TITLE 26-INTERNAL REVENUE CHAPTER I—BUREAU OF INTERNAL REVENUE DEPARTMENT OF THE TREASURY NOTE: T.D. 4884, Feb. 11, 1939, T.D. 4885, Feb. 11, 1939, T.D. 4889, Mar. 8, 1939, and T.D. 4896, Apr. 17, 1939; 4 F.R. 883, 879, 1191, 1655, read as follows: [T.D. 4884] PRESCRIBING REGULATIONS UNDER THE INTERNAL REVENUE CODE FEBRUARY 11, 1939. To Collectors of Internal Revenue and Others Concerned: All regulations (including all Treasury Decisions), prescribed by, or under authority duly delegated by, the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the Internal Revenue Code, to the extent such provision of law is superseded by the Code, are hereby prescribed under, and made applicable to, the provisions of the Code corresponding to the provision of law so superseded, insofar as any such regulation is not inconsistent with the Code. These regulations are issued under authority of the provisions of sections 1928, 2559 and 2606 of the Internal Revenue Code and under such other provisions of the Code as correspond with the several provisions of law under which any regulation or Treasury Decision hereby prescribed and made applicable was issued. [T.D. 4885] H. MORGENTHAU, Jr., Secretary of the Treasury. PRESCRIBING REGULATIONS UNDER THE INTERNAL REVENUE CODE To Collectors of Internal Revenue and Others Concerned: All regulations (including all Treasury Decisions), prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the Internal Revenue Code, to the extent such provision of law is superseded by the Code, are hereby prescribed under, and made applicable to, the provisions of the Code corresponding to the provision of law so superseded, insofar as any such regulation is not inconsistent with the Code. These regulations are issued under authority of the provisions of section 3791 of the Internal Revenue Code and under such other provisions of the Code as correspond with the several provisions of law under which any regulation or Treasury Decision hereby prescribed and made applicable was issued. Approved, February 11, 1939. H. MORGENTHAU, Jr. GUY T. HELVERING, [T.D. 4889] PRESCRIBING REGULATIONS UNDER THE INTERNAL REVENUE CODE To Collectors of Internal Revenue and Others Concerned: All regulations (including all Treasury Decisions), prescribed jointly by the Commissioner of Internal Revenue and the Commissioner of Customs and approved by the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the Internal Revenue Code, to the extent such provision of law is superseded by the Code, are hereby prescribed under, and made applicable to, the provisions of the Code corresponding to the provision of law so superseded, insofar as any such regulation is not inconsistent with the Code. These regulations are issued under authority of the provisions of section 3791 of the Internal Revenue Code and under such other provisions of the Code as correspond with the several provisions of law under which any regulation or Treasury Decision hereby prescribed and made applicable was issued. MAKING CERTAIN INTERNAL REVENUE FORMS APPLICABLE UNDER THE INTERNAL REVENUE CODE To Collectors of Internal Revenue and Others Concerned: Internal Revenue forms prescribed by the Commissioner of Internal Revenue and specifically approved by the Secretary of the Treasury, applicable under any provision of law on the date of the enactment of the Internal Revenue Code (February 10, 1939), to the extent such provision of law is superseded by the Code, are hereby prescribed and made applicable under the provisions of the Code corresponding to the provision of law superseded, insofar as any such form is not inconsistent with the Code. This Treasury Decision is issued under authority of the provisions of section 3791 of the Internal Revenue Code (53 Stat. Part 1) and under such other provisions of the Code as correspond with the several provisions of law under which any form hereby prescribed and made applicable was issued. [SEAL] Approved, April 17, 1939. JOHN W. HANES, Acting Secretary of the Treasury. GUY T. HELVERING, Commissioner of Internal Revenue. T.D. 4886, Feb. 11, 1939, and T.D. 4887, Feb. 11, 1939; 4 F.R. 879, 883, which are similar to the above Treasury Decisions but more limited in their application, appear as notes to Parts 310 and 112, respectively. Subchapter A-Income and Excess-Profits Taxes following adjustment, made in the return, will ordinarily be allowed pursuant to section 501 (i): A deduction from the amount per unit, computed as provided PART 1-EXCESS-PROFITS TAX UN- PART 2-TAX ON UNJUST ENRICH- OF 1936 § 2.13 Computation of extent to which burden of a Federal excise tax was shifted to others. graph, of an amount equal to the amount obtained by dividing by the total number of units determined as provided in paragraph (b) (4), the reimbursement to purchasers made as specified in section 501 (f) (3) with respect to the articles expressed in terms of units determined in each case under (i), (ii), or (iii), respectively, of paragraph (b) (5), and the remainder, if any, in such case shall be the margin per unit. [As amended by (b) Method II: Computation under T.D. 4910, July 1, 1939; 4 F.R. 2792] section 501 (e) (2) of the Act. (6) The difference between each aggregate selling price computed as pro vided in paragraph (b) (1), above, and PART 3-INCOME TAX UNDER THE the deductions specified in paragraph (b) (2), above, shall be divided by the total number of units determined as provided in paragraph (b) (4). The resulting amount per unit shall be the margin per unit except that in the case of a taxable year during all of which the Federal excise tax in question was in effect, the REVENUE ACT OF 1936 § 3.22 (a)-1 What is included in gross income. If property is transferred by a corporation to a shareholder, or by an employer to an employee, for an amount NOTE: The next to the last paragraph of this section was amended by T.D. 4899, May 9, 1939; 4 F.R. 2004. substantially less than its fair market the tax. [As amended by T.D. 4899, May value, regardless of whether the trans- 9, 1939; 4 F.R. 2004] fer is in the guise of a sale or exchange, such shareholder or employee shall include in gross income the difference between the amount paid for the property and the amount of its fair market value to the extent that such difference is in the nature of (1) compensation for services rendered or to be rendered or (2) a distribution of earnings or profits taxable as a dividend, as the case may [As amended by T.D. 4879, be. * Jan. 4, 1939; 4 F.R. 79] NOTE: The first sentence of the second paragraph of this section was amended by T.D. 4879, Jan. 4, 1939; 4 F.R. 79. §3.112 (f)-1 Reinvestment of proceeds of involuntary conversion. If, in a condemnation proceeding, the Government retains out of the award sufficient funds to satisfy liens (other than liens due to special assessments levied against the remaining portion of the plot or parcel of real estate affected for benefits accruing in connection with the condemnation) and mortgages § 3.44-5 Gain or loss upon disposition against the property and itself pays the of installment obligations. * In the case of a decedent who dies possessed of installment obligations, no gain on account of the transmission at death of such obligations is required to be reported as income in the return of the decedent for the year of his death, if the executor or administrator of the estate of the decedent of any of the next of kin or legatees files with the Commissioner a bond on Form 1132 conditioned upon the return as income, by any person receiving any payment in satisfaction of such obligations, of the same proportion of such payment as would be returnable as income by the decedent if he had lived and received such payment. The bond shall be subject to the approval of the Commissioner, shall be in an amount sufficient in his judgment to insure collection of the tax resulting from the fulfillment of the conditions stated in the bond, and shall be filed at the time of filing the return for the decedent for the year of his death or at such later time as may be specified by the Commissioner. The bond on Form 1132 may be (1) executed by a surety company holding a certificate of authority from the Secretary of the Treasury as an acceptable surety on Federal bonds, or (2) secured by deposit of bonds or notes of the United States, or the installment obligations, in such amounts as the Commissioner may deem necessary to insure collection of same, the amount so retained shall not be deducted from the gross award in determining the amount of the net award. [As amended by T.D. 4951, Oct. 5, 1939; 4 F.R. 4202] * (d) [Revoked] * NOTE: The first sentence of the second paragraph of this section was amended and the fourth subparagraph designated "(d)" of the Oct. 5, 1939; 4 F.R. 4202. fifth paragraph was revoked, by T.D. 4951, § 3.274-1 Bankruptcy and receivership proceedings. During a bankruptcy proceeding, or an equity receivership proceeding in either a Federal or a State court, the assets of the taxpayer are in general under the control of the court in which such proceeding is pending, and the collection of taxes can not be made by distraining upon such assets. However, any assets which under applicable provisions of law are not under the control of the court may be subject to distraint. As used in the regulations in this part the term "bankruptcy proceeding" includes proceedings under Chapters I to VII of the Bankruptcy Act, as amended, or under section 74, 75, 77, or 77B, or Chapters X to XIII, of such Act, as amended; and the term “adjudication of bankruptcy" includes, in addition to an adjudication in a proceeding under Chapters I to VII, the approval of a petition as properly filed under section 77 or 77B or Chapter X by a court of competent juris- | protect the priority of the Government diction or the filing of a petition under section 74 or 75 or Chapters XI to XIII with a court of competent jurisdiction. respecting taxes of which he has notice. Bankruptcy courts have jurisdiction under the Bankruptcy Act, as amended, A trustee in bankruptcy (including a to determine all disputes regarding the trustee, receiver, debtor in possession, or amount and validity of taxes of a bankother person designated as in control of rupt or of a debtor in a proceeding the assets of a debtor in any bankruptcy under the Bankruptcy Act, as amended. proceeding by order of the court in which A bankruptcy or receivership proceeding such proceeding is pending) or a receiver does not discharge any portion of a in any receivership proceeding is required claim of the United States for taxes to give notice in writing to the Commis- except in the case of a proceeding sioner of Internal Revenue in Washing-under Chapter X of the Bankruptcy ton, D. C., of the adjudication of bankruptcy or the appointment of a receiver. (See section 274 (a) and § 3.275-1.) Act, as amended, and except to the extent which may be provided in a plan or arrangement duly effectuated in a bankruptcy proceeding; and any portion of a claim of the United States for taxes which has been allowed by the court in which the bankruptcy or rewhich remains unsatisfied after the ceivership proceeding is pending and termination of the bankruptcy or rewith interest as provided in section 298. ceivership proceeding shall be collected (Secs. 62, 274, 49 Stat. 1673, 1725; 26 U.S.C., Sup., 62, 274) [As amended by T.D. 4892, Apr. 3, 1939; 4 F.R. 14701 If Collectors should, promptly after notice of outstanding liability against a taxpayer in any bankruptcy or receivership proceeding, and in any event within the time limited by the appropriate provisions of the Bankruptcy Act, as amended, and the orders of the court in which such proceeding is pending, file claim covering such liability in the court in which such proceeding is pending. Such claim should be filed whether the unpaid taxes involved have been assessed or not, except in cases § 3.274-2 Immediate assessments in where the departmental instructions di-¦ bankruptcy and receivership cases. rect otherwise; for example, where the payment of the taxes is secured by a sufficient bond Such claim should cover the amount represented by the assessment, plus interest at the rate of 6 percent per annum for the period from the date of filing claim by the collector to the date of termination of the bankruptcy or receivership proceeding or to the date of payment if payment is made in full prior to such termi-receivership proceeding is pending, may nation. At the same time claim is filed with the bankruptcy or receivership court, the collector will send notice and demand for payment to the taxpayer together with a copy of such claim. Under section 3466 of the Revised Statutes and section 3467 of the Revised Statutes, as amended, and section 64 of the Bankruptcy Act, as amended, taxes are entitled to the priority over other claims therein stated and the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which bankruptcy or receivership proceeding is pending, may be held personally liable for failure on his part to the Commissioner has determined that a deficiency is due in respect of income tax and the taxpayer has filed a petition with the Board of Tax Appeals prior to the adjudication of bankruptcy or the appointment of a receiver, the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which the bankruptcy or prosecute the taxpayer's appeal before the Board as to that particular determination. No petition shall be filed with the Board for a redetermination of the deficiency after the adjudication of bankruptcy or the appointment of a receiver. Claim for the amount of a deficiency, even though pending before the Board for consideration, may be filed with the court in which the bankruptcy or receivership proceeding is pending without awaiting final decision of the Board. In case of final decision of the Board before the termination of the bankruptcy, debtor, or receivership proceeding, a copy of the Board's decision may be filed by the Commissioner with the court in | U.S.C., Sup., 62, 274) [As amended which such proceeding is pending. by T.D. 4892, Apr. 3, 1939; 4 F.R. 1470] A While the Commissioner is required § 3.1001-5 Limited partnerships. by section 274 to make immediate assess- limited partnership is classified for the ment of any deficiency, such assessment is not made as a jeopardy assessment purpose of the Act as an ordinary partwithin the meaning of section 273, as nership, or, on the other hand, as an amended by section 819 (a) and (e) of association taxable as a corporation, dethe Revenue Act of 1938, and conse-pending upon its character in certain quently the provisions of that section do material respects. If the organization is not apply to any assessment made under not interrupted by the death of a general section 274. Therefore, the notice of partner or by a change in the ownership the deficiency provided for in section of his participating interest, and if the 273 (b) will not be mailed. Although management of its affairs is centralized such notice will not be issued, neverthe-in one or more persons acting in a repreless a letter will be sent to the taxpayer, sentative capacity, it is taxable as a coror to the trustee, receiver, debtor in pos-poration. For want of these essential session, or other person designated by characteristics, a limited partnership is to the court in which the bankruptcy or be considered as an ordinary partnership characteristics receivership proceeding is pending as in notwithstanding other control of the assets of the debtor, notifying him in detail how the deficiency was computed, that he may furnish evidence showing wherein the deficiency is incorrect, and that upon request he will be granted a hearing with respect to such deficiency. If after such evidence is submitted and hearing held any adjustment appears necessary in the deficiency, appropriate action will be taken. A copy of the notification letter will be attached to the assessment list as the collector's authority for filing claim in any bankruptcy or receivership pro ceeding. If any portion of the claim allowed by the court in a bankruptcy or receivership proceeding remains unpaid after the termination of such proceeding, the collector will send notice and demand for payment thereof to the taxpayer. Such unpaid portion with interest as provided in section 298 may be collected from the taxpayer by distraint or proceeding in court within 6 years after the termination of the bankruptcy, debtor, or receivership proceeding. Extensions of time for the payment of such unpaid amount may be granted in the same manner and subject to the same provisions and limitations as provided in sections 272 (j), as amended by section 816 of the Revenue Act of 1938, and 297. (See § 3.272-3.) This section of the regulations deals only with immediate assessments provided for in section 274 and the procedure in connection with such assessments. (Secs. 62, 274, 49 Stat. 1673, 1725; 26 conferred upon it by local law. The Uniform Limited Partnership Act has been adopted in several States. A limited partnership organized under the provisions of that Act may be either an association or a partnership depending upon whether or not in the particular case the essential characteristics of an association exist. (Secs. 62, 1001, 49 Stat. 1673, 1756; 26 U.S.C., Sup., 62, 1696) [As amended by T.D. 4894, Apr. 7, 1939; 4 F.R. 1555] § 3.1001-6 Partnership associations. A partnership association of the type authorized by the statutes of several states, such, for instance, as those of the State of Pennsylvania (Purdon's Penna. Stat. Ann. (Perm. Ed.), Title 59, ch. 3), having by virtue of the statutory provisions under which it was organized, the characteristics essential to an association within the meaning of the Act, is taxable as a corporation. (Secs. 62, 1001, 49 Stat. 1673, 1756; 26 U.S.C., Sup., 62, 1696) [As amended by T.D. 4894, Apr. 7, 1939; 4 F.R. 15551 PART 5-EXCESS PROFITS ON NAVY NOTE: This part was partially superseded by Part 17 but it remains in effect to the extent set forth in § 17.20. § 5.10 Credit for Federal income taxes. For the purpose of computing the amount of excess profit to be paid to the United |