid to persons not engaged in business within the United States and not
having

office

place of business therein, or

(B) Interest received from
corporation,

or a domestic

resident alien individual,

corporation, when it is shown to the satisfaction

determined under the provisions of this section, for

be applicable,

for such part of such period

Definitions—As

(f)

include

corporation less than 20 per centum

income is shown to the satisfaction of the Commissioner to

derived from

within the United

sources

States,

existence),
From

derived from

sources

dividends

derived from

determined

per

centum of the

preceding the declaration of sich dividends
as

the corporation has been in existence)

within the United States

sources

an amount

determined under the

which bears the

case

same

ratio

United

States

bears to its gross

sources;

(3) Personal

but dividends from

income

foreign corporation shall, for the

"sold"

"processed",

"extracted",

States,

for

but in the

labor

case

exceeding

personal

individual temporally present in the United States for

90 per centum of the taxpayer's net

contract with

by such section shall not be applicable.
Sec.

Deductions

121.

Dividends

Stock of Certain

for labor

services performed

as an

Paid

Certain

Preferred

Corporations

computing the net income of any national banking association, or

of any

bank or trust company organized under the laws

income

services

nonresident alien

period

employee of

of any State,

Territory, possession of the United States, or the Canal Zone, or of any
banking corporation engaged in the business of industrial banking

other

and under the

supervision of

State banking department or of the Comp¬

troller of the Currency, or of any

shall be allowed

there

incorporated domestic insurance company,

deduction from gross income, in addition to

this title,

any

States or to any instrumentality thereof exempt
on

dividend (not including

distribution in liquidation) paid, within such taxable year, to the United

the preferred stock of the corporation

section shall be

puted

from Federal Income taxes,

owned by the United States

The amount allowable as a deduction under this

deducted from the dividends

paid credit otherwise

com¬

Section 27.

under

periods

total of 90 days during the taxable year, compensation

SUPPLEMENT

C—CREDITS AGAINST

TAX

[Supplementary to Subtitle B, Part III]

or under

nonresident alien, foreign partnership, or foreign corpora¬

tion, not engaged in trade

be deemed to be income from

in the United States

royalties for the

use

within the United

from any

interest

roylties from

Taxes

property

located

such property, including rentals

Sale of Real Property—Gains, profits, and income from the sale of

located in the United States.

(a) Allowance

personal property, see subsection (e)
of gross

income specified in subsection (a) of this section there shall be deducted
the expenses, losses, and other deductions properly apportioned or allocated
or

Foreign

other deductions

Countries and Possessions of
States

Credit—If the taxpayer signifies in

his return

his

desire to have the benefits of this section, the tax imposed by this title shall
be credited with:

(1)

Citizen and Domestic Corporation—In the case of

United States and of

war-profits
year

(6) Sale of Personal Property—For gains, profits, and income from the
(b) Net Income from Sources in United States—From the items

United

of or for the privilege of using in the United States,

qnd a ratable part of any expenses, losses,

131.

States;

patents, copyrights, secret processes and formulas, goodwill, trade-marks,
trade brands, franchises, and other like property; and

Sec.

business within the United States, shall not
sources

Rentals and Royalties—Rentals

real property

income for each such year, as computed
limit imposed

without the benefit of Section 23 (o), then the 15 per centum

received by such an individual (if such compensation does not exceed $3,000
in the aggregate)

(o) plus the amount of income, war-profits, or excess-profits

paid during such year in respect of preceding taxable years, exceeds

taxes

such instrumentality.

Services—Compensation

performed in the United

thereto

"sale"

individual if in the taxable year and in each of the 10

any

the

of Section 131 (relating to foreign tax credit), be treated

sale of

within

from sources without the United States;

(5)

deductions otherwise provided for in

purposes

words

word "produced" includes

"manufactured",

the gross income of the corporation for such period

from all

(4)

the

Contributions
In the

provisions of this section; but only in

section

"exchanged;" and the

corporation has been

foreign corporation unless less than 50

(or for such part of such period

not

this

partly from sources

the United States.

Unlimited Deduction for Charitable and Other

Sec. 120

ending with the

income of such foreign corporation for the three-year period ending

to such

used

"fabricated",

"created",

with the close of its taxable year

was

possession of the United States and its

"cured", or "aged."

close of the taxable year of such corporation preceding the declaration of

such dividends (or for such part of such period as the

gross

"exchange"

in Section 23

corporation entitled to the

under the provisions of this section, for the three-year period

(B)

personal property within the United

possession of the United States or from the pur¬

dividends—

domestic corporation other than

benefits of Section 251, and other than

derived entirely from

preceding taxable years the amount of the contributions or gifts described

of whose gross

have been

that gains, profits, and in¬

sale within the United States shall be treated as derived

foreign central bank of issue from bankers'

Dividends—The amount received

(A) From

be treated

acceptances;
(2)

shall

States,

within the country In which sold, except

chase of personal property within a

the three-year period ending with the close of the taxable year of such payor

preceding the payment of such interest,
may

United

of personal peroperty without and its

derived from the purchase of

come

resident foreign

resident payor or domestic corporation has been derived from sources within
as

the

from the purchase

within and partly from sources without

of the Commissioner that less than 20 per centum of the gross income of such

the United States,

within

States and its sale within

deposits with persons carrying

sale

States

sources

Gains, profits and income de¬

States.

purchase of personal property within and its sale without the

States:

United

derived partly from sources within and partly

without the United

domestic

citizen of the

corporation, the amount of

and excess-profits taxes paid

any

income,

accrued during the taxable

to any foreign country or to any possession of the United States;

and

(2) Resident of United States—In the case of a resident of the United
States, the amount of any such taxes paid or accrued during the taxable
year to any

possession of the United States; and

(3) Alien Resident of United States—In the case of an alien resident
paid or accrued during

of the United States, the amount of any such taxes

THE KEVENUE ACT OF 1936
the

taxable

to any foreign country,

year

a citizen or subject, in
imposing such taxes, allows
similar credit to citizens of the United States
residing in such country;
and

(4)

Partnerships and Estates—In the

member of

partnership

of any such individual who is a

case

beneficiary of

or a

accrued during the taxable year to
United

(b) Limit

States,

the

case

estate or trust, his propor¬

tionate share of such taxes of the partnership
of the

the estate

foreign country

may

trust paid or

(c)

(b)

prior to the date

(d)

same

proportion of the tax against which

such credit is taken, which the
taxpayer's net income from sources
such country bears to his entire net income for the

(2) The total amount of the credit shall

same

from

come

for the

without the United States bears to his entire net income

sources

taxable year.

same

amounts claimed as credits

by the taxpayer, or if any

tax paid is refunded in whole

or in part, the taxpayer shall notify the Com¬
missioner, who shall redetermine the amount ofJ; he tax for the year or years
effected, and the amount of tax due upon~gtich redetermination, if any,

shall

paid by the taxpayer upon notice and demand by the collector,

the amount of tax

overpaid, if

any,

shall be credited

refunded to the

taxpayer in accordance with the provisions of Section 322.
of

such

accrued

tax

of the

(2)

(3)

but

not

paid, the

Commissioner

In the cases

condition

carrier

bond with sureties satisfactory to and to be approved
by the Commissioner
in such sum as the Commissioner may

require, conditioned upon the pay¬

ment by the taxpayer of any amount of tax found due
upon any such re¬
determination; and the bond herein prescribed shall contain such further

(d)

the

Commissioner may require.

option of the taxpayer and irrespective of the method of

subject,

however,

section.

the

foreign country
the

taxes

conditions

the foreign country

basis, and
or

prescribed

subsection

the

business of

succeeding

any

possession

in which

United

of the

States

the

same

deduction in the

as a

year.

credits

provided

this

section

shall

allowed only if the taxpayer establishes to the satisfaction of the Commis¬
sioner

(1) the total amount of income derived

United

States, determined

(2) the amount of

income derived from each country,the tax paid or accrued to which is claimed
as

credit under this section, such amount to be determined under rules

(e)

credits.

of Foreign

domestic corporation which

section

of this

purposes

majority of the voting stock of

owns a

foreign

corporation from which it receives dividends in any taxable year shall be
deemed to have paid the same

proportion of any income,

war-profits,

excess-profits taxes paid by such foreign corporation to any foreign country
to

any

possession of the

United

States,

upon

with respect to the

were

paid, which the amount of such dividends bears

the

amount

accumulated

tax

deemed to

have

been

Provided,

That the

paid under this subsection shall

common

railroad properties shall be considered as the

carrier by railroad.

As used in this paragraph, the

nonvoting stock which is limited and preferred

with

other

any

dividends.

as to

be deemed

not

the meaning of this

corporation within

section.

(f)

China

Trade

Corporations—A

Act

the China Trade Act,

(g)
For

organized

corporation

under

1922, shall not be deemed to be affiliated with any

Corporations Deriving Income from Possessions of United States—

the

amount

case

exceed

the

of this section

purposes

entitled

corporation

the benefits

of Section 251, by reason of receiving a large percentage of its income from

possessions of the United States, shall be treated

(h)

corporation owning or controlling, directly or indirectly, 100
of the capital stock (exclusive of directors' qualifying shares)

per centum

corporation organized under the laws of

foreign corporation.

as a

Foreign Law—In the case of

Subsidiary Formed to Comply with

domestic

contiguous foreign country

and maintained solely for the purpose of complying with the laws

to title and operation

of this

title

domestic

of such

corporation

corporation.

Suspension of Running of Statute of Limitations—If

(i)

Section 272
to a

foreign

of property, such

the option of the domestic corporation, be treated for the purpose

may, at

(a)

in respect of

deficiency for

taxable

any

notice under

is mailed

year

corporation, the suspension of the running of the statute of limitations,

provided in Section 277, shall apply in the
corporation made

making

Section 14,

imposed

making

of corporations with which

corporation of

common parent

consolidated return would, if filing

exempt under Section 14 (d)

surtax

case

consolidated return for such taxable year.

Receivership Cases—If the

imposed by

(2) from the surtax

the affiliated

14.

Section

other

undistributed profits

shall

group

all

affiliated

separate return, be

be exempt from

such

the affiliated group

cases

consolidated return shall be subject to the surtax imposed by

Section 14, regardless of the fact that one or more of the corporations in
the group are in bankruptcy or in receivership.

accumulated profits of such foreign corporation from which such dividends

such

profits:

such by another common carrier by railroad, the business

affiliated

group

Subsidiary—For the

carrier by

a common

carrier by railroad,

common

Foreign Corporations—A foreign corporation shall

(j)

(f) Taxes

business other than that of

(except in paragraph (3) the term "stock" does

not include

such

corporation the

As used in this subsection

Secretary, and (3) all other information necessary for the verification and
of

(B)

principally of stock in such corporations and which

street, suburban, or interurban electric railway.

and regulations prescribed by the Commissioner with the approval of the

computation

corporation whose principal

without the

from sources

provided in Section 119

a common

country as

Credits—The

consist

"railroad" includes

term

years shall be taken upon

portion of any such taxes shall be allowed

Proof

(6)

in which the

If the taxpayer elects to take such credits in the
year

accrued, the credits for all subsequent

same

year

ac¬

the possession of the United States accrued,

corporations; and

carrier by railroad or

other corporation within the meaning of this section.

counting employed in keeping his books, be taken in the
taxes of the

of the other

common

of receiving rents for such

Year in Which Credit Taken—The credits provided for in this section

may, at the

of the stock of each of the corporations

by railroad has leased its railroad properties and such properties

operated

are

and

one

corporation is that of

section

this

For the purpose of determining whether the principal business

railroad.

parent corporation if—

a common

Each of the corporations is either (A)

assets of which

used

chains of corporations connected

parent corporation owns directly at least 95 per centum

at least

(b) of the

Act) prescribed

parent corporation) is owned directly by one or piore

corporations;

common

business is that of

precedent to the allowance of th[s credit may require the taxpayer to give a

conditions

other

The

of the stock

Group"—As

one

95 per centum

common

does not itself operate a

Payment of Accrued Taxes—If accrued taxes when

paid differ from the

At least

(except the

not exceed the same proportion

of the tax against which such credit is taken, which the taxpayer's net in¬

"Affiliated

means

through stock ownership with

within

taxable year; and

group"

not inconsistent with this

which such return is made.

Definition

(1)
accrued to

such regulations are not prescribed prior to the making

case

Revenue Act of 1934 insofar

'affiliated

The amount of the credit in respect of the tax paid

country shall not exceed the

any

(or, in

of the return, then the regulations prescribed under Section 141

shall be subject to each of the following limitations:

(1)

con¬

collected, and adjusted in accordance with the regulations under subsection

possession

or to any

Computation and Payment of Tax—In any case in which

solidated return is made the tax shall be determined, computed, assessed,

be.

Credit—The amount of the credit taken under this section

if the foreign country of which

such alien resident is

(k)

Allocation

of Income

same

Deductions—For

and

and deductions of related trades

Sec. 142.

businesses,

of income

allocation

Section 45.

see

Fiduciary Returns

proportion of the tax against which credit is taken which the amount of

corporation in which such dividends

are

included.

The term "accumulated

profits" when used in this subsection in reference to
means

profits

foreign corporation,

the amount of its gains, profits, or income in excess of the income,

war-profits, and excess-profits taxes imposed
shall

upon or

with respect to such

income; and the Commissioner with the approval of the Secretary

have full power to determine from the

year or years such

dividends

were

accumulated profits of what

paid; treating dividends paid in the first

preceding

year

(unless to his satisfaction shown otherwise),

years

and in other respects treating dividends as

individuals,

the provisions

(1)
or

word

"year"

used in this subsection shall be construed to

year,

mean

the

which he acts,

thereof and

of this title

receiver

ap¬

the

of the following

any

stating specifically the

deductions

and

credits

allowed

the Commissioner with the approval of the

if single,

a net

over,

income for the taxable year of $1,000

if married and not living with husband

Every individual having

a net

if married and living with

over,

wife;

income for the taxable year of $2,500
husband

wife;

Every individual having a gross income for the taxable

(3)

year

of $5,000

regardless of the amount of his net income;

Every estate or trust the net income of which for the taxable year

(4)

such

is $1,000 or over;

accounting period.

(g) Corporations Treated

(5)

Foreign—For the purposes of this section

the following corporations shall be treated

corporation

(b)
with

organized

under

the

China

Trade

Act,

or trust

the

1922,

and

Joint
the

of two
the

Section 262.

gross

Fiduciaries—Under

district

PAYMENT

year

regulations

nonresident alien,

the

Commissioner

return made by one

joint fiduciaries and filed in the office of the collector of

which

such

fiduciary

sufficient

compliance

Such fiduciary shall make oath

(1) that he

has sufficient knowledge of the

D—RETURNS AND

such

approval of the Secretary may prescribe

with the above requirement.

SUPPLEMENT

incomo of which for the taxable

of the amount of the net income; and

Every estate or trust of which any beneficiary is

(6)

(1) A corporation entitled to the benefits of Section 251, by reason of
a large percentage of its gross income from sources within a posses¬

receiving

entitled to the credit provided for in

Every estate

is $5,000 or over, regardless

foreign corporations:

sion of the United States;

(2) A

trusts for

income

Every individual having

over,

(2)

one

(except

return for

Secretary may by regulations prescribe—

having been paid from the most

accounting period of less than

fiduciary

under this title and such other information for the purpose of carrying out

recently accumulated gains, profits or earnings.
In the case of a foreign
corporation, the income, war-profits and excess-profits taxes of which are
an

estates,

of gross

items

determined

the basis of

shall make under oath

individual)

Return—Every

pointed by authority of law in possession of part only of the property of

60 days of any year as having been paid from the accumulated
profits of
the

Requirement

(a)

such dividends bears to the amount of the entire net income of the domestic

resides

shall

affairs of the individual, estate,

trust

for which the return is made, to enable him to make the return, and (2)

TAX

that the return is, to the best of his knowledge and belief, true and correct.

[Supplementary to Subtitle B, Part V]

Sec. 141.

Consolidated Returns of Railroad Corporations

(a) Privilege to File Consolidated Returns—An affiliated

Applicable

apply

Sec. 143.

The making of a consolidated return shall be upon the condition

that all the corporations which have been members of the affiliated
group
at any time during the taxable year for which the return is made consent to

all the regulations under subsection

Fiduciaries—Any

Tax-Free Covenant Bonds—

(1)

Requirement of Withholding—In any

deeds

of trust,

before Jan.

other

1, 1934, contain

similar

(b) (or, in case such regulations are not
prescribed prior to the making of the return, then the regulations prescribed

agrees to pay any

without deduction for any tax

not inconsistent

with this Act) prescribed prior to the making of such return; and the
making
a consolidated return shall be considered as such consent.
In the case of

of
a

corporation which is

member of the affiliated group for a fractional part

case

obligations

a contract or

under Section 141

(b) of the Revenue Act of 1934 insofar

required

make

Withholding of Tax at Source

(a)

fiduciary

subject to all the provisions of law which

individuals.

group of cor¬

porations shall, subject to the provisions of this section, have the privilege
of making a consolidated return for the taxable year in lieu of
separate
returns.

Law

return under this title shall be

where bonds, mortgages,
of

corporation,

portion of the tax imposed by this title

to reimburse the

issued

provision by which the obligor

obligee for any portion of the tax,

which the obligor

may

upon

the obligee,

to pay the interest

be required

or per¬

mitted to pay thereon, or to retain therefrom under any law of the United

States, the obligor shall deduct and withhold

tax equal to 2 per centum

of the interest upon such bonds, mortgages, deeds of trust, or other obli¬

of the year the consolidated return shall include the income of such
corpora¬

gations, whether such interest is payable annually

tion for such part of the year as it is a member of the affiliated group.

periods, if payable to an individual,

partnership,

or at
or a

shorter or longer

foreign corporation

(b) Regulations—The Commissioner, with the approval of the Secretary

not

engaged in trade

shall prescribe such regulations as he may deem necessary in order that the

any

office or place of business therein: Provided, That if the liability assumed

tax

liability of

any

return and of each

affiliated

justed in such

of corporations making

consolidated

corporation in the group, both during and after the period

of affiliation, may be

ance

group

determined, computed, assessed, collected, and ad¬

manner as

clearly to reflfect the income and to prevent avoid¬

of tax liability.

business within the United States and not having

by the obligor does not exceed 2 per centum of the interest, then the de¬
duction and withholding shall be at the following rates:
in

the

case

nonresident alien individual

be reduced, in the case of a resident of
not less than 5 per centum, as may

(A) 10 per centum

(except that such rate shall

contiguous country, to such rate,

be provided by treaty with such country),

of any partnership not engaged in trade or

business within the United

for not

of nonresident aliens, (B) in the case of such a foreign

in part

corporation, 15 per centum, and
individuals and partnerships:

obligations are

centum in the case of other

per

Provided further, That if the owners of such

known to the withholding

not

Commissioner

the

agent

both, together with the costs of prosecution.

than one year, or

Any person required under this title to collect, account for, and pay

(b)

States and not having any office or place of business therein and composed
in whole

OF 1936

REVENUE ACT

THE

over any

willfully fails to collect or truthfully

tax imposed by this title, who

such tax, and any person who willfully attempts

account for and pay over

in any manner to

evade

defeat any tax imposed by this title or the pay¬

thereof, shall, in addition to other penalties provided by law,

ment

fined not

felony and, upon conviction thereof, be

be guilty

than $10,000,

authorize such deduction and withholding to be at the rate of 2 per

centum, or, if the liability assumed by the obligor does not exceed 2 per cen¬

imprisoned for not more than five years, or both, together with the costs

then at the rate of 10 per centum.

may

tum of the interest,

prosecution.

(c)

(2) Benefit of Credits Against Net Income—Such deduction and with¬

The

"person"

term

used in this section includes an officer or

corporation or a member or employee of a partnership, who

holding shall not be required in the case of a citizen or resident entitled
to receive such interest, if he files with the withholding agent on or before

employee of

Feb. 1

respect of which the violation occurs.

signed notice in writing claiming the benefit of the credits pro¬

Section 215.

(3)
a

Income of Obligor and Obligee—The obligor shall not be allowed

of the tax imposed by this title,'or any other

deduction for the payment

paid pursuant to the tax-free covenant clause, nor shall such tax be

tax

of the obligee.

included in the gross income

Aliens—All

(b) Nonresident

whatever

capacity

acting,

including lessees or mortgagors of real or personal property, fiduciaries,
employers, and all officers and employees of the United States, having the

control, receipt, custody, disposal, or payment of interest (except interest on

deposits with persons carrying on the banking business paid to persons not
engaged in business in the United States and not having an office or place

dividends, rent, salaries,

business therein),

wages, premiums,

annuities,

compensations, remunerations, emoluments, or other fixed or determinable
annual

periodical gains, profits, and income (but only to the extent that

of the above items constitutes gross income from sources within the

any

United States), of any

nonresident alien individual,

of any partnership

not

engaged in trade or business within the United States and not having

any

office

place of business therein and composed in whole or in part of

nonresident aliens, shall (except

in the cases provided for in subsection (a)

otherwise provided in regulations prescribed

of this section and except as

by the Commissioner under Section 215) deduct and withhold from such an¬
nual

periodical gains, profits, and income a tax equal to 10 per centum

thereof, except that such rate shall be reduced in the case of
alien individual

resident of

5 per centum)

as may

That

deduction

such

nonresident

withholding shall be required in the case of

dividends paid by a foreign corporation unless

gaged in trade

contiguous country, to such rate (not less than

be provided by treaty with such country; Provided,
or

(1) such corporation is en¬

business within the United States or has an office or place

of business therein, and (2) more than 85 per centum of the gross
such

the three-year period ending with

corporation for

taxable year preceding the
of such

period

sources

within

Section 119;

United

the

income of

the close

of its

declaration of such dividends (or for such part

the corporation has been in existence)

States

derived from

was

determined under the provisions of

Provided further, That the Commissioner may authorize such

tax to be deducted and withheld from the interest upon any

securities the

not known to the

Under regula¬

owners of which

are

tions prescribed by the

withholding agent.

Commissioner, with the approval of the Secretary,

there may be exempted from such deduction and withholding the compensa¬
tion for personal

services of nonresident alien individuals who enter and

leave the United States at frequent intervals.

(c)

Return and Payment—Every person required to deduct and withhold

any tax under this section shall make return

of each year and shall on or

tax

and is

for

person

thereof

on or

of the United States Government

Every such person is hereby made liable for such

hereby indemnified against the claims and
the

amount

before March 15

before June 15, in lieu of the time prescribed in

Section 56, pay the tax to the official
authorized to receive it.

of any

demands of any

the

made in accordance with

payments

(d) Income of Recipient—Income
source

upon

which

any tax

is required to be

under this section shall be included in the return of

the recipient of such income, but any amount of tax so withheld shall

from,

any

the income

penalty be imposed

was

is so

collected from the recipient of

the withholding agent for failure to return or pay

unless such failure

(f)

upon or

the same,

fraudulent and for the purpose of evading payment.

Refunds and Credits—Where there has been

overpayment of tax

under this section any refund or credit made under the provisions of Section

322 shall be made to the withholding agent unless the amount of such tax
was

actually withheld by the withholding agent.

(g) Withholding Before Enactment of Act—Notwithstanding the pro¬
visions of subsections

(a) and (b), the deduction and withholding for any

and

shall

taxable period so

(a)

amended, in lieu of the items and rates

prescribed in such subsections.

Sec.

144

Payment of Corporation Income Tax at Source

General Rule—In the

case

of foreign corporations subject to taxation

under this title not engaged in trade or business within the United States
and not having

any

office

ducted and withheld at the

items of income

place of business therein, there shall be de-~

source

in the

same

manner

and upon the same

is provided in Section 143 a tax equal to 15 per centum

thereof, except that in the

case

and except that in the case

of corporations organized under the laws of

of dividends the rate shall be 10

tiguous country such rate of 10

per centum with respect to

be reduced to such rate (not less than 5 per centum)

per centum,

and

such

same

section:

manner

be provided

case

shall

taxes

visions of subsection

(a),

the deduction and withholding for

any

pro¬

period

prior to the 10th day after the date of the enactment of this Act shall be

of income and at the rates prescribed in Section 144 of the

Revenue Act of 1934, as amended, in lieu of the items and rates prescribed
subsection.
Sec. 145

taxpayer

any

records,

of the
the

shall be for all purposes presumptive evidence of the

not,

taxpayer's design.

default in making
under any
act of Congress may furnish to the United States, under regulations to be
prescribed by the Commissioner, with the approval of the Secretary, security
Security for Payment'—A taxpayer who is not in

(b)

paying income, war-profits, or excess-profits tax

any return or

approved by the Commissioner that he will duly make the return next
thereafter required to be filed
be

paid.

Commissioner

The

and pay the tax next thereafter required to
may

and accept in like manner
payable by virtue

approve

security for return and payment of taxes made due and
of the provisions

other
any

of this section, provided the taxpayer has paid in full all

war-profits,

income,

excess-profits taxes due from him under

act of Congress.

Same—Exemption from Section—If security is approved and

(c)

pursuant to the provisions of

the tax or taxes covered thereby is given as the

with respect to

accepted

this section and such further or other security

Commissioner

and require, payment of such taxes

shall from time to time find necessary

Shall not be enforced by any proceedings under the

prior to the expiration of the time otherwise

provisions of this section

allowed for paying such re¬

spective taxes.

Citizens—Id the case of a citizen of the United States or of a pos¬
of the United States about to depart from the United States the

(d)

session

Commissioner

may,

waive

any

all of the require¬

the United States

Departure of Alien—No alien shall depart from

(e)

unless he first procures

that

discretion,

his

placed on the taxpayer by this section.

ments

has

from the collector or agent in charge a certificate

complied with all the obligations imposed upon

him by the

war-profits and excess-profits tax laws.

income,

Addition to Tax—If a taxpayer violates or attempts to violate this
section there shall, in addition to all other penalties, be added as part of
(f)

of the total amount of the tax or deficiency in the tax,

together with interest at the rate of 6 per centum per annum

from the time

the tax became due.

Information

147.

Source

More—All persons, in whatever capacity
acting, including lessees or mortgagors of real or personal property, fiduci¬
aries, and employers, making payment to another person, of interest, rent,
salaries,
wages,
premiums,
annuities,
compensations, remunerations,
emoluments, or other fixed or determinable gains, profits and income (other
(a)

Payments

than payments

of $1,000

described in Section 148 (a) or 149), of $1,000 or more

made by the United
States, the officers or employees of the United States having information
as to such
payments and required to make returns in regard thereto by
the regulations hereinafter provided for, shall render a true and accurate

any

taxable year, or, in the case of such payments

return to the

Commissioner, under such regulations

and to such extent as may be

manner

name

and in such form and

prescribed by him with the approval

setting forth the amount of such gains,

profits and income,

and address of the recipient of such payment.

Payment—Such returns may be
required, regardless of amounts (1) in the case of payments of interest
upon bonds, mortgages, deeds of trust, or other similar obligations of cor¬
porations. and (2) in the case of collections of items (not payable in the
United States) of interest upon the bonds of foreign countries and interest
upon the bonds of and dividends from foreign corporations by persons
undertaking as a matter of business or for profit th3 collection of foreign
payments of such interest or dividends by means of coupons, checks, or
Returns Regardless of Amount of

(b)

bills of exchange.

(c)

Recipient to Furnish Name and

(d)

Address—When necessary to make
of the recipient

provisions of this section the name and address

of income shall be furnished upon

demand of the person paying the income.

Obligations of United States—The

provisions of this section shall not
of the United States.

apply to the payment of interest on obligations

Sec.

(a)

Dividend

Information

148.

Payments—Every

payments of dividends, stating the name
the number of shares owned by

any tax, or
a

required by

return, keep

when required by

duly verified under oath, of its

and address of each shareholder,

him, and the amount of dividends paid to

(b)

Profits

quired

Declared

Dividends—Every corporation shall, when re¬

by the Commisssioner, furnish him a statement

will enable him to determine the portion

regulations made under authority thereof to make

by Corporations

corporation shall,

him.

Penalties

Any person required unde? this title to pay

payable.

Commissioner, made as herein provided, whether made after notice to

during such periods as the Commissioner may
tributed

of such facts as

of the earnings or profits of the

accumulated
specify, which have been dis¬

(including gains, profits and income not taxed)

corporation

(a)
law

due and

immediately

become

the Commissioner, render a correct return,

(b) Withholding Before Enactment of Act—Notwithstanding the

such

thereupon

by virtue of the provisions of this section the finding

of interest described in subsection (a) of

holding shall be at the rate specified in such subsection.

upon the items

is unpaid, whether or not the time
expired;

and subject to the same conditions as provided in that

Provided, That in the

that section (relating to tax-free covenant bonds) the deduction and with¬

proceeding in court brought to enforce payment of taxes made due

In any

and payable

effective the

dividends shall

may

of such tax

taxable year or so much

a con¬

by treaty with such country; and such tax shall be returned and paid in
the

declared terminated and of the tax for the preceding

otherwise allowed by law for filing return and paying the tax has

and the

(a)

and declarations to be given the

demand for immediate payment of the tax for the

taxpayer, together with a

of the Secretary,

period for such taxpayer immediately terminated

notice of such finding

cause

be upon the items of income and at the rates prescribed in Section 143

1934,

there¬

proceedings be brought without delay, the Commissioner

shall declare the taxable

period prior to the 10th day after the date of the enactment of this Act shall

and (b) of the Revenue Act of

taxpayer designs

for the taxable year then last past or the taxable year then

current unless such

Sec.

deducted and withheld is paid by the recipient of the income, it shall not be
re-collected from the withholding agent; nor in cases in which the tax

tending to prejudice or to render wholly or partly ineffectual proceedings

Tax Paid by Recipient—If any tax required under this section to be

paid shall

conceal himself or his property therein, or to do any other act'

or to

credited against the amount of income tax as computed in such return.

(e)

finds that

quickly to depart from the United States or to remove his property

the tax 25 per centum

provisions of this section.

withheld at the

Tax in Jeopardy—If the Commissioner

(a)

to collect the tax

persons,

Closing by Commissioner of Taxable Year

Sec. 146

provided for in regulations prescribed by the Commissioner under

officer, employee, or member is under a duty to perform the act

such

(b); nor in the case of a nonresident alien individual

vided in Section 25

ordered

distributed,

respectively,

its shareholders

during such taxable years

fails to pay such tax, make such return, keep such records, or supply such

specify.
(c) Accumulated Earnings and Profits—When requested by the Com¬
missioner, or any collector, every corporation shall forward to him a correct

information, at the time or times required by law or regulations, shall, in

statement of accumulated

earnings and profits and the names and addresses

addition to other penalties provided by law,

of the

supply any information,

tion, assessment, or collection of any

for the

purposes of the computa¬
tax imposed by this title, who willfully

be guilty of

misdemeanor

and, upon conviction thereof, be fined not more than $10,000 or, imprisoned

individuals

divided

the Commissioner may

shareholders

who would

distributed and of the amounts

be entitled to the same if

that would be payable to each.

THE REVENUE ACT
(b)

Compensation

scribed

Officers

Employees—Under regulations

and

A trust

corporation subject to taxation under this title shall, in its return, submit a
list of the

respective amounts paid to them during the taxable year of the corporation

by the corporation

bonus, or other compensation

salary, commission,

for personal services rendered, if the aggregate

dividual is in

annual report to Congress compiled from the returns

the

such employees the earnings and principal

made containing

which

Every

doing business

person

Commissioner, render

distributed

has transacted any

son

Commissioner may require,

the

such customers, as will enable the Commissioner to

income tax due

profits

Sec.

Collection

150.

■

foreign payments of interest

checks,

the

(2)
■

Foreign Items

this title as the

without

Commissioner, with the

than

without having obtained a license therefor,

complying with such regulations, shall be guilty of a misde¬

and

meanor

shall

one

fined

year,

not

Sec.

both.

(a)

Where

(1)

Is,

in the discretion of the grantor or of any person not having

be, held

may

Sec.

161.

TRUSTS

AND

(3) Is,

in the discretion of the grantor or of any person not having a

the purposes and in

Imposition of Tax

(except policies of insurance irrevocably payable for

the manner specified in Section 23 (o), relating to the
contribution"

"charitable

then such part of the income
duals shall apply to the income of estates or of any
in

trust,

(1)
lated

persons

unascer¬

with contingent interests, and income accumu¬

beneficiaries, and income collected by

be]held

distributed

the court

guardian of

settlement

of the

during the period of

the

beneficiaries

accumulated.

of income,

amount

Section

excess-profits taxes imposed

and

Sec.

Funds

Common Trust

169.

paid by the fiduciary, except

(relating to income for benefit of the grantor).
see

war-profits,

the beneficiary of an estate or trust to the extent

credit against the tax of

provided in Section 131.

(a) Definitions—The

provided in Section 166 (relating to revocable trusts) and Section 167

ficiary,

States

foreign countries or possessions of the United States shall be allowed

Computation and Payment—The tax shall be computed upon the

net income of the estate or trust, and shall be

and Possessions of

Foreign Countries

Taxes

United
The

persons

168.

Sec.

and

estate;

Income which, in the discretion of the fiduciary, may be either dis¬

tributed

either alone or in conjunction with

substantial adverse interest in the disposition of

infant which is to

(b)

having

the part of the income in question."

direct;

may

Income received by estates of deceased

administration

(4)

"in the discretion of the grantor,

any person not

Income which is to be distributed currently by the fiduciary to the

(3)

the grantor.

(b) As used in this section, the term "in the discretion of the grantor"
means

persons

income

net

deduction);

of the trust shall be included in computing

held for future distributions under the terms of the will or trust;

(2)

the

kind of property held

including—

Income accumulated in trust for the benefit of unborn

tained

indivi¬

upon

of such part of the income

be, applied to the payment of premiums upon policies of insurance on

so-called

Application of Tax—The taxes imposed by this title

(a)

such part of the income,

be distributed to the grantor; or

the life of the grantor

E—ESTATES

May, in the discretion of the grantor or of any person not having a

(2)

substantial adverse interest in the disposition

such part of the income

accumulated for future distribution to the grantor; or

substantial adverse interest in the disposition of

may

SUPPLEMENT

Benefit of Grantor

Income for

167.

part of the income of a trust—

any

substantial adverse interest in the disposition of

$5,000 or imprisoned for not

than

interest in the dis¬
therefrom, then the income

not having a substantial adverse

of the trust shall be included in computing the net income of

the grantor.

approval of the Secretary, shall prescribe; and whoever knowingly under¬
takes to collect such payments

the income therefrom, or
any person

for profit the collec¬

subject to such regulations enabling the Government to obtain

information required under

of such part

bills of exchange shall obtain a license from the Commissioner

and shall be

substantial adverse interest in the disposition of such part of the

corpus or

dividends by means of coupons,

in the grantor title to any part

is vested—

position of such part of the corpus or the income

•

All persons undertaking as a matter of business or

tion

having

each of

as to

gains of such customers has been paid.

-y

Revocable Trusts

166.

In the grantor, either alone or in conjunction with any person not

(1)

determine whether all

the items of interest specified

(a).

of the corpus of the trust

whom such per¬

such part of the amount

credits against net income

Where at any time the power to revest

approval of the Secre¬

business, with such details as to the profits, losses,

other information which

exceeds the

Such distributees shall for the purpose of the

Sec.

verified under oath, under such

rules and regulations as the Commissioner, with the

tary, may prescribe, showing the names of customers for

made available to the extent that it

made available as represents

in Section 25

broker shall, when required by the

correct return duly

distributee shall be taxable to him in the year in

paid in by him.

normal tax be allowed

Brokers

Returns

149.

distributed

amounts

Sec.

accordance with such plan, shall

161, but the amount actually distributed or

not be taxable under Section

of the paying corporation.

name

by such employer, or employees, or both,

for the purpose of distributing to

made available to any

of, and amounts paid to, each such officer and employee and the

names

to which contributions are made

of the fund accumulated by the trust in

amount so paid to the in¬

The Secretary of the Treasury shall submit

of $15,000.

excess

by an employer as a part of a stock bonus, pension,

created

profit-sharing plan for the exclusive benefit of some or all of his employees,

of such corporation and the

of all officers and employees

names

Employees' Trusts

165.

Sec.

pre¬

Secretary, every

by the Commissioner with the approval of the

OF 1936

For return made by bene¬

tained by a

term

"common trust fund" means a fund main¬

bank (as defined in Section 104)—

(1) Exclusively for the collective investment and reinvestment of moneys

142.

contributed

Sec.

162.

Net

thereto

administrator

Income

by the

guardian;

bank in its capacity as a trustee,

executor,

and

prevailing from time
Reserve System per¬
taining to the collective investment of trust funds by national banks.
'(b) Taxation of Common Trust Funds—A common trust fund shall not
be subject to taxation under this title, Title IA, or Section 105 or 106
(2) In conformity with the rules and regulations,

The

income

net

and

manner

of the

the

estate

basis

same

There shall be allowed

(a)

shall

trust

in the

case

deduction

in the

computed

same

individual, except that—

(in lieu of the deduction for

charitable, &c., contributions authorized by

Section 23 (o) )

any part

of the gross income, without limitation, which pursuant to the terms of the

will

deed

creating the trust, is during the taxable year paid or perma¬

nently set aside for the
or

is to

purposes

and in the manner specified in Section 23 (o)

be used exclusively for

religious, charitable, scientific, literary, or

educational purposes, or for the prevention of cruelty to children or animals,
or

for the establishment,

cemetery

(b)

acquisition, maintenance or operation of
for

operated

trust

for

public

profit;

There shall be allowed

income of the estate

net
or

not

the amount of the income of the estate

its taxable year which

is to be distributed currently by the

fiduciary to the beneficiaries, and the amount of the income collected by
a

guardian of

infant which is to be held or distributed as the court may

direct, but the

included in

amount so allowed as a deduction shall be

com¬

puting the net income of the beneficiaries whether distributed to them
not.

Any amount allowed

be allowed
or

deduction under this paragraph shall not

deduction under subsection (c) of this section in the same

succeeding taxable year;

any

(c)

In the

come

the

of the common trust

accumulated, there shall be allowed

additional

as an

been received

sale

(e)

but the amount

allowed

any

which is properly

legatee, heir, or beneficiary,

deduction shall be included in computing

the net income of the legatee, heir, or

beneficiary.

The proportionate share of each participant in

specified in Section 25 (a) received by the common
of this Supplement be considered as having

by such participant as such interest.

trust fund by

the

a common

bank (as defined in Section 104) main¬

trust fund shall make a return under

(a)

Credits of Estate

the surtax the estate
as

is allowed to

any

legatee,

names

and addresses of the participants who

participant.

The return shall be sworn to as in the case of a return

by the bank under Section

trust is included in

beneficiary,

trust is included in

If the taxable year of the common

trust fund is different from that of a

be allowed

the

no part

beneficiary shall, for tho

purpose

be based upon the net income of the common trust fund

for any

taxable year of the common trust fund (whether beginning on,
after Jan.l, 1936) ending within the

SUPPLEMENT F—PARTNERSHIPS
Sec.

in Section 25

(a)

are,

estate or

of the

Partnership Not Taxable

Individuals carrying on business
tax

in partnership shall be liable for income

only in their individual capacity.

norma,

share of such amounts

under this Supplement,

quired to be included in computing his net incame.

181.

(a).

Sec.

credits against net income, in addition to the credits

of interest specified

be¬

taxable year of the participant.

credits

same

Section 25

of the income of

allowed to him under Section 25, his proportionate

income of the common trust
income of the participant for its

fore,

computing the net income
addition

allowed by

are

any part

personal exemption

computing the net income of any legatee, heir, or bene¬

ficiary, such legatee, heir,
tax,

Credits of Beneficiary—If

then in

and Participant—

Different Taxable Years of Common Trust Fund

taxable year shall

(1), and, if

single person under Section 25 (b)

heir,

would be entitled to share

distributed and the amount of the proportionate share

participant, the proportionate share of the net

Income

trust shall be allowed the same

against net income for interest

(b)

Against Net

Trust—For the purpose of the normal tax and

the income of the estate
of

Credits

153.

oath for each taxable

stating specifically, with respect to such fund, the items of gross in¬
title, and shall include in the return

and the deductions allowed by this

in the net income if

(f)

participant.

exchange of such interest by the

fund to be included in computing the net

Sec.

loss shall be realized by the
The

the admission or withdrawal of a participant.

participating interest by a participant shall be treated

Returns by Bank—Every

of each

trust for its taxable year,

The net income of the common trust

the same manner and on the same basis as in

(d) Admission and Withdrawal—No gain or
common

filed

individual.

withdrawal of any

of the income of the estate

credited during such year

whether or not distributable, of the net in¬

fund.

trust fund shall for the purposes

deduction in computing the net income of the estate or trust the amount

the amount of interest

taining

income which, in the discretion of the fiduciary, may be either distributed

paid

computing its net income its proportionate share,

not distributed and

case

come

corporation.

Income of Participants in Fund—Each participant in the common

(c)

year,

beneficiary

considered

trust fund shall include in

■whether

of income received by estates of deceased persons during

to the

not

the period of administration or settlement of the estate and in the case of

case

for the purposes of such titles and sections

of the Revenue Act of 1935, and
shall

fund shall be computed in

additional deduction in computing the

trust

of the Board of Governors of the Federal

time,

re¬

Any remaining portion

182.

Tax of

Partners

There shall be included in computing the net income

distributive share, whether

of each partner his

distributed or not, of the net income of the

partnership for the taxable year.

of such amounts specified in Section 25 (a) shall, for the purpose of the nor¬
mal

Sec.

tax, be allowed as credits to the estate or trust.

183.

Computation of Partnership Income

The net income of the

Sec.
If the taxable year
or

164.

Different

Taxable

and

Sec.

trust, the amount which he is required, under Section 162 (b), to include

trust for any

before,

taxable

after Jan.

year

the income of the estate

of the estate or trust (whether beginning

1936) ending within his taxable year.

on,

partnership shall be computed in the same manner

the same basis as in the

beneficiary is different from that of the estate

in computing his net income, shall be based upon
or

Years

The partner

credit against

184.

case

Credits Against

individual.

Net

Income

shall, for the purpose of the normal tax, be allowed as a
his net income, in addition to the credits allowed to him

under Section 25, his proportionate share of such

amounts (not in excess

REVENUE ACT OF 1936

THE

cf the net income of the partnership) of Interest
specified in Section 25 (a)
as

received

are

(6)

the partnership.

Depreciation—A

reasonable

(1), for the exhaustion,

allowance,

provided in

and tear of property, including

wear

Section

reasonable

allowance for obsolescence; and

Sec. 185.
In

the

case

of the

the

members

income

net

Earned Income

(7)

Interest—All interest paid within the taxable

except

partnership the proper part of each

which consists of earned income shall

tions

be deter¬

indebtedness incurred

mined under rules

1917,

with

which is wholly

and regulations to be prescribed
by the Commissioner
approval of the Secretary and shall be separately shown in the

the

return of the

186.

amount

by foreign countries
as

United States

credit against the tax of the member

Sec.

Partnership Returns

Every partnership shall make
specifically the items of its

return

for

each

taxable

204.

Insurance

collected, and paid for each taxable

tax net income of every

foreign insurance

by regulations
addresses

prescribe,

and shall include in the

of the individuals who would

(2)

the

return

entitled

in the net income if distributed and the amount of the
distributive share

Of each individual.

The return shall be

sworn to

the

of the partners.

any one

United

(A)

insurance company

a tax

Normal-Tax Net

the normal-tax

of 15

company

shall

States minus the

sum

life

the

188.

Different

Taxable

Years

Partner

and

Partnership

partnership

(whether beginning on, before,

taxable

any

after Jan.

year

United

be taxable

(b)

1936) ending

pany"

and

annuity

Life Insurance

contracts

(including

health, and accident insurance), the

Companies

reserve

contracts

combined

funds of which

income of every life insurance
company
the amount thereof.

held for

the

shall be

panies
and

United

not

States

carrying

holding

same

no reserve funds

(a)

(b)

within

United

the

this section but shall be taxable

(5)

assessment

From

States

sums

claims

of the

arising

company

under

actually deposited by

association

under

taxable

certificates

Section 22;
defined in

the gross amount

means

from interest,

year

dividends, and

year;
means

means an amount

amount

gross

computed

premiums

follows:
insurance

To the result

obtained add unearned premiums on outstand¬

year

and deduct unearned

outstanding business at the end of the taxable

Losses Incurred—"Losses incurred"

means

losses

paid during the taxable

recoverable

outstanding

membership

case

policies

taxable year.

the end

end of the

year,

of the

add salvage

and reinsurance

preceding taxable

issued

preceding taxable

the annual statement

upon

To all expenses paid

and

and deduct unpaid losses outstanding at the
year;
means

all expenses shown

approved by the National Convention of Insurance

Commissioners, and shall be computed

the assessment plan and not
subject to any other use.

year,

the end of the

obtained add all unpaid losses outstanding

(7) Expenses Incurred—"Expenses incurred"
on

payment

To the result

at the end of the taxable year

associa¬

of incor¬

articles

years.

losses incurred during the

taxable year on insurance contratcs, computed as follows:

guaranty or reserve

exclusively for the

contracts

deduct return premiums and premiums paid for

year,

ing business at the end of the preceding taxable

(6)

any company or
as

the premiums

insurance contracts dining

written

deduct salvage and reinsurance recoverable outstanding at

funds, and any funds maintained under the charter
poration

year"

the

reinsurance.

other

and rents.

Territorial officers pursuant to law

income

the gross income

follows;

during the taxable

Gross Income of Life Insurance
Companies

insurance,

the

other disposition of prop¬

gross

means

Premiums Earned—"Premiums earned

the taxable

com¬

United

The term "reserve funds required by law"
includes, in the

tion with State

insurance contracts during the taxable year less losses incurred

premiums

dividends,

(A) the combined

and expenses incurred;

case of a life insurance
company the term "gross income"
the gross amount of income received
during the taxable year from

interest,

from the sale

Underwriting Income—"Underwriting income"

earned

In the

means

year

earned during the

preceding taxable

(4)

foreign corporations.
Sec. 202.

and deduct all interest, dividends and rents due and accrued at the end

of the

funds required

reserve

upon business transacted within the

States, shall not be taxable under

sum

all interest, dividends, and rents received during the taxable year,

year,

ratio to the normal-tax net income,

business

the

means

Investment Income—"Investment income"

rents, computed

all business transacted.

insurance

cor¬

company

add interest, dividends and rents due and accrued at the end of the taxable

Insurance Business—Foreign life insurance
an

foreign

insurance

year upon business trans¬
acted within the United States bear to
the reserve funds held by it at the
end of the taxable year

(3)

case

of income

of 15 per centum of

a tax

computed without regard to this paragraph, as the
by law and held by it at the end of the taxable

upon

other

paragraph (1) of this subsection less the deductions allowed by subsection

Net Income of Foreign Life Insurance
Companies—
foreign life insurance company, the normal-tax net income

amount which bears the

taxable

provided in this subsection, computed

(2) Net Income—"Net income"

Normal-tax
a

earned during the taxable year, from investment income and

(B) gain during the taxable

(3)

tax net

Gross Income—"Gross income"
underwriting income

erty, and

Imposition of Tax—

case

but shall

section

approved by the National Convention of Insurance Commissioners, and

life,

In General—In lieu of the tax imposed
by Sections 13 and 14, there
shall be levied,
collected, and paid for each taxable year upon the normal-

(2)

this

basis of the underwriting and investment exhibit of the annual statement
com¬

(1)

In the

Instrumen¬

gross amount

fulfilment of such contracts comprise more than
50 per centum of its total
reserve funds.

(b)

under

Definition of Income, &c.—In the

from

insurance company engaged in the business of
issuing life

means an

Its

and

subject to the tax imposed by this section—

Definition—When used in this title the term "life insurance

insurance

States

(a).
.

(1)

Tax

within

sources

Dividends Received—The credit provided in Section 26 (b)
No United States Insurance Business—Foreign insurance companies
carrying on an insurance business within the United States shall not

porations.

of the

SUPPLEMENT G—INSURANCE COMPANIES

(a)

income from

(3)
not

within the taxable year of the partner.

Sec. 201.

case

mutual insurance company),

net

(B)

If the taxable year of a partner is
different from that of the partnership,
the distributive share of the net income of the
partnership to be included
in compu.ing the net income of the
partner for his taxable year shall be
based upon the net income of the

partnership for

mutual

of—

Obligations of the

life

per centum of the amount thereof.

(other than

net income

Interest

year upon the normal-

(other than

Income of Foreign Companies—In the

talities—The credit provided in Section 26
Sec.

Mutual

In General—In lieu of the tax imposed by Sections 13 and 14, there

tary

and

Companies Other than Life

(1)

insurance company)

may

occupied

space not so

Imposition of Tax—

this title and such other information for the
purpose of carrying out the
provisions of this title as the Commissioner with the approval of the Secre¬

names

deduction (computed without

the rental value of the

(a)

shall be levied,

stating

year,

income and the deductions allowed by

gross

(a)

life insurance company, shall be limited to an

shall be allowed

provided in Section 131.
Sec. 187.

upon

bears to the rental value of the entire property.

partnership to the extent

the interest

of any real estate owned and occupied

on account

in part by

amount which bears the same ratio to such

war-profits, and excess-profits taxes imposed

possessions of the

(6) of this section

regard to this subsection)

income,

by the taxpayer)

exempt from taxation under this ti le.

Rental Value of Real Estater—The deduction under subsection

in whole

Taxes of Foreign Countries and Possessions of
United States

The

and originally subscribed for

(b)

partnership.

(5)
Sec.

its indebtedness,

year on

continued to purchase or carry ob iga-

(other than obligations of the United States issued after Sept. 24,

follows:

during the taxable

year

add

unpaid at the

expenses

end of the taxable year and deduct expenses unpaid at the end of the pre¬

Sec, 203.
(a)

General

Rule—In the

income"

net

Net Income of Life Insurance Companies
case

life

insurance

company

ceding taxable
to the

the term

tax

incurred

the gross income less—

means

For the

year.

purpose

of computing the net income subject

imposed by this section there shall be deducted from expenses
defined in this paragraph all expenses incurred which are not

(1)

Tax-Free

Interest—The

amount

taxable year which under Section
22 (b)

(2)
the

interest

received

(4) is excluded from

during

Reserve Funds—An amount equal to 4
per centum of the

reserve

the

allowed

mean

funds required by law and held at the
beginning and end of

company subject to the tax imposed
as

the taxable year,
,

is computed at
shall

except that in the case of any such reserve fund which
lower interest assumption rate, the rate of 3
% per centum
centum.
Life insurance companies issuing

covering life,

policy issued

the

and not subject to
a

health,

and

accident

Insurance

combined

(1)

deduction of 3% per centum of the

mean

of such

reserve

to the

funds

above,

(not

re¬

Commissioner finds

necessary

as the
for the protection of the holders of

sums

of the taxable year as a reserve
for dividends (other
dividends payable during the
year following the taxable year) the

payment of which is deferred for

period of not less than five

years

the date of the

(4)
year:

policy contract; '
Investment Expenses—Investment

Provided,

That if any general

from

expenses

are

paid during the taxable
in

part

assigned to

provided in Section 23 (b);

provided in Section 23
as

(c);

defined in subsection (b) (6) of this section;

(6)

Bad debts in the

nature

balances and

of agency

The. amount of interest earned during the taxable

bills receivable

Section 22

(b) (4) is excluded from

gross

provided in Section 23

(9)

Charitable, and

which under

income;

(8) A reasonable allowance for the exhaustion,
as

year

wear

and tear of property,

(l)i

forth, contributions, as provided in Section 23 (q);

Deductions (other than those specified in this subsection)

pro¬

vided in Section 23, but not in excess of the amount of the gross income in¬
cluded under subsection

(b) (1) (C) of this section.

included in the investment
expenses, the total deduction under this para¬
graph shall not exceed one-fourth of 1 per centum of the book
value of the

ration the deductions allowed in this section shall be allowed to the extent

mead of the invested assets held at
the

provided in Supplement I in the

beginning and end of

the taxable

(5)

Real

taxable

Estate

year

Expenses—Taxes and other

exclusively

upon

with respect

expenses

paid during the

to the real

estate

owned

by the

company, not including taxes assessed against local benefits of
tending to increase the value of the property
assessed, and not
ncluding any amount paid out for new buildings, or for

(d) Deductions of Foreign Corporations—-In the

trade

year;

business

case

business within the United States

case

foreign corpo¬

foreign corporation engaged in
or

therein.

having

office

place of

(e) Double Deductions—Nothing in this section shall be construed to
permit the

same

item to be twice deducted.

kind

permanent im¬
or betterments made to increase the
value of any property.
deduction allowed by this paragraph shall be allowed
in the case of

provements
The
taxes

imposed upon

a shareholder of a company upon his interest as share¬
paid by the company without reimbursement from the
but in such cases no deduction shall be allowed the share-

holder, which
shareholder,
„

Sec¬

ascertained to be worthless and charged off within the taxable year;

(10)
expenses

provided in

Subject to the limitation contained in Section 117 (d), losses sustained
during the taxable year from the sale or other disposition of property;

held at the end

than

Losses incurred

(7)

Reserve for Dividends—An amount
equal to 2 per centum of any

(5)

only;

(3)

insurance

All interest

(4)

quired by law) held at the
beginning and end of the taxab'e year,
such policies

(a):

(3) Taxes

weekly premium payment plan, continuing for life

cancellation, shall be allowed, in addition

All ordinary and necessary expenses incurred,

(2)

one

by this section there shall be allowed

deductions:

tion 23

be substituted for 4
per

policies

as deductions by subsection
(c) of this section.
Deductions Allowed—In computing the net Income of

(c)

income;

gross

are

holder for the amount of such taxes;

Sec. 205

Taxes of

Foreign Countries and Possessions of United States

The amount of income, war-profits, and excess-profits taxes imposed by

foreign countries

possessions of the United States shall be allowed

credit against the tax of

imposed by Section 201

204 to the extent provided in the

corporation in Section 131, and in such
Section

means

domestic insurance company subject to the tax

the net income

cases

case of a

"net income"

defined in this supplement.

domestic

used in that

THE REVENUE ACT
Sec. 206

201

204 shall not be

Section 119.

determined in

the

1936

the

case

for dependents allowed
of

case

individual

alien

nonresident

allowed by Section 25 (b)

provided in

manner

the

exemption

personal

(1) of this title shall be only $1,000.

The credit

(2) shall not be allowed in the

by Section 25 (b)

nonresident alien individual unless he is a resident of a contiguous

country.

Mutual Insurance Companies Other Than Life

Sec. 207

Credits Against Net Income

Sec. 214.

Computation of Gross Income

The gross income of insurance companies subject to the tax imposed by-

Section

Allowance of Deductions and Credits

Sec. 215.

(a) Application of Title—Mutual insurance companies, other than life
rations, except

shall receive

hereinafter provided in this section, and except that they

well

States,

eign insurance companies not carrying
United States shall be taxable

(b)

corporations.

Gross Income—Mutual marine-insurance companies shall include in

gross

income the gross premiums collected and received by them less amounts

and

for

Section 23 the following deductions to insurance companies shall also be

Insurance—In the

of mutual insurance companies other than life insurance companies—

case

(A) The net addition required by law to be made within the taxable
to reserve funds

(including in the

year

(B) The

other than dividends

sums

paid

year

(a)

of this subsection, unless otherwise allowed, amounts
account of

(b)

repaid to policyholders

underwriters,

but not

ascertainment and the payment thereof;

mutual marine

and

the

exceptions and

Commissioner,

Section

the

considered

pensations,
annual

interest

dividends,

deposits with
salaries,

rents,

remunerations,

emoluments,

periodical gains,

may

(b)

carrying

annuities,

fixed

other

com¬

case

States

subsection

Business

144,

(a).

Office—A

used

Section 231,

and

the

United

States"

within the

United

States at

individual,
or

foreign

business

this

nonresident

alien

having

Section

office

member is

office

I—FOREIGN

Tax

exceeding

Section

foreign

United

143,

business

corporation,

States,

not

alien

engaged

nonresident

but does

nonresident

alien

in
in¬

period of periods

total of 90 days during the taxable year and whose

com¬

pensation for such services does not exceed in the aggregate $3,000.
Such
phrase does not include the effecting of transactions in the United States

stocks,

securities,

commodities

through

resident

(a)

broker,

Nonresident

alien

individual

engaged and

shall

having

place of business.

CORPORATIONS

the amount received

trade

business within

shall

levied,

collected,

and

in lieu of the tax imposed by Sections 13 and 14,

year,

upon

by every foreign corporation not engaged in

the

United

States

and

having

not

office

place of business therein, from sources within the United States

salaries,

rents,

remunerations,

premiums,

wages,

emoluments,

other

periodical gains, profits, and income,

fixed

annuities,

compensations,

determinable

annual

except that in the case of corporations organized under the laws of

a con¬

tiguous country such rate of 10 per centum with respect to dividends shall
be reduced to such rate (not less than 5 per centum)

be provided

as may

by treaty with such country.
(b)

Corporations—A

Resident

foreign

business within the United States

corporation

having

office

engaged

trade

place of business

therein shall be taxable without regard to the provisions of subsection
the normal

but

General

(a)

Rule—In the

includes

only

Gross Income

case

alien individual

within the

sources

(c)

gross

United

(d)

Ships

Under

Flag—The

Foreign

income

nonresident

alien

individual which consists exclusively of earnings derived from the operation
of

ship

grants

ships documented under the laws of

foreign country which

exemption to citizens of the United

equivalent

States

and

income and shall be exempt from taxation under this title.

Profits

Surtax—A

Income—In the case of

Gross

foreign

corporation

foreign corporation

shall

not

gross

income

includes only the gross income from sources within the United States.

(e)

Flag—The income of

Ships Under Foreign

foreign

corporation,

which consists exclusively of earnings derived from the operation of a ship

under

the laws of

ships

equivalent exemption to citizens of the United States and to corporations

corporations organized in the United States shall not be included in gross

Undistributed

subject to the surtax imposed by Section 14.

States.

(b)

(a)

$ax imposed by Section 13 shall be at the rate of 22 per
provided in such section.

centum instead of at the rates

nonresident

the gross income from

tax of 15 per centum of such amount,

except that in the case of dividends the rate shall be 10 per centum, and

Sec. 212.

interest

(except interest on deposits with persons carrying on the banking business),

dividends,

com¬

mission agent, or custodian.

income

Foreign Corporations

Corporations—There

paid for each taxable
or

performance of personal services

of personal services for

the

119,

"engaged in trade

dividual temporarily present in the United States for

nonresident

trade or business within the United States

member has such

Sec. 231.

individual

time within the taxable year,

any

partnership,
within

section.

the phrase

includes the

include the performance

not

be provided by treaty with such country.

Section

trade

Partnerships
a

he is

SUPPLEMENT

place of business therein shall be taxable without regard to the provisions

not

income

place of business within the United States if the partnership

of which he is

contiguous country, to such rate (not less than 5 per centum)

United

within

office

being engaged in

of tax

source

10 per centum

shall be reduced, in the

engaged in trade or business in the United States

the basis

determinable

tax of

the banking

premiums,

profits, and income,

of such amount, except that such rate

resident of

within the United States

persons

wages,

nonresident alien individual the

if the return should be made

of this title,

purpose

if the partnership of which

business),

the fifteenth day of June following the

or,

office

interest (except

may

Payment of Tax

Sec. 219.
For

nonresident alien individual not

sources

(a)

Section 143.

see

Office—There shall be levied, collected,

place of business therein, from

nonresident

by this title shall be paid, in lieu of the time

(a),

engaged in trade or business within the United States and not having an
or

be prescribed

Section 211

Withholding at Source—For withholding at

of nonresident aliens,

and paid for each taxable year, in lieu of the tax imposed by Sections 11 and
every

tax imposed

may

Secretary,

fiscal year, then on the fifteenth day of the sixth month following the

(b)

12, upon the amount received, by

of the

close of the fiscal year.

INDIVIDUALS

Nonresident Alien Individuals
or

approval

Time of Payment—In the case of

close of the calendar year,

(a) No United States Business

the

Sec. 218.

(a)

total amount of tax Imposed

ALIEN

insurance

prescribed in

the basis of the calendar year, then on

to the

of losses, expenses, and reinsurance reserves.

Tax

(1), shall be made

(a)

under such regulations

with

policyholders and the amount of premium deposits retained for the payment

H—NONRESIDENT

in Section 53

if the return is made

companies) requiring their members to make premium deposits to provide

Sec. 211

Returns

nonresident alien individual the return,

exempted from the requirement of filing returns of such tax.

for losses and expenses, the amount of premium deposits returned to their

SUPPLEMENT

case

time prescribed

alien individuals subject

(including interinsurers and reciprocal

including mutual life

United States

Exemption from Requirement—Subject to such conditions, limita¬

tions,

premiums previously paid by them, and interest paid upon

of mutual insurance companies

credits against

before the fifteenth day of June.

(3) Mutual Insurance Companies Other than Life and Marine—In the
case

be allowed the

not

Sec. 217.

Requirement—In the

year, or,

insurance companies, in addition to the deductions allowed in paragraph (1)

such amounts between the

shall

before the fifteenth day of the sixth month following the close of the fiscal

of mutual marine

case

him with the approval of the Secretary,

allowed by Section 131.

policy and annuity contracts.
(2) Mutual Marine Insurance Companies—In the

Commissioner

of the

Credits Against Tax

nonresident alien individual

in lieu of the

taxable

within the

exemption

personal

of the

discretion

withholding agent.

of assessment insurance companies

case

additions to guarantee or reserve funds); and

benefit

the

the tax for taxes of foreign countries and possessions of the

the actual deposit of sums with State or Territorial officers pursuant to law
as

may,

Sec. 216.

allowed, unless otherwise allowed—
Life

all the

nonresident alien individual entitled thereto, by filing a

claim therefor with the

in the United

sources

deem necessary for the calcu¬

may

Source—The

dependents

and under regulations prescribed by

•

(1) Mutual Insurance Companies Other than

Commissioner

deductions and credits.

Tax Withheld

credit

be received

paid for reinsurance.

from all

prescribed in this title; including* therein

manner

which the

lation of such

insurance business within the

on an

other foreign

(b)

in the

information

domestic corporations; but for¬

causing to be filed with the collector a true and

accurate return of his total income received

normal tax imposed by Section 13 shall be at the rate of 15 per centum in¬

stead of at the rates provided in such section, and such normal tax shall be

individual

allowed to him in

the benefit of the deductions and credits

by filing

alien

nonresident

Information—A

Contain

this title only

shall not bo subject to the surtax imposed by Section 14, and except that the

applicable to foreign corporations

Return

(a)

insurance companies, shall be taxable in the same manner as other corpo¬

documented

foreign country which grants

organized in the United States, shall not be included in

gross

income and

shall be exempt from taxation under this title.
Sec. 213.

(a)

Rule—In

General

the

case

Deductions
of

nonresident

Sec. 232.
alien

individual

deductions shall be allowed only if and to the extent that they are

the
con¬

nected with income from sources within the United States; and the
proper

apportionment and allocation
of income

within and

provided in

of the deductions with respect

without

the

United

States shall

sources

determined

Section 119, under rules and regulations prescribed by the

Commissioner

with

the

approval of the

Secretary.

Losses—

(1)

The deduction, for losses not connected with the trade of business

(2) shall be allowed whether

(2)
or

not connected

(c)

not

but

sources

under

foreign

corporation

only if and to the extent that they

are

rules

and

deductions

the

connected with

within the United States; and the proper apportion¬

sources

regulations

prescribed

Charitable,

&c.,

the

Contributions—The

tribution" deduction allowed by Section 23

sources

within and

provided in Section 119,
Commissioner

with

the

so-called

"charitable

con¬

(q) shall be allowed whether

not connected with income from sources within the United States.
.

Sec.

233

Allowance of Deductions and Credits

A foreign corporation shall receive the benefit of the deductions and credits

casualties or theft, allowed by Section
or

not connected with income from

allowed to it in this title only by filing or causing to be filed with the collector
a

true and accurate return of its total income received from all sources;

&c.,

Contributions—The

allowed

with

by Section

income

to contributions

from

con¬

community chests, funds,

to the vocational rehabilitation fund.

information

within

the

United

foundations, created in the United States

the

Commissioner

Sec. 234

States,
or

which

calculation of such deductions and credits.

23^(0) shall be allowed whether

sources

"charitable

gifts made to domestic corporations,

so-called

in the
all

United States, in the manner prescribed in this title; including therein
the

deduction

connected

only

and allocation of the deductions with respect to

States, but only if the profit, if such transaction had

States.

Charitable,

tribution"
or

with income from

within the United States, but only if the loss is of property within

United

the

Deductions

profit, would be taxable under this title.

(3), shall be allowed whether

te)

sources

be allowed

case

without the United States shall be determined

The deduction for losses of property not connected with the trade

business if arising from certain

ment

the

General—In

income from

(b)

if incurred in transactions entered into for profit, allowed by Section 23
(e)
within the United

shall

approval of the Secretary.

(b)

resulted in

(a)

Foreign corporations shall
for taxes of

may

deem

necessary

for

the

Credits Against Tax
not

be allowed the credits

against the tax

foreign countries and possessions of the United States allowed

by Section 131.

OF 1936

REVENUE ACT

THE

office
time

Section 13 of this Act and Section 106 of the Revenue Act of 1935 there

place of business in the United States the return, in lieu of the

made

June.

allowed such

(determined in

agent in the United States, the return shall be made

by the agent.

par

the

Commissioner, with the approval of the Secretary, corporations subject

ment of

value of the shares of stock of the corporation owned on the last day

Payment of Tax

Time of Payment—In the case of

office

imposed by such Section 13 (computed without regard to this sec¬

tion) exceed the amount of the special dividend certified under subsection

(a),

amount of tax

the basis of

(b)

Withholding at Source—For withholding at

source

Special Dividend—Such credit shall not be allowed unless the Secre¬

(b)

tary of Commerce has certified to the

day of the 6th month following the close of the fiscal year.
of

permitted by this section in the tax imposed by such Section 13.

diminution

fiscal year, then on the 15th

exceed the amount by which such special dividend exceeds the

section)

the 15th day of June following the close of the calendar year, or,

if the return should be made

corporation has distributed as a special dividend
benefit of such persons as on the last day of the taxable year

for filing the return, the
to or for the

Sec. 237

ment

foreign insurance companies,

Sec. 238
A

see

Affiliation

in proportion to the par value of the shares of stock of the corpora¬

tion owned by each; except

case

of citizens of the United States

(1)

If 80 per centum

in accordance with the

of the gross income of such citizen or

year

shall

year as may

be applicable)

was

derived from

sources

within

(2)

If, in the

A corporation

(computed without the benefit of this section) for such period or

allowed

possession of the United States;

If, in

(3)

gross

was

agent of another.

his

and

of foreign countries

taxes

own account or as an

Affiliation

corporation organized under the China Trade Act, 1922, shall not be

derived from the active conduct of a trade or business within a

possession of the United States either

for

tax

264.

Sec.

income

(computed without the benefit of this section) for such period or such part
thereof

the

against

possessions of the United States allowed by Section 131.

of such citizen, 50 per centum or more of his

case

Tax

organized under the China Trade Act, 1922, shall not be

credits

the

Credits Against the

263.

Sec.

such part thereof was derived from the active conduct of a trade or business

within

Trade Act, 1922.

possession of

of such corporation, 50 per centum or more of its gross

case

this section, the tenn "China"

the same meaning as when used in the China

have

the United States; and

income

stock

the income from such shares is in good faith vested.

of China—As used in

Definition

(d)

(or

provided.

conporation shall be considered to be owned by the person in whom

the equitable right to

domestic corporation (computed without the benefit of this section)., for the

for such part of such period immediately preceding the close of such taxable

method

Ownership of Stock—For the purposes of this section shares of

(c)

three-year period immediately preceding the close of the taxable

such persons,

among

domestic

within the United States—

of in¬

dividend
and that the amount certified has been distributed

corporation provide a method for the apportionment of sucn special

corporations, satisfying the following conditions, gross income means only
sources

that if the corporation has more than one class

the certificates shall contain a statement that the articles

of stock,

Income from Sources Within Possessions of United States

General Rule—In the

reason

benefit of such

That such distribution has been made to or for the

(3)

persons

income from

their interest in the corporation; and

other

SUPPLEMENT J—POSSESSIONS OF THE UNITED STATES

(a)

owned

That such special dividend was in addition to all other amounts,

payable or to be payable to such persons or for their benefit,
any

corporation within the meaning of Section 141.

gross

poessessions of the United

shares of stock of the corporation;

(2)

foreign corporation shall not be deemed to be affiliated with

Sec. 251

States,

States, or were individual citizens of the United States or China, and

Supple¬

;

resident in China, the United

were

Foreign Insurance Companies

For special provisions relating to

Commissioner—

The amount which, during the year ending on the date fixed by law

(1)

of tax on income

foreign corporations, see Section 144.
y

by such Section 106 (computed without regard to this

of the tax imposed

imposed by this title shall be paid, in lieu of the time prescribed in Section 56

(b)

and in no case shall the diminution, by reason of such credit,

of this section;

foreign corporation not having any

place of busines in the United States the total

of
or

Provided, That in no case shall the diminution, by reason of such credit, of
the tax

(a)

by (1) persons resident in China, the United States,

number' of shades of stock of the corporation outstanding on such date:

imposed by Section 231 (a) may be exempted from the require¬

filing returns of such tax.
Sec. 236

drived from sources within China

possiessions of the United States, and (2) individual citizens of the United
States or China wherever resident, bears to the par value of the whole

tions, and exceptions and under such regulations as may be prescribed by
to the tax

credit against the net income of an amount

similar manner to that provided in Section 119) which the

the taxable year

Exemption from Requirement—Subject to such conditions, limita¬

(b)

corporation,

equal to the proportion of the net income

If any foreign corporation has no office or place of business in the

United States but has

1922, in addition to the credits against net income otherwise

Trade Act,

the fiscal year, or, if the return is

the basis of the calendar year then on or before the 15th day

corporation organized under the China

shall be allowed, in the case of a

prescribed in Section 53 (a) (1), shall be made on or before the 15th day

of the 6th month following the close of

Net Income

Allowance of Credit—For the purpose only of the taxes imposed by

(a)

Time of Filing—In the case of % foreign corporation not having any

Credit Against

262.

Sec.

Sec. 235 t Returns

(a)

deemed to be affiliated with any other corporation

employee

within the meaning of

141.

Section

Sec.

Income

265.

Shareholders

(b) Amounts Received in United States—Notwithstanding the provisions
of subsection (a) there shall be

by such citizens
from

sources

(c)

included in

gross

For exclusion of dividends from gross income, see Section 116.

income all amounts received

corporations within the United States, whether derived

within

case

L—ASSESSMENT

SUPPLEMENT

without the United States.

Tax in Case of Corporations—In the

AND COLLECTION

DEFICIENCIES

domestic corporation

entitled to the benefits of this section the normal tax imposed by Section 13
Sec.

shall be at the rate of 15 per centum instaed of at the rates provided in such

section, and such

corporation shall not be subject to the surtax imposed

by Section 14.

(a)

States" does not include the Virgin Islands of the United States.

Deductions—

(1)

Citizens of the United States entitled to the benefits of this section

deductions

same

are

having

office

allowed

are

foreign corporation engaged in trade
having

(f)

office

by Supplement I in the

$1,000 and shall

be allowed

not

domestic

dependents

provided

the benefits

shall

assessed^ or collected without
first be decreased b£ the amounts previously abated,

shall not be allowed the credits against the tax for taxes

deficiency

in General

taxpayer

registered

redetermination of the

proper

citizen of any possession of the United States

citizen of the United States) and who is not a resident

of the United States, shall be subject to taxation under this title only as to

tax shall be

conditions

sources

same manner

in the case of other persons

who

are

provisions

and subject to the same

taxable only

as to

sources.

(b) Nothing in this section shall be construed
of the Act

entitled

"An

Act

alter

income
*

the

amend

the

in the Virgin Islands of the United States.

court.

K—CHINA TRADE ACT CORPORATIONS

Sec. 261

beginning of such proceeding or distraint during the

be enjoined by a proceeding in the

Taxation in General

corporation organized under the China Trade Act, 1922,

by this subsection,

see—

Subsection (d) of this section, relating to waivers by the taxpayer;

(2)

Subsection (f) of this section, relating to notifications of mathematical
appearing upon the face of the return;

(3)

Section 273, relating to jeopardy assessments;

(4)

Section 274, relating to bankruptcy and receiverships; and

(5)

Section 1001 of the Revenue Act of 1926, as amended, relating to

deficiency determined by the

(b)

Collection of Deficiency Found by Board—If the taxpayer files

petition with the Board, the entire amount redetermined
*

the deficiency

by the decision of the Board which has become final shall be assessed and
shall be paid uppn notice
as

and demand from the collector.

collected

No part of the

deficiency by the Commissioner but disallowed

such by the decision of the Board which has

become final shall be assessed

by distraint or by proceeding in court with

assessment.

In the case of

Notwithstanding

•

amount determihed

SUPPLEMENT

Board pending court review.

1922, and for other pur¬

poses," approved July 12, 1921, relating to the imposition of income taxes

No assess¬

Revised Statutes the making of such

assessment or collection of the amount of the

making appropriations for the

naval service for the fiscal year ending June 30,

deficiency.

(1)

errors,

within the United States, and in such case the

computed and paid in the

derived from such

after

petitition with the

Board, until the decision of the Board has become final.
assessment

For exceptions to the restrictions imposed

income derived from

proceeding in court for its collection shall be made, begun, or

time such prohibition is in force may

file

deficiency in respect of the tax imposed by this title and

the provisions of Section 3224 of the

Citizens of Possessions of United States

days

legal holiday in the District

expiration of such 90-day period, nor, if a petition has been filed with the

of this section

(a) Any individual who is

prosecuted until such notice has been mailed to the taxpayer , nor until the

shall not be deemed to be affiliated with any other corporation within the

(but not otherwise

Within 90

mail.

Sunday or

the 90th day), the taxpayer may

Board of Tax Appeals for a
ment

of foreign countries

benefits

to the

of Columbia

and possessions of the United States allowed by Section 131.

the

Procedure

272.

such notice is mailed (not counting

States,

Credits Against Tax—Persons entitled to the benefits of this section

Sec. 252

previously assessed (or* collected without assessment)

Petition to Board of Tax Appeals—'-If in the case of any taxpayer,

distraint

amounts

deficiency; but such, amounts previously

the Commissioner determines that there is a deficiency in respect of the tax

including therein all the information

entitled

is shown as the tax by the taxpayer upon his return,

imposed by this title, the Commissioner is authorized to send notice of such

deductions and credits.

corporation

of such tax; or

no amount

return is made by the taxpayer, then the amount by which the tax

Sec.

which the Commissioner may deem necessary for the calculation of such

meaning of Section 141

(a)

title only by filing or causing to be filed with the collector a true and accurate

(i) Affiliation—A

of this section shall

return of their total income received from all sources in the United
in the manner prescribed in this title;

previously

deficiency, and decreased

personal exemption of only

the credit for

entitled to

as a

credited, refunded, or otherwise repaid in respect of such tax.

(2).
corporations

assessment,

receive the benefit of the deductions and credits allowed to them in this

(h)

• -

Allowance of Deductions and Credits—Citizens of the United States

(g)

(or collected without assessment)

exceeds the

business within the United States

the benefits of this section shall be allowed

and

case

Credits Against Net Income—A citizen of the United States entitled to

Section 25 (b)

exceeds the

by the taxpayer upon his return;, but the amount

by the amounts previously abated, credited, refunded, or otherwise repaid
(b)

place of business therein.

amount by

The

in respect

place of business therein.

Domestic corporations entitled to the benefits of this section shall

have the same deductions

which the tax imposed by this title

a tax

shown on the return shall first be increased by the amounts

assessed

allowed by Supplment H in the case

nonresident alien individual engaged in trade or business within the

(2)

Deficiency

"deficiency'*

amount shown as the tax

(e)

United States

imposed by this title

means—

(d) Defini tion—As used in this section the term "possession of the United

shall have the

Definition

271.

As used in this title in respect

without

petition with

the normal tax imposed by Section 13 shall be at the rate of 15 per centum

the Board within the time prescribed in

instead of at the rates provided in such section, and such a corporation shall

deficiency, notice of which has been mailed to the taxpayer, shall be assessed,

not be

and shall be paid upon

subject to the surtax imposed by Section 14.

subsection (a) of this section, the

notice and demand from the collector.

THE REVENUE ACT OF 1936

shall have the right to waive such stay at any time in respect of the

(d) Waiver of Restrictions—The taxpayer shall at any time have the

payer

signed notice in -writing filed with the Commissioner, to waive

whole

right, by

the restrictions

provided in subsection (a) of this section

and collection of the whole

any part

bond

of the deficiency.

(e) Increase of Deficiency After Notice Mailed—The Board shall have

notice of which has been mailed to the

penalty, additional amount

any

if claim therefor is asserted
or

Letters

Restricted—If the

mailed to the taxpayer notice of a
of this section, and the taxpayer

time

deficiency

files

Commissioner

shall be collected

amount

the

taxpayer

upon

the return is-due, and that

be made

an assessment

If the

refunded to

assessed, then the difference shall be

demand

part of the tax upon notice and

from the collector.

of that shown

excess

assessed and shall be collected

mathematical error appearing

amount of tax in

the amount which should have been assessed

Section 273

If the

sh&ll be credited

provided in Section 322, without the filing of claim therefor.

If the amount determined

which has been stayed by the bond

already collected exceeds the amount determined as the amount

is greater than the amount actually

the face of the return,

assessed

part of the tax upon notice and demand from the collec¬

which should have been assessed, such excess

except in the case of fraud, and except as provided in subsection (e) of this

taxpayer is notified that, on account of

the

be propor¬

decision of the Board which has become final,

section, relating to assertion of greater deficiencies before the Board, or in

upon

greater than

tor, and any remaining portion of the assessment shall be abated.

petition with the Board within the

additional deficiency in respect of the same taxable year,

(c), relating to the making of jeopardy assessments.

proportionately reduced.

assessed is

amount

then any unpaid portion, the collection of

has

provided in subsection (a)

prescribed in such subsection, the Commissioner shall have no right

to determine any

the

(i) Collection of Unpaid Amounts—When the petition has been filed
has been determined by a

Deficiency

(f) Further

that

which should have been assessed, then when the decision of the

with the Board and when the amount which should have been

by the Commissioner at or before the hearing

rehearing.

the amount covered by the bond is paid, then the

determines

tionately reduced.

taxpayer, and to determine whether

addition to the tax should be assessed—

Board

Board is rendered the bond shall, at the request of the taxpayer,

redetermined is greater than the amount of the deficiency,

part of the amount covered by the bond, and if as a result

any

sball, at the request of the taxpayer, be

the

amount

jurisdiction to redetermine the correct amount of the deficiency even if
the amount

of such waiver any part of

the assessment

Claims in Abatement—No claim in abatement shall be filed in respect

(j)

of the tax has been or will

of any assessment in respect of any tax

the basis of what would have been the correct amount of tax

imposed by this title.

but for the mathematical error, such notice shall not be considered (for the

of this subsection,

purposes

and collection until notice of

assessment

Section 322
of Tax

of subsection (a) of this section, prohibiting

(c), prohibiting credits

Appeals)

right to file

notice of

as a

deficiency has been mailed, or of

(a)

deficiency in respect of any taxable

year

to redetermine the amount of such

jurisdictbn to determine whether
has been overpaid

year

to the tax

not

the tax

correctly

for

this title the date on

Except

the

deficiency

time

same

prorated to

and
any

for

instalment the date for payment of which

the satisfaction of the Commissioner that the payment

of limitations on the making

the appointment of the receiver to a date 30 days after

excess

receiver is received by the

Claims for the deficiency and such

of two years.

with law, to the court before which the

adjudication in accordance
or

receivership proceeding is pending, despite the pendency of

any

such redetermination shall

the adjudication of bankruptcy or the appoint¬

receiver.

the

ment

petition for

be filed with the Board after

deficiency

receiver shall give notice in writing

suspended for the period from the date of adjudication

petition to the Board; but

(b)Unpaid Claims—Any portion of the claim allowed in such

the date prescribed for the payment thereof will result in undue hard¬

upon

adjudication of bankruptcy or the appointment

proceedings for the redetermination of the deficiency in pursuance of a

(j) Extension of Time for Payment of Deficiencies—Where it is shown
to

period in

bankruptcy

That part of

part of such/instalment.

arrived, shall be paid upon notice and demand from the collector.

has

bankruptcy

interest, additional amounts and additions to the tax may be presented,

prorated

instalment the date for payment of which has not arrived, shall be

collected at the

bankruptcy

for

provided in Section 273
so

be immediately assessed

Commissioner; but the suspension under this sentence shall in no case be

deficiency has been assessed, the deficiency

(relating to jeopardy assessments), that part of the deficiency
to any

upon assessments

deficiency has not theretofore been assessed in accordance with law.

the date upon which the notice from the trustee or

(i) Prorating of Deficiency to Instalments—If the taxpayer has elected to
the tax in instalments and

provided for by law) determined by the Commissioner in respect

of assessments shall be

decision of the Board becomes final shall be determined according

shall be prorated to the four instalments.

proceeding before any court of

Territory or of the District of Columbia,

imposed by this title upon such taxpayer shall, despite the restric¬

to the Commissioner of the

purposes of

adjudication of bankrpucty of

of the receiver, and the running of the statute

to the provisions of Section 1005 of the Revenue Act of 1926.

pay

of any State or

In such cases the trustee in

other taxable

any

imposed by Section 272 (a)

if such

doing shall have no

tax

tions

underpaid.

(h) Final Decisions of Board—For the
which

shall consider such facts with

deficiency, but in

the

bankruptcy proceeding or the appointment of a re¬

deficiency (together with all interest, additional amounts, or additions

any

Jurisdiction Over Other Taxable Years—The Board in redetermining

relation to the taxes for other taxable years as may be necessary

any

the United States

subsection (a)

of this section.

(g)

Bankruptcy and Receiverships

ceiver for any taxpayer in any receivership

such notice, nor shall such

be prohibited by the provisions of

274.

Immediate Assessment—Upon

taxpayer in

any

deficiency, and the taxpayer shall have no

petition with the Board based

assessment or collection

Sec.
»

refunds after petition to the Board

bank¬

ship to the taxpayer the Commissioner, with the approval of the Secretary

ruptcy or receivership proceedings which is unpaid shall be paid by the tax¬

(except where the deficiency is due to negligence, to intentional disregard

payer upon

of rules and regulations, or to fraud with intent to evade

tax),

may

such

grant-

period not in

excess of 18 months,

period not in

and, in exceptional

of 12 months.

excess

cases,

for

extension is granted, the

after termination of such proceedings.

for such payment may

further

proceeding, and may be collected by distraint or proceeding in court

within six years

extension for the payment of such deficiency or any part thereof for a

notice and demand from the collector after the termination of

Com¬

in the

missioner may require the taxpayer to furnish a bond in such amount, not

case

Extensions of time

be had in the same manner and subject to the same

provisions and limitations

as are

deficiency in

provided in Section 272 (j) and Section 296
tax imposed by this title.

exceeding double the amount of the deficiency, and with such sureties, as
thd Commissioner deems necessary, conditioned upon the

Sec.

payment of the

deficiency in accordance with the terms of the extension.

(k) Address for Notice of Deficiency—In the absence of notice to the

(a)

Commissioner imder Section 312 (a) of the existence of a fiduciary relation¬

ship, notice of

deficiency in respect of

a tax

shall

imposed by this title, if mailed

of this title even is such taxpayer is deceased, or is under a legal
or,

in the

case

Sec.

273.

collection of

assess

(b)

Upon

Assessment

and

assessed within

three

years

after the return

was

filed,

for Prompt

Assessment—In the case of income received

be begun, within 18

assess?-

return is

months after written request, therefor (filed after the

not

(b) Deficiency Letters—If. the jeopardy assessment is made before

(1)

any

This subsection shall

apply in the case of a corporation unless—

Such written request notifies the Commissioner that the corporation

notice in respect of the tax to which the jeopardy assessment relates has

contemplates dissolution at or before the expiration of such

bee mailed under Section

period; and

272 (a), then the Commissioner shall mail

notice

under such subsection within 60 days after the making of the assessment.

assess-

has been mailed to the taxpayer, despite the

tion 272

(f) prohibiting the determination of additional deficiencies, and

whether

not the taxpayer

Appeals.

has theretofore filed

of the assessment

petition with the Board

if the petition is filed with the Board before the making

time-in

deficiency and of all amounts

connection therewith.

may

its

be made only in respect of the deficiency determined by the Board in

(e) Expiration of Right to Assess—A jeopardy assessment
has filed

may

not be

with the collector
as

to which the

necessary

or any

assessment, at any time within five years

(d) For the purposes of subsections

(e)

filed

upon the

such last day.

Corporation and Shareholder—If a corporation makes no return of

the tax imposed by this
return his distributive

title, but each of the shareholders includes in his

share of the net income of the corporatiion, then the

corporation shall be assessed within four years after

which any

the last date

such shareholder's return was filed.

Same—Exceptions

been

stay of

part of the amount of the assessment by filing

stay is desired, and with such sureties,

after the return was filed.

(a), (b), and (c), a return filed
the filing thereof shall be con¬

before the last day prescribed by law for

Sec. 276

has

bond in such amount, not exceeding double the amount

conditioned

be assessed,

after the tax-?

jeopardy assessment

payment of the amount of the assessment, may obtain

collection of the whole

includible therein which is in excess of 25 per centum of

proceeding in court for the collection of such tax may be begun without

or a

petition for review of the decision of the Board.

Stay Collection—When

made the taxpayer, within 10 days after notice and demand from the collec¬
tor for the

Omission from Gross Income—If the taxpayer omits from gross income

amount properly

tax of the

made after the decision of the Board has become final

(f) Bond to

The dissolution is completed.

(c)

the amount of gross income stated in the return, the tax may

assess¬

Board is rendered such assessment

decision.

payer

(3)

sidered

(d) Amount Assessable After Decision of Board—If the jeopardy
ment is made after the decision of the

18 months'

The dissolution is in good faith begun before the expiration of such

18 months' period; and

subsequently filed, and the Board shall have juris¬

diction to redetermine the entire amount of the
same

provisions of Sec¬

The Commissioner shall notify the Board of the amount

of such assessment,

assessed at the

(2)

less than that notice

of which

of Tax

the collector deems

payment of so much of the amount, the

False Return or No Return—In the case of a false or fraudulent return
with intent to evade tax or of a failure to file a return the tax may be assessed,
(a)

or a

proceeding in court for the collection of such tax may be begun without

assessment, at any time.

(b) "Waiver—Where before the expiration of the time prescribed in Section '
275 for the assessment of the tax,

both the Commissioner and the taxpayer

writing to its assessment after such time, the tax may be

collection of which is stayed by the bond, as is not abated by a decision of the

have consented in

Board which has become final, together with interest thereon as provided

assessed at any time prior to

in Section

period so agreed upon may be extended by subsequent agreements in

297.

(g) Same—Further Conditions—If the bond Is given before the tax¬
has filed his petition with the Board under Section 272 (a), the bond
shall contain a further condition that if a petition is not filed within the
payer

period provided in such subsection, then the amount the collection of which
is

stayed by thd bond will be paid

the expiration of such

notice and demand at

any

time after

period, together with interest thereon at the rate of

6 per centum per annum from the date of the jeopardy notice and demand to
the

date of notice and demand imder this subsection.

(h) Waiver of Stay—Upon the filing of the bond the collection of
of the amount assessed

is covered by the bond shall be stayed.

any

made) by the executor, administrator, or other fiduciary represent¬

expiration of three years after the return was filed.

deficiency greater

and

ing the e3tate of such decedent, or by the corporation, but not after the

(together with all interest, additional

amounts, or additions to the tax provided for by law) and notice and demand

proceeding in court without assessment for the collection of such tax shall

deficiency will be jeopardized by delay, he sljall

be made in respect of

and

after the expiration of such period.

Request

shall be made by the collector for the payment thereof.

ment may

Collection

administration, or by a corporation, the tax shall be assessed,

Jeopardy Assessments.

such deficiency

Limitation

during the lifetime of a decedent, or by his estate during the period of

(a) Authority for Making—If the Commissioner believes that the
ment

immediately

provided in Section 276—

General Rule—The amount of income taxes imposed by this title
be

be begun

disaiblity,

corporation, has terminated its existence.

Period
as

proceeding in court without assessment for the collection of such taxes shall

the taxpayer at his last known address, shall be sufficient for the purposes

275

Except

much

The tax¬

the expiration of the period agreed upon.

made before the expiration of the

period previously agreed

The

writing

upon.

Collection After Assessment—Where the assessment of any income

imposed by this title has been made within the period of limitation

collected by distraint or by a
after the assess¬
ment of the tax, or (2) prior to the expiration of any period for collection
agreed upon in writing by the Commissioner and the taxpayer before the
expiration of such six-year period.
The period so agreed upon may be ex¬
tended by subsequent agreements in writing made before the expiration of
properly applicable thereto, such tax may be

proceeding in court, but only if begun (1) within six years

the period

previously agreed upon.

Sec. 277

OF 1934

REVENUE ACT

THE

the

Suspension of Running of Statute

jeopardy notice and demand to the date of notice and

of the

date

demand under Section 273

limitations provided in Section 275 or 276

The running of the statute of

and the beginning of distraint or a proceeding
collection, in respect of any deficiency, shall (after the mailing

the making of assessments

in court for

suspended for the period during which

notice under Section 272 (a)) be

the assessment or beginning

the Commissioner is prohibited from making

distraint

proceeding in court (and in any event, if a proceeding in respect

or a

of the deficiency is

placed on the docket of the Board, until the decision ot

thereafter.

the Board becomes final), and for 60 days

jeopardy assessment, interest as provided in

If the amount included in the notice and demand from the

Section 292.

collector under Section 273 (i) is not paid in full within ten days after

such

interest

notice and demand, then there shall be collected, as part of the tax,

the unpaid amount at the rate of 6 per centum per annum (or, for

upon

fiduciary appointed by

any

period the estate of the taxpayer is held by

any

court of competent jurisdiction or by will, at the rate of 6 per centum

per

annum) from the date of such notice and demand until it is paid.

SUPPLEMENT M—INTEREST AND ADDITIONS TO THE TAX

Sec. 298.
If the

Failure to File Return

Sec. 291

(i), or, in the case of the amount collected in

of the amount of the

excess

Bankruptcy and Receiverships

unpaid portion of the claim allowed in

bankruptcy or receiver¬

ship proceeding, as provided in Section 274, is not paid in full within ten

and file return required by this title, within

In case of any failure to make

prescribed by the Commissioner in pursuance
and not
willful neglect, there shall be added to the tax: 5 per centum if the
is for not more than 30 days with an additional 5 per centum for

the time prescribed by law or

it is shown that usch failure is due to reasonable cause

of law, unless

due to
failure

The amount so

tinues, not exceeding 25 per centum in the aggregate.
a

been paid before the

part of the tax unless the tax has

neglect, in which case the amount so added shall be

of the

manner as

same

part of such amount interest upon the unpaid portion

such notice

and demand until payment.

Sec.

Removal

299.

Property

For additions to tax in case of leaving the United

States

United

Departure from

States or concealing

property in such manner as to hinder collection of the tax, see Section 146.

collected at the same time and in the same manner

added to any tax shall be
as

as a

thereof at the rate of 6 per centum per annum from the date of

fraction thereof during which such failure con¬

each additional 30 days or

and

shall be collected

there

days from the date of notice and demand from the collector, then

discovery

SUPPLEMENT N—CLAIMS AGAINST

collected in the

AND

The amount added to the tax under this section

the tax.

.j,

shall be in lieu of the 25 per centum

addition to the tax provided in Section

Sec. 311.

TRANSFEREES

FIDUCIARIES
*

•••

•

Transferred Assets

3176 of the Revised Statutes, as amended.

determined

Interest upon the amount
at the same time as the

deficiency, shall be paid upon notice and demand

collected

from the collector, and shall be
6 per centum per annum

part of the tax, at the rate of

as a

from the date prescribed for the payment of the

(or, if the tax is paid in instalments, from the date prescribed for the

tax

deficiency is assessed, or,
waiver under Section 272 (d), to the 30th day after the filing

payment of the first instalment) to the date the
in the case of a

of such waiver or to the date the

liabilities

following

the

shall, except as hereinafter in this section provided, be assessed, collected,

deficiency shall be assessed

Collection—The. amounts

Method

(a)
Interest of Deficiencies

Sec. 292

deficiency is assessed whichever is the earlier.

paid in the same manner and subject to the same provisions and limita¬

and

tions

in the case of a deficiency in a tax imposed by this title (including

the

provisions in case of delinquency in payment after notice and demand,

the

provisions authorizing distraint and proceedings in court for collection,
provisions prohibiting claims and suits for refunds):

and the

Transferees—The liability, at law

(1)

transferee of

in equity, of a

property of a taxpayer, in respect of the tax (including interest, additional
amounts,

and additions to the

provided

tax

by law)

imposed upon the

taxpayer by this title.

Additions

Sec. 293

the Tax in Case of Deficiency

Fiduciaries—The liability of

(2)

fiduciary under Section 3467 of the

Revised Statutes in respect of the payment of any such tax from the estate

(a) Negligence—If any part of any deficiency is due to negligence, or
intentional disregard of rules and regulations but without intent to

defraud,

of the deficiency (in addition to such

5 per centum of the total amount

of the

deficiency) shall be assessed, collected, and paid in the same manner as if
it

were

deficiency, except that the provisions of Section 272 (i), relating

(b)

assessed, collected, and paid, in lieu

of the 50 per centum

addition to the tax provided in Section 3176 of the

Revised Statutes,

amended.

Additions to the Tax in Case of Nonpayment

Tax Shown on Return—

of the

(1)

General Rule—Where the

amount determined by the taxpayer

of such

instalment, is not paid on or before the date prescribed for its

payment, there shall be collected as a part of the tax, interest upon such

If Extension Granted—Where an extension of time for payment of
so

determined

the tax by the taxpayer, or any instalment

extended, and the interest thereon determined under Section 295,

is not paid in full prior to the expiration of the period of the extension, then,
in

lieu of the interest

provided for in paragraph

interest at the rate of 6 per

centum

(i) of this subsection,
be collected on such

per annum shall

until it is paid.

Deficiency—Where

deficiency,

or any

interest or additional amounts

292,

under Section 293,

addition to the tax in case of delinquency provided for in Section 291,

is not paid

in full within 10 days from the date of notice! and demand from

the collector,

the

preceding

transferee,

taxpayer;—except

there shall be collected

but

only

limitation for

assess¬

that if before the expiration of the

begun

against

the

taxpayer

of the tax, interest upon the

as part

last

preceding

transferee,

re¬

spectively,—then the period of limitation for assessment of the liability
of the transferee shall
court

expire one year after the return of execution in the

proceeding.

In the case of the liability of

(3)

fiduciary,—not later than

one year

of the

collection

tax in

respect

Period for Assessment Against Taxpayer—For the

(c)

section, if the taxpayer is deceased,
terminated

its

existence

in the

case

of this

purposes

corporation, has

the period of limitation for assessment against

the taxpayer shall be the period that would be in effect had death or ter¬
mination
'

of existence not

Suspension

(d)

occurred.

Running

Statute

Limitations—The

feree

the

fiduciary shall, after the mailing to the transferee

notice provided

for in Section 272

running

liability of
or

trans¬

fiduciary of

be suspended for the period

(a),

during which the Commissioner is prohibited from making the assessment
in respect of the
if

liability of the transferee

fiduciary (and in

proceeding in respect of the liability is placed

event,

any

the docket of the '.

Board, until the decision of the Board becomes final), and for sixty days

notice and demand until it is paid.

thereafter.

any

part of

any

unpaid instalment under Section 272

deficiency prorated

(i) is not paid in full on or

(e)

Address

for

Notice

of Liability—In

the

absence

of notice

the

before the date prescribed for the payment of such instalment, there shall

Commissioner under Section 312 (b) of the existence of a fiduciary relation¬

be collected

ship, notice of liability enforceable under this section in respect of

part of the tax interest upon the unpaid amount at the rate

of 6 per centum per annum from such date until it is paid.,

(c)

Fiduciaries—For

pointed by order of

any

period

any court

estate is

held by

ap¬

shall be collected interest at the rate of 6 per centum per annum in lieu
the interest provided in subsections (a)

(d)

and (b) of this section.

Filing of Jeopardy Bond—If a bond is filed,

tax

imposed by this title, if mailed to the person subject to the liability at his
fiduciary

of competent jurisdiction or by will, there

last known

address, shall be sufficient for the purposes of this title

if such person is deceased, or is under a legal
a

disability,

or,

in the

even

case

corporation, has terminated its existence.
Definition

(f)

provided in Section 273

"transferee"

"Transferee"—As

includes

heir,

legatee,

used

devisee,

of
;

this

and

section,

the

term

distributee.

the provisions of subsections (b) and (c) of this section shall not apply to the

Sec. 312.

amount covered by the bond.

Sec.

Time

295.

Extended

for

Payment of Tax Shown

Return

(a)

time for payment of the amount

taxpayer, or any instalment thereof,
Section 56

determined

the tax by

the

is extended under the authority of

(c), there shall be collected

part of such amount, interest

thereon at the rate of 6 per centum per annum from the date when such

payment should have been made if

extension had been granted, until

the expiration of the period of the extension.

is acting in

powers,

Deficiency

If the time for the payment of any part of a deficiency is extended, there
shall be collected, as

part of the tax, interest

the part of the deficiency

the time for payment of which is so extended, at the rate of 6 per centum
per

annum

be collected

for the period of the extension, and
on

other

interest shall

such part of the deficiency for such period.

of the deficiency the time for payment of which is
in

accordance with

the terms

part of the tax, interest

of the

extension,

If the part

extended is not paid

there shall

is given

(b)

the

case

of the

amount

collected

Jeopardy Assessments

under

Section 273

(i) there shall

be collected at the same time as such amount, and as a
part of the tax,
interest at the rate of 6 per centum per annum upon such amount from

any

the
tax

that the fiduciary capacity has terminated.

Fiduciary of Transferee—Upon

person

is acting in

under such section
estate of such

notice to the

fiduciary capacity for

Section 311,

the fiduciary

of such person, the powers, rights,

Commissioner that

person

shall

subject to the
on

behalf

duties, and privileges of such

person

assume,

(except that the liability shall be collected from the

person), until notice is given that the fiduciary capacity

has terminated.

(b) shall be given

regulations prescribed by the Commissioner with the

approval of the Secretary.

such unpaid amount at the rate of 6 per

Interest in Case of

assume

be collected,

centum per annum for the period from the time fixed
by the terms of the
extension for its payment until it is paid, and no other interest shall be
collected on such unpaid amount for such period.

Sec. 297.

fiduciary capacity such fiduciary shall

imposed by this title (except as otherwise specifically provided and except
that the tax shall be collecteu from the estate of the taxpayer), until notice

any

Time Extended for Payment of

rights, duties, and privileges of the taxpayer in respect of

liability specified
Sec. 296.

Notice of Fiduciary Relationship

Fiduciary of Taxpayer—Upon notice to the Commissioner that

person

If the

of which such liability arises, whichever

later.

the

unpaid amount at the rate of 6 per centum per annum from the date of such
to

„

liability in respect thereof

of the statute of limitations upon the assessment of the

assessed in comiection therewith under Section
or any

or a transferee of the property

after the expiration of the period

proceeding for the collection of the tax

been

has

unpaid amount from the date of the expiration of the period of the extension

(b)

transferee

year

against

assessment

against the

court

thereof, has been granted, and the amount the time for paymeint of which
has been

for

one

after the liability arises or not later than the expiration of the period for

scribed for its payment until it is paid.

(2)

after the expiration of the period of

year

period of limitation for the assessment of the liability of the transferee,

unpaid amount at the rate of 6 per centum per annum from the date pre

the amount

taxpayer,—within

limitation

the tax imposed by this title, or any instalment thereof, or any part
amount or

one

In the case of the liability of

(2)

ment

Sec. 294

taxpayer,—within

limitation for assessment against the taxpayer;

within three years after the expiration of the period of

(a)

follows:

In the case of the liability of an initial transferee of the property

(1)

then 50 per centum of the total amount of the deficiency (in

addition to such deficiency) shall

such liability of a transferee or fiduciary shall be

of the

Fraud—If any part of any deficiency is due to fraud with intent to

evade tax,

deficiency in tax.

Period "of Limitation—The period of limitation for assessment of

(b)
any

prorating of a deficiency, and of Section 292, relating to interest on

to the

deficiencies, shall not be applicable.

taxpayer.

Any such liability may be either as to the amount of tax shown on the
return or as to any

SUPPLEMENT
Sec. 321.
If the

O—OVERPAYMENTS

Overpayment of Instalment

taxpayer has paid as

instalment of the tax more than the amount

determined to be the correct amount of such instalment, the overpayment
shall be credited against the unpaid instalments, if any.
If the amount
already paid,

whether

not

the

basis of instalments,

exceeds the

amount determined to be the correct amount of the tax, the overpayment
shall be credited or refunded

provided in Section 322.

•

THE KEVENUE ACT
Sec. 322.

(a)

Refunds and Credits

Authorization—Where

Imposed by this title, the

agfainst

amount

income, war-profits,

any

has

there

tax

be credited

excess-profits tax or instalment thereof

Limitation

(1)

Period of Limitation—Unless

refund shall

Allowance—

allowed

years

claim

credit

for

refund is

from the time the return

was

filed

filed by

made after the expiration of whichever of

such periods expires the later.
credit

the tax

refund shall be allowed

return is filed

by the taxpayer, then

made after two years from the time

paid, unless before the expiration of such period

was

claim therefor

Is filed by the taxpayer

(2)

Limit

Amount of Credit

Refund—The amount of the credit

refund shall not exceed the portion of the tax paid

of that title shall not be

(d)

files

for such

adjusted net income is
other
of

than

in respect of which the Commissioner has determined the deficiency
suit

by the taxpayer for the

of such tax shall be instituted In

any part

(1)

made and

As to overpayments determined by

recovery

(2)

(3)

As to

the

decision

of the share

(e)

excess

amount

has

Accumulation

Sec. 401.

and

refund

in any such suit for refund

deficiency and further finds that the taxpayer has made an overpayment
of tax in respect of the taxable year in
respect of which the Commissioner
determined the deficiency, the Board shall have jurisdiction to determine
the amount

of such

overpayment, and such

amount shall,

when the de¬

cision of the Board has become final, be credited or refunded to the
taxpayer.
credit or refund shall be made of any portion of the tax unless

No such

the Board determines

part of its decision that it was paid within three

before the filing of the claim

is earlier.

the filing of the petition, whichever

(e) Tax Withheld

withholding

Source—For refund

credit in

IA—ADDITIONAL

Subsection (c)

Surtax

Personal

of such section is amended by striking out

equal to the

sum

vision of

(f)

(4)

18 per centum of the amount thereof in

(3) 28 per centum of the amount thereof in

excess

$2,000; plus

of $2,000

excess

(4) 38 per centum of the amount thereof in

"personal

(other than

other than

bank,

holding

and not

excess

company)

annuities, and (except in the

company"

means

centum of its gross

per

dividends,, interest,
or

securities)

indirectly, by

for not

personal holding company—(C)

stock owned, directly

corporation, partnership, estate,

proportionately

(D)

individual shall be considered

other individual,

its

partners,

indirectly,

amount

per

centum

dividends

allowable

as a

of:

of the

received

personal

holding

over

are

companies

which

of the tax Imposed by Section 13

V
reasonable

with reference to

the

size

and terms of such indebtedness; and

(0) The amount of the dividends paid credit provided in Section 27,
computed without the benefit of subsection

(b)

thereof (relating to the

dividend carry-over).
means

the net income minus the

of:

year to the extent not allowed as a deduction

23, but not including the tax imposed by this section
section of

use

gifts,

The

following

Tax

taxes

Net Income from Certain Sources

shall

levied,

(in addition to any other tax

collected,
on net

and paid

income),

for

upon

1936, to take

case

by Section

corresponding

allowed

deduction,

vendees.
or

credits

sucb person from the United States of Federal excise taxes erroneously
or illegally collected with respect to any articles, to the extent that such
ne^ income does not exceed the amount of the burden of such Federal excise

taxes with respect to such articles which such person shifted to others,
(b) The net income (specified in subsection (a) (1) from the sale of articles
respect to which the Federal excise tax was not paid, and the net
income specified in subsection (a) (2) or (3), shall not include the net income
from the sale of any£article, from reimbursement with respect to any article,
or from refund or credit of Federal excise tax with respect to any article (1)
if such article (or the articles processed therefrom) were not sold by the taxpayer on or before the date of the termination of the Federal excise tax;
(2) if the taxpayer made a tax adjustment with respect to such article
(or the articles processed therefrom) with his vendee; or (3) if under the terms
any statute the taxpayer would have been entitled to a refund from the
United States of the Federal excise tax with respect to the article otherwise
than as an erroneous or illegal collection (assumiing, in case the tax was not
Paid, that it had been paid).
(°) The net income from the sales specified in subsection (a) (1) shall be
computed as follows:
(1) From the gross income from such sales there shall be deducted

the allocable portion of the deductions from gross income for
the applicable Revenue Act;

(2) If the taxpayer so elects by filing his return

on such

the taxable

basis, the total

net income for the taxable year from the sale of all articles with

respect to

which each Federal excise tax was imposed (computed by deducting from
the gross income from such sales the allocable portion of the deductions

from gross income which are allowable under the applicable Revenue Act,
but without deduction of the amount of such Federal excise
or

of the amount of reimbursement to purchasers with

tax which

was

respect to such

Federal excise tax) shall be divided by the total quantity of such articles
sold during the taxable year and the quotient shall be multiplied by the
quantity of suqh articles involved in the sales specified in subsection (a) (1).
Such quantities shall be expressed in terms of the unit on the basis of which
»

For the purposes of this section the proper apportionment and

allocation

of deductions with respect to gross income shall be determined under rules
and regulations prescribed by the Commissioner with the approval of the

corporation organized prior to Jan. 1,

the assets and liabilities of the estate of

(d) The net income from reimbursement or refunds specified In

(o) for the purposes therein

sub-

section (a) (2) or (3) shall be computed as follows: From the total payment
or accrual (1) of reimbursement to the taxpayer from vendors for amounts

representing Federal excise tax burdens included in prices paid by the
taxpayer to such vendors or (2) of refunds or credits to the taxpayer of

to make any such contribution or gift, to the
liability of the decedent existed prior to Jan. 1, 1934; and

the expenses and fees reasonably incurred in obtaining such reimbursement

over

decedent,

paid in liquidation of any liability of the corporation based

liability of the decedent

extent such

each

the net

Secretary.

not otherwise

of donees described in Section 23

specified, including, in the

(O) Losses from sales
a

1, 1936.

any extent the burden of such Federal excise tax and which does not exceed
such person's net income for the entire taxable year from the sale of articles
wit11 respect to which such Federal excise tax was imposed.

or accrued

prior Income-tax law;

(B) Contributions

amounts

beginning before Jan.

the Federal excise tax was imposed.

(A) Federal income, war-profits, and excess-profits taxes paid
during the taxable

for the

taxable year

income of every person which arises from the sources specified below:
(1) -A- tax equal to 80 per centum of that portion of the net income from
8a,i0
articles with respect to which a Federal excise tax was imposed

Paid

(3) The term "adjusted net income"

(b) of the Revenue

(b) The amendment made by subsection (a) shall not apply to an incometax

the

aside to retire indebtedness incurred prior to

1934, if such amounts

Section 26

Act of 1936".

year which are allowable under

'
or set

the adjusted

of the adjusted net income

from

204;
1,

means

excess

credit for the purposes

(B) Amounts used

(whether by the

ancestors, and lineal descendants.

spouse,

(2) The term "undistributed adjusted net income"
sum

than

(E) the family of

include only his brothers and sisters

net income minus the

(A) 20

any

by his family,

be applied in such manner as to produce the smallest

half blood),

being

beneficiaries;

directly or indirectly,

50 per centum in value of the outstanding stock; and
whole

indirectly,

owning, to the exclusion of

possible number of individuals owning, directly
shall

trust shall be considered

shareholders,

the stock owned,

and this rule shall

individual

than

For the purpose of determining the ownership of stock

owned

credit against net income equal to the

Federal excise-tax burden whih such person in turn shifted to his

corporation

any

of regular dealers in stock

Btanding stock is owned, directly
five individuals.

(3) A tax equal to 80 per centum of the net income from refunds

if—(A) at least 80
case

ieu thereof "computed without the deduction of the tax Im¬

credit for dividends received provided in

excise-tax burdens included in prices paid by such person to such vendors,
to the extent that such net income does not exceed the amount of such

gains from the sale of stock or securities, and (B) at any time during the
last half of the taxable year more than 50 per centum in value of its out-

inserting in

of $500,000 and not

of $1,000,000.

income for the taxable year is derived from royalties,

"except that there shall be deducted the amount of income tax imposed

(2) A tax equal to 80 per centum of the net income from reimbursement
received by such person from his vendors of amounts representing Federal

corporation exempt from taxation under Section 101, and
as defined in Section 104, and other than a life-insurance

company or surety

corresponding.pro-

Excess Profits Tax

posed by this section, but with

Definitions—As used in this title—
term

deduction

of $100,000 and not

plus

(5) 48 per centum of the amount thereof in

(1) The

Section 106 (b) of the Revenue Act of 1935 is amended by striking

Sec. 501

$500,000; plus

of $1,000,000;

for such year by Section 13 of the Revenue Act of 1934, as amended" and

(a)

in excess of $100,000; plus

the

out

or a

Act, and".

Sec. 402.

(a)

follows;

on such person but not paid which is attributable to shifting to others to

8 per centum of the amount thereof not in

(2)

excess

of such section is amended to read

(5) of the Revenue Act of 1934

later Revenue

taxable year

of the following:

(1)

In excess of

"1934"

of its income wholly exempt from the taxes imposed

by Section 24 (a)

TAXES

Holding Companies

Imposition of Tax-—There shall be levied, collected, and paid, for
each taxable year (in addition to the taxes imposed by Title I),
upon the
undistributed adjusted net income of every personal holding
company
surtax

Capital Stock Tax

TITLE III—TAX ON UNJUST ENRICHMENT
INCOME

(a)

STOCK AND

appearing in such subsection.

"(4) the

Sec. 351.

sum

corporations

of excessive

case

■

Jan.

surtax

the applicable income-tax law over the amount disallowed

at the source, see Section 143 (f).

TITLE

are

Surplus—For

and inserting in lieu thereof "1936", and by striking out ", as amended"

deficiency was mailed, shall be conclusive.
Overpayment Found by Board—If the Board finds that there is

(d)

share, be exempt from tax in the amount

(a) Section 105 of the Revenue Act of 1935 is amended by striking out
"$1.40" wherever appearing therein and inserting in lieu thereof "$1".

has expired before the notice of

income

Any subsequent

EXCESS-PROFITS TAX

of such

included.

Improper

the decision of the Board which has become final, as to whether such
period

dividend received.

TITLE II—CAPITAL

computed in

become final;

period of limitation upon the

proceeding in court for collection has expired;

but in any such claim for credit

as a

gross

which accumulate surplus to avoid surtax on stockholders, see Section 102.

(b)

decision of the Board which

of the Board which

any amount collected after the

beginning of distraint

taxable year shall, if distributed to any shareholder who has so included

wherever

As to any amount collected in

accordance with

(b)

included in the

distribution made by the corporation out of earnings, or profits for such

any court except—
a

has become final; and

Any amount

in his gross income his pro rata

notice of deficiency under Section 272 (a) and If the taxpayer

shall be allowed

of the adjusted net income of

90 per centum

in the gross income of shareholders

petition with the Board of Tax Appeals within the time prescribed

years

(2)

included

shareholder shall be treated

not,

and

year,

corporations.

in such subsection, no credit or refund in respect of the tax for the taxable
year

Pro Rata Shares—The tax imposed by .this

refund.

shares, whether distributed

the corporation

Effect of Petition to Board—If the Commissioner has mailed to the

taxpayer
'

the provisions of Section 131

applicable.

Payment of Surtax

(c)

this section, be applicable in respect of

(at the time of filing their returns) in their gross Income their entire pro
rata

during the three

years immediately preceding the filing of the claim, or, if no claim was
filed, then during the three years immediately preceding the allowance of

the credit

not inconsistent with

the tax imposed by this section, except that

balance shall be refunded immediately

the taxpayer or within two years from the time the tax was paid, no credit
or

applicable in respect of the taxes imposed by Title I of this Act, shall
insofar

section shall not apply If (1) all the shareholders of the corporation include

(b)

by the taxpayer within three

overpayment of any

of such overpayment shall

then due from the taxpayer, and
any
to the taxpayer.
on

been

OP 1936

exchanges of capital assets which

deduction by Section 117

disallowed

(d).

(4) The terms used in this section shall have the
used in Title I.

are

Federal excise taxes erroneously or illegally collected, there shall be deducted
refunds,
(e)

same

meaning

when

For the purposes of subsection (a)

(1), (2), and (3), the extent

which the taxpayer shifted te others the burden of a Federal excise tax shall
be

presumed to be an amount computed as follows:

THE REVENUE ACT

From the selling price of the articles there shall be deducted the sum

shall be deemed to include the

purchase or sale! (or parties to the sale) of

(A) the cost of such articles plus (B) the average margin with respect

services with respect to which a

Federal excise tax was imposed, and for the

(1)
of

to the

articles with respect to which such Federal

aggregate selling price of all
excise tax

imposed and which were sold by him during the taxable year

was

(computed without deduction of reimbursement to purchasers with respect
there shall be deducted the aggregate cost of

Federal excise tax)

to such

articles, and the difference shall be reduced to a margin per unit

such

terms of the basis on which

the Federal excise tax was imposed.

The excess

unit over the average margin (computed for the same

of such margin per

unit) shall be multiplied by the number, of such units represented by the
In no case shall the extent to which the taxpayer shifted to others

(3)

with respect to the articles be deemed

the burden of the Federal excise tax

such tax with respect to such articles minus (A)

to exceed the amount of

the portion

of the amount of the Federal excise tax (or of the reimbursement

specified in subsection (a) (2) ) with respect to the articles which is paid or
credited

the

taxpayer

purchasers

any

specified in subsection

(f) (3) and minus (B) the amount of any increase in the tax under Section
liable

602

excise

the result of the nonpayment or refund of the Federal

tax with respect to

the articles.

difference between the selling price and the cost Of similar articles

average

during his six taxable years preceding the initial im¬

sold by the taxpayer

position of the Federal excise tax in question, except that if during any part
of such
any

respect to the services

made to purchasers as specified in subsection (f) (3)
shifted the burden of such Federal

shall be the extent to which the taxpayer

If during any part of such six-year period the taxpayer

business,

not

was

inadequate

if his records for any part of such period are so

price of the

not to furnish satisfactory data, the average

period shall, when necessary for a fair com¬
price, as determined by the Com¬
missioner, of representative concerns engaged in a similar business and
taxpayer for such part of such

parison, be deemed to be the average

The presumption established by this subsection

similarly circumstanced.

described in subsection (i).

be rebutted by proof of the character

may

(a) shall be imposed on the net

(1) The taxes imposed by subsection

arising from

income from the sources specified therein, regardless of any loss

and regardless of whether the tax¬

had

(under the income tax provisions of the
that if such

taxable net income

applicable Revenue Act) for the taxable year as a whole; except

application of the tax imposed by subsection (a) is held invalid, the tax

u..der

(a) shall apply to that portion of the taxpayer's entire net income

subsection

which is attributable to the net income from the sources

for the taxable year

specified in such subsection.

six-year period the taxpayer was not in business, or if his record for

part of such period are

inadequate

similar business and similarly circumstanced.

"cost" means, in the case of articles manufactured or
produced by the taxpayer, the cost to the taxpayer of materials entering

by this title

(a)

the case of articles purchased by the taxpayer for re¬

into the article; or, in

amount for which

he is reimbursed by his vendor).

the

Income

taxes imposed

shall be credited against the total amount of the

There

amount equivalent to the excess of—

of the other Federal income and excess-profits taxes

The amount

payable by the taxpayer for the taxable year, over

The term

sale, the price paid by him for such articles (reduced in both cases by

Credit for Other Taxes

Sec. 502.

not to furnish satisfactory

period shall,
when necessary for a fair comparison, be deemed to be the average margin,
as determined by the Commissioner, of representative concerns enagaged
a

(to the extent that it does not exceed the amount of such Federal
such services minus any payments or credits with

balance

excise tax with respect to

data, the average margin of the taxpayer for such part of such

(2)

deducted the average price received by the

services during the six taxable years pre¬
ceding the initial imposition of the Federal excise tax in question.
The

payer

(1) The term "margin" means the difference between the selling price of
and the cost thereof, and the term "average margin" means the

articles

From the selling price

amount computed as follows:

taxpayer for performing similar

the other transactions of the taxpayer,

•

As used in this section—

(f)

presumed to be

others

excise tax with respect to such services shall be

of the services there shall be

Revenue Act of 1932 for which the taxpayer under this section be¬

of the
came

the burden of such Federal

excise tax to others.

which the computation is being made; but

articles with respect to

subsection (a) the extent to which the taxpayer shifted to

purposes of

quantity involved; or

If the taxpayer so elects by filing his return on such basis, from the

(2)

OF 1936

which would have been payable by
net income were

the taxpayer for the taxable year if his

decreased by the amount of net income

Mtle.

■

'•

taxable Under this

.'.

;

■.

■

Administrative Provisions

Sec. 503.

The term "selling price" means selling price minus (A) amounts
subsequently paid or credited to the purchaser on or before June 1, 1936,

other Federal income and excess-profits taxes

The amount of the

(b)

(3)

entered into
reimbursement for the amount included in

thereafter in the bona fide settlement of
before March 3, 1936, as

written agreement

(a) All provisions of law (including penalties) applicable with respect
taxes imposed by Title I of this Act, shall, insofar as not inconsistent

allocable
portion of any professional fees and expenses of litigation incurred in secur¬
ing the refund or preventing the collection of the Federal excise tax, not to

except

exceed 10 per centum of the

not

such

price

account of a Federal excise tax; and minus (B) the

amount of such tax.

In determining costs, selling prices and net income, the

(g)

taxpayer
order

shall, unless otherwise shown, be deemed to have sold articles in the
in which

they were manufactured, produced, or acquired. '• Where the tax¬

payer's records do not adequately establish

Adjustment Act,

taxable under the Agricultural

quantity of a commodity

the

amended, entering into

the taxes imposed by this title,

Avith this title, be applicable with respect to

131, 251, and 252 shall not

101,

provisions of Sections

that the

be applicable.

Every person (1) upon Avhom a Federal excise tax was imposed

(b)

(3) Avho received a refund or credit of Federal excise tax,

Avhich return

return under this title,

Avith the

be made in such manner as the Commissioner,

shall

be filed, and the total amount

paid, not later than the fifteenth day of the

articles sold by him, such quantities shall be computed by the use

of the

month after the date of the enactment of this Act,

(h) If the taxpayer made any purchase or sale otherwise than through
arm's-length transaction, and at a price other than the fair market

Avise

taxes

payer as

trade

course

thereof, of any part of the amount determined by the tax¬

the tax under this title, or of any .deficiency with respect

Avould impose undue

(i) Either the taxpayer or the Commissioner may rebut the presumption
by subsection (e) by proof of the actual extent to which the

taxpayer shifted to others the burden of the Federal excise tax.

extension is granted

include, but shall not be limited to:

Such proof

due to
changes in factors other than the tax.
Such factors shall include any
clearly shown change (A) in the type or grade of article or materials, or
(B) in costs of production.
If the taxpayer asserts that the burden of the
borne

tax was

by him while the burden of

shifted to others,

other increased cost was

any

respective

Commissioner shall determine, from the

the

compared with

effective dates of the tax and of the other increase in cost as
the date of the change in margin,

and from the general experience of the

industry, Avhether the tax or the increase in other cost was shifted to others.
If the Commissioner determines that the change in margin was
to the tax and in part to the

increase in other cost, he

due in part

shall apportion the

assessment

and

extension.

Avith

amount

sureties

ment

collection shall
extension is

furnish

taxpayer

amount

Avith

of any such

granted, the Commissioner may require the

amount, not

bond in such
to which

respect

be suspended for the period

exceeding double the

the extension is granted, and with such

the Commissioner deems necessary,

the

of
for

shall be paid on or before the date of the expiration

of the extension, and the running of the statute of limitations

the period

•

(1) Proof that the change or lack of change in the margin was

such part for a period not in

In such case the amount with respect to Avhich the

of three years.

excess

thereto,

hardship upon the taxpayer, the Commissioner ma)

grant an extension for the payment of any

established

may

prescribed

If the Commissioner finds that the payment, on the date

price, the Commissioner may determine the purchase or sale price to
that for which such purchases or sales were at that time made in the
nary

third

in lieu of the time other-

prescribed by laAV.

(c)

for the payment

be
ordi¬

approval of the

For any taxable year ended prior to the date

Secretary, shall prescribe.

of the enactment of this Act the return shall

conversion factors prescribed in regulations under such Act, as

of the
amended,.

but

specified in subsection (a)
shall make
shall contain such information and

paid, or (2) Avho received any reimbursement

(2),

respect

Avhich

conditioned upon the pay¬

the extension is granted in

accordance with the terms of the extension'.

There shall be collected, as a

part of any amount with respect to Avhich an

extension is granted, interest

thereon at the rate of 6 per centum per annum
months

extension.

—

'■

-'•

from the expiration of six

expiration of the period of the

after the due date thereof to the

•"

change in margin between them.
Sec.

(2) Proof that the taxpayer modified contracts of sale, or adopted a new
change in amount

contract of sale, to reflect the initiation, termination, or
of the Federal excise tax, or at any such time

article

(including the effect of

any other
or

changed the sale price of the

any

time billed the tax

of the

tax

included the amount

sale price in the event of

decision of its invalidity; but the taxpayer may

establish that such acts were caused by factors other than

the tax, or that

articles

they do not represent his practice during the period in which the
in

question

"(J)

were

sold.

As used in this section—

■

tax or exaction

position, of commodities
whether valid

recovery,

holding for sale

articles, provided for by

invalid, if denominated

any

was

"tax" by such statute.

imposed with respect to (or with respect to the

commodity

(2)
in the

in force in

any

Full text of Commercial and Financial Chronicle : July 4, 1936 : Revenue Act of 1936, Vol. 143, No. 3706

FRASER