30. Corporations engaged in growing fruits, vegetables, and the like. products for profit, and distributing such profits among their members on the basis of the capital invested, are liable and must make returns and pay taxes, if any are found to be due. (T. D., 1737.)

31. Associations or trusts voluntarily formed by parties at interest and not organized "under the laws of the United States or of any State or Territory thereof, or of the laws applicable to the District of Columbia or Alaska," are not corporations within the meaning and intent of the law, and are not liable. (United States Supreme Court opinion in Amory Eliot v. James G. Freeman, et al., No. 448.)

32. National banks do not come within any of the exemptions named in the act.

33. “Agricultural organizations" held not to come within the statutory exemption, unless their chief object is the promotion or advancement of agricultural interest, and no part of the net income inures to the benefit of their stockholders.

34. Mutual Hall Association regarded as an insurance company and not as an agricultural association, and therefore liable to tax.

35. Exemption in favor of fraternal beneficiary associations does not apply to mutual fire insurance companies.

36. Limited partnerships, if organized for profit and having a capital stock represented by shares, although no "certificates of stock" are issued, are liable to the tax imposed. (Opinion Attorney-General, February 14, 1910.)

37. Interest received on Government bonds to be included in gross in(Opinion Attorney-General, January 13, 1910.)

come.

38. Returns should be signed and verified by two of the officers designated in the law. Signing of one person holding two such offices not permitted. Agents for foreign steamship companies may sign the required returns if so authorized by their companies.

39. Returns not required to have corporate seal affixed.

40. Returns filed with deputy collector regarded as having been filed with collector.

41. No form of protest prescribed. Any form of protest sufficient if filed before payment of tax. Right of protest not to be denied.

Inventories, Accounts, etc.

42. Where an 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 submitting the same. (T. D., 1578.)

43. Profits realized on sale of real estate during the year, also increase in value of unsold property, if taken up on the books of the corporation, to be included in income.

44. Cost of manufactured articles, or articles in process of manufacture, held to include original cost of materials used, plus cost of labor, etc.

45. Mortgaged real estate should be inventoried at its full value and amount of mortgage reported as indebtedness.

46. Receipts from sale of patent rights to be included in income. 47. No particular system of bookkeeping or accounting will be required by the department. However, the business transacted by corporations, etc., 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.

48. Any increase in the value of the capital assets, as determined by a physical revaluation and taken cognizance of by the corporation in book entries, is gain, and must be accounted for as income for the year in which such increase is so recognized and recorded.

Deductions, Expenses, etc.

49. 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, etc., making the return.

50. Mortgage indebtedness on real estate, if assumed by the corporation acquiring such real estate, to be included in the indebtedness of the corporation. But if not so assumed and remains only as a lien on the property, interest paid thereon may be deducted as a charge "made as a condition to the continued use or possession of the property." (Opinion Attorney-General, February 21, 1910.)

51. Cost of erecting building, if included in lease under which property is held by company, is a proper deduction, to be prorated according to time fixed by lease.

52. General expenses, such as coal, ship stores, etc., of foreign steamship companies, to be prorated as provided in act for interest deductions.

53. Amount received by nursery companies from sales of trees, etc., less amount expended for seedlings and young trees, to be included in gross income. Amount expended for labor, salesmen, etc., to be deducted as

expenses.

54. Commissions allowed salesmen, paid in stock, may be deducted as expense if so charged on books.

55. Sales of stock and bonds are regarded as sales of capital assets and should be so accounted for. (Art. II, Reg. 31.) But proceeds derived from sale of bonds used in defraying ordinary and necessary expenses are a proper deduction in determining the company's net income.

56. Stock issued in payment of property purchased represents capital investments and notes issued during the year represent indebtedness. Corporate funds applied to the payment of outstanding notes not a proper deduction in ascertaining net income.

57. Amounts expended in additions and betterments which constitute an increase in capital investment not a proper deduction.

58. Dividends received by corporations on stock of other corporations whose net income does not exceed $5,000 is nevertheless a proper deduction under the law. (Opinion Attorney-General, January 24, 1910.)

59. Dividends received on stock of foreign corporations not subject to tax not a proper deduction.

60. Dividends paid employees in lieu of wages not proper deduction as

expenses.

61. Royalties on patent rights to be reported as income. Allowance for depreciation of patents expiring during year, however, will be allowed.

62. In the case of lands bought prior to January 1, 1909, and sold during any subsequent year, the profits arising from such sale, if no accounting of increased value of land was made in returns for previous years, should be prorated in accordance with the number of years the land was held by the corporation and the number of years the law was in effect.

63. Banks paying taxes assessed against their stockholders because of their ownership of the shares of stock issued by such bank cannot deduct the amount of tax so paid in making their return for the special excise tax on corporations.

64. Amounts paid for pensions to retired employees, or to their families or others dependent upon them, or on account of injuries received by employees, are proper deductions as "ordinary and necessary expenses"; gifts or gratuities to employees in the service of a corporation are not properly deductible in ascertaining net income. Donations made for purposes connected with the operation of the property, when limited to charitable institutions, hospitals, or educational institutions, conducted for the benefit of its employees, or their dependents, shall be proper as a deduction under the same head.

65. Where allowances on account of salaries are deemed excessive and for the purpose of evading the tax due, investigation will be made, and if the facts warrant, prosecution will follow.

66. Interest paid on time deposits and deposits subject to check constitutes a proper deduction from the amount of gross income during the year.

67. Interest on portions of bonded or other indebtedness bearing different rates of interest may be deducted from gross income during the year, provided the aggregate amount of such indebtedness does not exceed the paid-up capital stock of the corporation.

68. Interest paid during the year on notes given prior to January 1, 1909, to be prorated. But interest on notes given in 1909, and payable subsequent to December, 1909, unless charged on the company's books, is not a proper deduction from the income of that year.

69. Interest, taxes, or other items allowable as deductions, accruing prior to January 1, 1909, are not allowable deductions from the gross income of years subsequent thereto.

70. Unearned premiums set aside by insurance companies as reserve

not to be included as income until earned, unless the same shall be entered on the ledger as income during the year in which received.

71. Funds set aside by company for insuring their own property not a proper deduction.

72. As the tax imposed is measured by and is not a tax upon the net receipts of corporations, etc., interest received during the year on Government bonds is not a proper deduction from such income in determining the amount of tax due. (Opinion Attorney-General, T. D., 1583.)

73. State, county, or municipal taxes paid during the year a proper deduction in ascertaining the net income of corporations.

74. Import duties or taxes, if included in arriving at cost of goods, are not deductible under the head of taxes paid during the year.

75. Bad debts, if so are proper deductions. be treated as income.

charged off the company's books during the year, But such debts, if subsequently collected, must

76. The net addition to reserves of insurance companies, required by law, may be based on the highest amount of reserves required by any State in which the insurance company does business. (T. D., 1727.)

77. Reserves for taxes cannot be allowed, as the law specifically provides that only such sums as are paid within the year for taxes can be deducted. (T. D., 1727.)

78. Where a corporation or insurance company holds bonds which were purchased at a rate above par, and a proportionate deduction of the value of such bonds is made on its books each year so that the book value shall be the redemption value of the bonds when they become due and payable, the return of annual net income may show the depreciation on account of amortization of such bonds. (T. D., 1727.)

79. Dividends declared by insurance companies are not deductible from gross income under the guise of rebates or otherwise, and such dividends, when applied to the payment of renewal premiums, or to shorten the endowment or premium-paying period, or applied to purchase paid-up additions and annuities, must be considered and accounted for as income.

80. Railroad or other corporations which have leased their properties in consideration of a rental equivalent to a certain rate of interest on its outstanding capital stock and the interest on the bonded indebtedness, and such rental is paid by the lessee directly to the stock and bondholders, should, nevertheless, make a return of annual net income showing the rental so paid as having been received by the corporation.

81. Salaries paid to an officer who is a stockholder, to constitute an allowable deduction, must be a reasonable and fair compensation for the services rendered, regardless of the amount of stock which such officer . may hold, and must have been authorized by the board of directors and made a matter of record on the minute books of the corporation.

82. "Good Will" represents the value attached to a business over and above the value of the physical property, and is such an entirely intangible asset that no claim for depreciation in connection therewith can be allowed.

Publicity

95. A person who as trustee or in any other fiduciary relation has the ownership or possessory right to stock in a corporation is a stockholder in such corporation within the equity of the rule set down in Treasury Decision No. 1665, governing the publicity of returns. (Opinion AttorneyGeneral, December 27, 1910.)

Few decisions have been rendered since the date of the synopsis above given. Among the decisions since rendered was one to the effect that "Dividends declared by Insurance Companies are the dividends referred to in section 38, act of August 5, 1909, as not being deductible from gross income, and when such dividends are applied to the payment of renewal premiums to shorten the endowment or premium-paying period, to purchase paid-up additions and annuities, etc., they must be included and accounted for as income."

Two special decisions relative to the rate of depletion of deposits and the return of cash investments to corporations with respect to natural gas and petroleum properties have been rendered. These two decisions are numbered T. D. 1,754 and 1,755, respectively.

One of the most undesirable features of the corporation tax law is that it requires all corporations, irrespective of their convenience or preëxisting fiscal arrangements, to make their returns and inventories as of December 31st of each year. With the object of securing relief from the burden which is thus unnecessarily put upon the shoulders of the tax payer, the American Association of Public Accountants has been waging a campaign to secure the passage of an amending bill which will permit returns to be made as of the end of each individual fiscal year. Many of the leading commercial and industrial bodies of the country have indorsed the proposal and various bills have been introduced in the House of Representatives and the Senate with the object of bringing about the much-needed reform.

The Treasury Department itself, which for a long time was opposed to the adoption of the fiscal year instead of the calendar year, has now been converted, and at a hearing before the Ways and Means Committee of the House on January 10, 1912, the Commissioner of Internal Revenue stated that it was the opinion of the Treasury Department that the law should be changed.