debtor corporations, and withholding agents shall accept the following forms: Form 1000, revised January, 1922. Form 1087, revised January, 1922. D. H. BLAIR, Commissioner of Internal Revenue. Approved January 30, 1923: Secretary of the Treasury. (T. D. 3434.) Income tax-Time extension for domestic corporations. Extension of time until June 15, 1923, of the final date for filing returns of domestic corporations, Form 1120, for the calendar year 1922, the fiscal year ended January 31, 1923, and the fiscal year ending February 28, 1923. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Under the authority of section 227 of the revenue act of 1921 a general extension of time is hereby granted domestic corporations up to and including June 15, 1923, for completing returns of income for the calendar year 1922, the fiscal year ended January 31, 1923, and the fiscal year ending February 28, 1923, conditional upon the filing of tentative returns with the proper collector of internal revenue on or before March 15, April 15, and May 15, 1923, respectively, accompanied with at least one-fourth of the estimated amount of tax due, together with a statement setting forth the reason why the return can not be completed within the prescribed time, and a formal request for the extension. Tentative returns submitted in accordance with the foregoing should be on Form 1120, on which should be written plainly across the face "Tentative Return." Only the name and address of the taxpayer and the estimated amount, if any, of the tax due need be stated. Any deficiency in the first installment as determined upon submission of the final return will bear interest at the rate of 6 per cent per annum from March 15, April 15, or May 15, 1923, respec tively. D. H. BLAIR, Commissioner of Internal Revenue. Approved February 6, 1923: A. W. MELLON, Secretary of the Treasury. (T. D. 3435.) Income tax-Sale of property at an amount substantially less than its fair market value. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Where property is sold by a corporation to a shareholder or member, or by an employer to an employee, for an amount substantially less than its fair market value, such shareholder or member of the corporation or such employee shall include in gross income the difference between the amount paid for the property and the amount of its fair market value. In computing the gain or loss from the subsequent sale of such property its cost shall be deemed to be its fair market value at the date of acquisition. Approved February 7, 1923: A. W. MELLON, D. H. BLAIR, Commissioner of Internal Revenue. Secretary of the Treasury. (T. D. 3436.) Income tax-Revenue act of 1921-Decision of court. INCOME TAX-NONRESIDENT CITIZEN-CONSTITUTIONALITY. An income tax levied upon the income of a citizen of the United States residing in a foreign country, which income is derived wholly from the ownership of real and personal property situated in a foreign country, is constitutional. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To Collectors of Internal Revenue and Others Concerned: The attached decision of the District Court of the United States, District of Maryland, in the case of George W. Cook v. Galen L. Tait, 29311°-23-VOL 25 United States collector of internal revenue for the third district of Approved February 8, 1923: Commissioner of Internal Revenue. Secretary of the Treasury. DISTRICT COURT OF THE UNITED STATES, DISTRICT OF MARYLAND. No. 1293. George W. Cook, plaintiff, v. Galen L. Tait, collector, defendant. [January 22, 1923.] ROSE, Circuit Judge: The plaintiff is a citizen of the United States, who, since 1890, has continuously resided in the Republic of Mexico. His entire income comes from real and personal property, having a permanent situs in that country. The defendant called upon him to make a return of his income for taxation. With this demand he complied under protest. A tax was assessed upon him, and at the time suit was instituted he had paid the first installment of it, amounting to $298.34, to recover which this action is brought, he alleging that the payment was made under duress. The defendant has demurred to the declaration, and asserts that the single issue presented is whether a tax imposed by Congress on the net income of a nonresident citizen of the United States, when that income is entirely derived from sources within a foreign country, is repugnant to the Constitution of the United States. In other lands, the attempt to impose such a tax has rarely been made. In a report of the British Royal Commission on Income Tax, which forms part of a memorandum on double taxation, dated January 28, 1921, of the Finance Section of the Provisional Economical and Financial Committee of the League of Nations (Official Publications of the League E. F. S. 16-A 16, sec. 3, annex 2, p. 10), there is to be found the statement: Double income tax arises when two countries charge income tax on the same source of income. As it is not ordinarily practicable for a State to tax income effectively unless either the source of the income or the owner of the income is within its borders, it may be said broadly that the possibility of effective taxation exists only when the source of the income, or the residence of the owner is within the State. Although the United States of America charge also the income of a citizen even if he resides abroad, this may be regarded as an exceptional method of taxation, and the results in revenue depend, presumably, in a great measure, on sentiment and patriotism. * An examination of the accessible laws of all leading countries confirms the accuracy of the above-quoted statement, and seems to indicate that this country is probably the only one which attempts to tax a nonresident citizen upon income he derives from property permanently located in foreign lands. The Supreme Court has said: It may not be doubted * speaking in a general sense, that the taxing power, when exerted, is not usually applied to those even albeit they are citizens, who have a permanent domicile or residence outside the country levying the tax. Indeed, we think it must be conceded that the levy of such a tax is so beyond the normal and usual exercise of the taxing power as to cause it to be, when exerted, of rare occurrence and in the fullest extent exceptional. This being true, we must approach the statute with the purpose of ascertaining whether its provisions sanction such rare and exceptional taxation.-United States v. Goelet (232 U. S. 293). Shortly after the beginning of the Civil War, the demand for revenue compelled the Government to resort to an income tax. Section 49 of the act of 1861 (12 Stat. 309) limited the imposition to incomes of persons residing in the United States, or derived, by a resident abroad, from property within this country. Section 16 of the act of 1864 (13 Stat. 281) assumed to tax the income of every person residing in the United States, and of every citizen of the United States residing abroad, whether that income was derived from sources within or without the United States, and the same purpose has been clearly manifested by every subsequent enactment levying a tax upon incomes, although section 262 of the law now in force (42 Stat. 232) provides that under certain circumstances not existing in the case of the plaintiff gross income includes only that derived from sources within the United States. Article 3 of Regulations No. 62, promulgated by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury under the revenue act of 1921, provides: Citizens of the United States, except those entitled to the benefits of section 262 * * * wherever resident, are liable to the tax. It makes no difference that they may own no assets within the United States, and may receive no income from sources within the United States. Every resident alien individual is liable to the tax, even though his income is wholly from sources outside the United States. Every nonresident alien individual is liable to the tax on his income from sources within the United States. And article 4 of the same regulations declared: An individual born in the United States, subject to its jurisdiction, of either citizen or alien parents, who has long since moved to a foreign country and established a domicile there, but who has neither been naturalized in or taken an oath of allegiance to that or any foreign country, is still a citizen of the United States. There is really no room for question that Congress has sought to tax the plaintiff's income, and has used words apt to accomplish that purpose. Even so, he says it has done a vain thing, for it has no constitutional power to submit him to that burden. With much force and learning he argues that the sixteenth amendment did not make taxable anything which could never before have been taxed. Its purpose and effect was merely to exempt a tax upon incomes, no matter whence they came, from the requirement of apportionment among the States.-Evans v. Gore (253 U. S. 260). He asserts that the income here sought to be taxed, arising as it does from real and tangible personal property, having a permanent location, is a direct tax.-Pollock v. Farmers Loan & Trust Co. (157 U. S. 429). He then argues that no one has ever contended that Congress could levy a direct tax upon property in a foreign land, and it must be conceded that the idea of doing so does not seem ever to have suggested itself to any one. He relies upon Loughborough v. Blake (5 Wheat. 317 [18 U. S. 146]), where it was said that the power to impose a direct tax "extends to all places over which the Government extends." The assumption throughout the whole discussion in that case was that the power to tax was coextensive with our territorial boundaries. In his opinion Marshall held that it reached to them, and, quite obviously, he assumed that it did not go farther. The plaintiff contends that one State of our Union may not levy a tax upon real or tangible property having a permanent location in another, even when the owner is one of its resident citizens. A Kentucky corporation owned many freight cars, which it hired out. Most of them were habitually used in other States. Nevertheless, Kentucky attempted to tax them all. When the case reached the Supreme Court, Mr. Justice Brown speaking for it said: We know of no case where a legislature has assumed to impose a tax upon lands within the jurisdiction of another State, much less where such action has been defended by any court. It is said by this court in the foreign-held bond case (15 Wall. 300, 319) that no adjudication should be necessary to establish so obvious a proposition as that property lying beyond the jurisdiction of a State is not a subject upon which her taxing power can be legitimately exercised. The argument against the taxability of land within the jurisdiction of another State applies with equal cogency to tangible personal property beyond the jurisdiction. It was held that the tax was an attempt by the State to take property without due process of law, in contravention of the fourteenth amendment.—Union Transit Co. v. Kentucky (199 U. S. 194). The fifth amendment imposes a like limitation upon the powers of Congress. Upon the assumption that an income tax is a direct tax, and is levied upon property outside the United States, the plaintiff's reasoning is clear and simple. It is true that if sound, it carries us farther than is necessary for a decision of this case, for apparently it would deny the right to tax so much of the income of a resident as comes from property located in foreign lands. One adverse criticism upon it is that it is clearly established that since the adoption of the sixteenth amendment, an income tax is never a direct tax. The effect of that change in the Constitution was to take a tax upon income derived from sources which had therefore made it a direct tax out of that category and put it in the class of excises, duties, and imposts.-Brushaber v. Union Pacific R. R. Co. (240 U. S. 1-19); Stanton v. Baltic Mining Co. (id. 103–112). Moreover, in the case so much relied upon by the plaintiff, namely, the Union Transit Co. v. Kentucky, the question of whether a State may validly tax one of its residents upon income from sources outside of its jurisdiction, was expressly reserved, and subsequently was answered in the affirmative.-Maguire v. Trefry (253 U. S. 12). The case last cited dealt with the income received and enjoyed by a citizen of the Commonwealth from intangible personal property, the legal title to which was in a nonresident.— Maguire v. Tax Commissioner (230 Mass. 503). Nevertheless the plaintiff insists that before the ratification of the sixteenth amendment, an income tax, as it was clearly not a capitation tax, was either a direct tax, subject to apportionment among the States, or was an excise, which must be uniform throughout the United States (Brushaber v. Union Pacific, supra), and as already pointed out, the amendment does not make taxable anything which could not have been previously taxed. (Evans v. Gore, supra.) Before its adoption he contends that he has demonstrated that Congress could not lay a direct tax upon property in foreign countries, and he asserts that it is equally well settled that its authority to impose duties, imposts, and excises was limited to territories of the United States. In United States v. Rice (4 Wheat. 246), argued by Wirt and Webster, and in which Story delivered the opinion of a unanimous court, it was held that merchandise brought into Castine, while that port was held in the military power of the British Government during the latter part of the war of 1812, was not liable for duties, although it apparently still existed intact when at the end of the conflict the Americans resumed possession. The overwhelming majority of American citizens are also citizens of some one or other of the States. The logic, not only of the Union Transit Co. v. Kentucky, supra, but of many other cases as well, and the conclusion of some of the most eminent text writers, it is argued, negative the power of a State to tax its nonresident citizens upon income derived from property not within its borders, and in the case last specifically referred to, the conclusion was put, in part at least, upon a ground which negatives the existence of an analogous power in the Federal Government. In so contending, it is probable that the existence of certain important practical differences between the relation of a State and of the United States respectively to their nonresident citizens have been lost sight of. One of our American States has little or nothing it can give to one of its citizens who takes up his residence beyond its borders. If he moves to another one of our States, he practically always changes his citizenship at once. There may be rare and exceptional cases in which he does not, but if so, it is always within his power to do it when he will, and it is safe to assume that he would do so when the State of his prior allegiance made an attempt to tax him upon income derived from property located in that in which he is living. When he goes abroad, and takes his property with him, as a practical matter, the power of his State to give him anything in return for his taxes, ceases. He can not call upon it for anything which he |