taken account of under the proper heading in the authorized deductions, nor expenses paid within the year and charged to such allowances for depreciation credited in the current year or in previous years. In ascertaining expenses proper to be included in the deductions to be made under this article, corporations carrying materials and supplies on hand for use should include in such expenses the charges for materials and supplies only to the amount that the same are actually disbursed and used in operation and maintenance during the year for which the return is made.

It is immaterial whether the deductions are evidenced by actual disbursements in cash, or whether evidenced in such other way as to be properly acknowledged by the corporate officers and so entered on the books as to constitute a liability against the assets of the corporation, joint stock company, association, or insurance company making the return.

Losses. The deduction for losses must be in respect of losses actually sustained during the year and not compensated by insurance or otherwise. It must be based upon the difference between the cost value and salvage value of the property or assets, including in the latter value such amount, if any, as has in the current or previous years been set aside and deducted from gross income by way of depreciation as defined in the following section and not been paid out in making good such depreciation.

Depreciation. The deduction for depreciation should be the estimated amount of the loss, accrued during the year to which the return relates, in the value of the property in respect of which such deduction is claimed that arises from exhaustion, wear and tear, or obsolescence out of the uses to which the property is put, and which loss has not been made good by payments for ordinary maintenance and repairs deducted under the heading of expenses of maintenance and operation or in the ascertainment of gross income. This estimate should be formed upon the assumed life of the property, its cost value, and its use. Expenses paid in any one year in making good exhaustion, wear and tear, or obsolescence in respect of which any deduction for depreciation is claimed, must not be included in the deduction for expense of maintenance and operation of the property or in the ascertainment of gross income, but must be made out of accumulative allowances deducted for depreciation in current and previous years.

ARTICLE V.-Inventories

It will be noted that an inventory or its equivalent of materials, supplies, and merchandise on hand for use or sale at the close of each calendar year is essential in the case of certain corporations in order to determine the gross income, and in case of other corporations to determine their expenses of operation. Where such inventory or its equivalent was not taken at the close of the year 1908, a supplemental statement showing such inventory approximately must be submitted with the return on the regular form. Such supplemental statement shall be verified under oath by the treasurer or principal financial officer in submitting the same.

Where any item under any of the deductions is of an unusual nature, a special explanatory note referring to such item shall be made and attached to the form at the appropriate place and made a part thereof by proper reference.

Paragraph 3 of said section 38 also provides:

And said tax shall be computed upon the remainder of said net income of such corporation, joint stock company or association, or insurance company, for the year ending December thirty-first, nineteen hundred and nine, and for each calendar year thereafter; and on or before the first day of March, nineteen hundred and ten, and the first day of March in each year thereafter, a true and accurate return under oath or affirmation of its president, vice-president, or other principal officer, and its treasurer or assistant treasurer, shall be made by each of the corporations, joint stock companies or associations, and insurance companies, subject to the tax imposed by this section, to the collector of internal revenue for the district in which such corporation, joint stock company or association, or insurance company, has its principal place of business, or, in the case of a corporation, joint stock company or association, or insurance company, organized under the laws of a foreign country, in the place where its principal business is carried on within the United States, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe.

Each return so made is required to set forth:

(a) The total amount of the paid-up capital stock of such corporations, joint stock companies or associations, or insurance companies, outstanding at the close of the year;

(b) The total amount of bonded and other indebtedness of such corporation, joint stock company or association, or insurance company, at the close of the year;

(c) The gross amount of the income of such corporation, joint stock company or association, or insurance company, received during the year from all sources, and if organized under the laws of a foreign country, the gross amount of its income received within the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia.

Such returns are also required to set forth the items claimed as deductions (Article IV), also the net income after such deductions have been made.

ARTICLE VI

Under the authority conferred by this act forms of returns have been prescribed, in which the various items specified in the law are to be stated.

Blank forms of this return will be mailed to collectors and should be furnished to every corporation, not expressly excepted, on or before January 1, 1910, and on or before January 1 of each year thereafter. Failure on the part of any corporation, joint stock company, association, or insurance company liable to this tax to receive a blank form will not

excuse it from making the return required by law, or relieve it from any penalties for failure to make the return in the prescribed time. Corporations not supplied with the proper forms for making the return should make application therefor to the collector of internal revenue in whose district is located its principal place of business. Each corporation should carefully prepare its return so as to fully and clearly set forth the data therein called for.

Bookkeeping.-No particular system of bookkeeping or accounting will be required by the Department. However, the business transacted by corporations, joint stock companies, associations, or insurance companies must be so recorded that each and every item therein set forth may be readily verified by an examination of the books and accounts, where such examination is deemed necessary.

Calendar year.-As the law specifically provides that the tax imposed shall be computed on the net income during each "calendar year" returns of income based on any period other than the calendar year cannot be accepted.

Corporations organized during the year or going into liquidation during the year should nevertheless render a sworn return on the prescribed form. ROYAL E. CABELL, Commissioner.

Approved:

FRANKLIN MACVEAGH,

Secretary of the Treasury.

Since the date of the explanation given above, the Treasury Department has been called upon to render decisions on various questions not fully elucidated before. These decisions have been gathered in a synopsis issued by the Commissioner of Internal Revenue under date of December 5, 1911, of which the text is given below, with the exception of paragraphs 83-94, inclusive, and 96 to the end, which are quoted earlier in this volume in Chapter XXII, "The Corporation Tax Law and Depreciation."

Classes of Corporations, etc., Subject to Tax

1. The tax imposed by the act applies to all corporations, joint stock companies, and associations, and every insurance company except those specifically exempted, without reference to the kind of business carried on.

2. Every corporation, etc., not specifically enumerated as exempt shall make the return required by law, although its net income during the year may not have exceeded $5,000. (Opinion Attorney-General, January 24, 1910.)

3. Corporations claiming special exemption should nevertheless make return (in blank, if desired), accompanied by a statement setting forth the ground on which exemption is claimed. Failure to receive blanks upon which to make return is no excuse for delinquency in making return, as there is no duty imposed upon the Government to furnish corporations with such blanks.

4. Charitable institutions supported by voluntary contributions or State appropriations are held to be exempt from the payment of the special excise tax on corporations, but should file a return in blank as provided in paragraph 3 hereof.

5. Corporations, etc., organized during the year or going into liquidation during the year should nevertheless render a sworn return on the prescribed form. The tax imposed, however, does not apply to corporations which went out of existence prior to the passage of the act (August 5, 1909). 6. Where company has dissolved and the required return is not made by its officers, such return will be prepared by Commissioner. (T. D., 1736.)

7. Where corporation has gone into bankruptcy, returns in such cases to be made by trustee in bankruptcy.

8. Railroad companies operating leased or purchased lines to include all receipts derived therefrom, and if bonded indebtedness has been assumed, may deduct interest thereon to an amount not exceeding its own paid-up capital stock. If such subsidiary companies receive income in the way of rentals, etc., return to be also made by such companies.

9. Corporations, etc., organized under the authority of the United States or any State or Territory thereof, or Alaska, or the District of Columbia, to include in their returns not only the income derived from the business carried on within the confines of the United States, but income received from business transacted in any foreign country as well. 10. Corporations having branch or subsidiary companies to include in their returns the income of all such companies when no distinction is made in operating and accounting by reason of the separate incorporation of such subsidiary companies; otherwise a return by each corporation should be made.

11. Foreign companies having several branch offices in the United States should each designate one of such branches as its principal office and should also designate the proper officers to make the required return.

12. Where a consolidation of two or more corporations has been effected during the year, and each or any such corporation subsequent to such consolidation collects prior existing debts, each such corporation should make separate return and include therein all such collected debts, as also all income received during the year prior to the date of consolidation.

13. "Principal place of business" is held to mean the principal office where the company keeps its books, from which the required return is to be prepared, and not necessarily the place where the operating plant is located.

14. As the law specifically provides that the tax imposed shall be computed on the net income during each calendar year, returns of income based on any period other than the calendar year cannot be accepted.

15. Full amount of stock, as represented by the par value of the shares issued, to be regarded as the paid-up capital stock, except when such stock is assessable on account of deferred payments, in which case the

amount actually paid on such shares will constitute the actual paid-up capital stock of the corporation.

16. Capital stock held to include both preferred and common stock. 17. Surplus and undivided profits not to be included in capital stock. 18. Holding companies known as "voting trusts," receiving only dividends on stock held, and having no capital stock, etc., not liable.

19. Mutual savings banks having no capital stock not liable to tax imposed. (Opinion Attorney-General, February 14, 1910.)

20. Coöperative dairies not issuing stock and allowing patrons dividends based on butter fat in milk furnished not liable.

21. Foreign steamship companies having no office in the United States, whose vessels only occasionally touch at ports in the United States, not regarded as doing business in this country within the meaning of the

statute.

22. Companies organized in Porto Rico and not engaged in business in the United States not subject to tax.

23. Corporations owning sugar or other plantations and disposing of the products thereof not entitled to exemption as agricultural organizations. 24. Corporations organized to sell provisions, etc., to stockholders and others not exempted.

25. Corporations organized for the purpose of holding real estate to make return of income derived from the property so held.

26. Corporations going into liquidation during any tax period may, at the time of such liquidation, prepare a "final return" covering the business done during the fractional part of the year during which they were engaged in business, and immediately file the same with the collector of the district in which the corporation has its principal place of business.

27. Corporations organized for the purpose of insuring against death, or injury by accident, or against damage to property by hail, storm, or lightning, however maintained, are held to be insurance companies, and unless they may be properly classed as "fraternal beneficiary organizations operating under the lodge system," must make returns of annual net income. (T. D., 1738.)

28. Corporations engaged in agricultural or horticultural pursuits for profit are liable under the law to make returns and to pay the special excise tax thereby shown to be due. Agricultural and horticultural associations specifically enumerated as exempt are held to be such associations as county fairs or like organizations, not themselves engaged in such pursuits, but which, by means of awards, etc., are intended to encourage better production, and no part of whose net income inures to the benefit of any private stockholder or individual. (T. D., 1737.)

29. Fruit growers' associations whose purpose is to promote the mutual benefit of their members in growing, harvesting, and marketing their products, and which are not organized for profit and have no capital stock represented by shares, and whose income is derived wholly from membership fees, dues, and assessments to meet necessary expenses, are not liable.