127), and T. D. 4317 (C. B. X-1, 146) (being regulations prescribed by the Secretary of the Treasury and approved by the President, applicable to the inspection of returns under the revenue act of 1928 and prior revenue acts), is further amended by changing paragraphs 5, 6, 7, 8, and 9 thereof to read as follows: 5. The return of an individual shall be open to inspection (a) by the person who made the return, or by his duly constituted attorney in fact; (b) if the maker of the return has died, by the administrator, executor, or trustee of his estate, or by the duly constituted attorney in fact of such administrator, executor, or trustee; (c) in the discretion of the Commissioner of Internal Revenue, by any heir at law, next of kin, or beneficiary under the will, of such deceased person, upon a showing that such heir at law, next of kin, or beneficiary has a material interest which will be affected by information contained in the return, or by the duly constituted attorney in fact of such heir at law, next of kin, or beneficiary; and (d) in the discretion of the Commissioner of Internal Revenue, and at such time and in such manner as the commissioner may prescribe for the inspection, by an officer of any State having a law imposing an income tax upon the individual, or a tax upon intangible property owned by the individual, measured by the income derived therefrom, upon written application signed by the governor of such State under the seal of the State, designating the officer to make the inspection and showing that the inspection is solely for such State income and/or intangibleproperty tax purposes. 6. A joint return of a husband and wife shall be open to inspection (a) by either spouse for whom the return was made, upon satisfactory evidence of such relationship being furnished, or by his or her duly constituted attorney in fact; (b) if either spouse has died, by the administrator, executor, or trustee of his or her estate, or by the duly constituted attorney in fact of such administrator, executor, or trustee; (c) in the discretion of the Commissioner of Internal Revenue, by any heir at law, next of kin, or beneficiary under the will, of such deceased spouse, upon a showing that such heir at law, next of kin, or beneficiary has a material interest which will be affected by information contained in the return, or by the duly constituted attorney in fact of such heir at law, next of kin, or beneficiary; and (d) in the discretion of the Commissioner of Internal Revenue, and at such time and in such manner as the commissioner may prescribe for the inspection by an officer of any State having a law imposing an income tax upon either spouse or a tax upon intangible property owned by either spouse, measured by the income derived therefrom, upon written application signed by the governor of such State under the seal of the State, designating the officer to make the inspection and showing that the inspection is solely for such State income and/or intangible-property tax purposes. 7. The return of a partnership shall be open to inspection (a) by any individual who was a member of such partnership during any part of the time covered by the return upon satisfactory evidence of such fact being furnished, or by his duly constituted attorney in fact; (b) if a member of such partnership during any part of the time covered by the return has died, by the administrator, executor, or trustee of his estate, or by the duly constituted attorney in fact of such administrator, executor or trustee; (c) in the discretion of the Commissioner of Internal Revenue, by any heir at law, next of kin, or beneficiary under the will, of such deceased person, upon a showing that such heir at law, next of kin, or beneficiary has a material interest which will be affected by information contained in the return, or by the duly constituted attorney in fact of such heir at law, next of kin, or beneficiary; and (d) in the discretion of the Commissioner of Internal Revenue, and at such time and in such manner as the commissioner may prescribe for the inspection by an officer of any State having a law imposing an income tax upon the partnership or upon any member thereof in respect of income therefrom or a tax upon intangible property owned by the partnership, measured by the income derived therefrom, upon written application signed by the governor of such State under the seal of the State, designating the officer to make the inspection and showing that the inspection is solely for such State income and/or intangible-property tax purposes. 8. The return of an estate shall be open to inspection (a) by the administrator, executor, or trustee of such estate, or by his duly constituted attorney in fact; (b) in the discretion of the Commissioner of Internal Revenue, by any heir at law, next of kin, or beneficiary under the will, of the deceased person for whose estate the return is made, upon a showing of material interest which will be affected by information contained in the return, or by the duly constituted attorney in fact of such heir at law, next of kin, or beneficiary; and (c) in the discretion of the Commissioner of Internal Revenue, and at such time and in such manner as the commissioner may prescribe for the inspection, by an officer of any State having a law imposing an income tax upon the estate or upon any beneficiary of the estate in respect of income therefrom, or a tax upon intangible property owned by the estate, measured by the income derived therefrom, upon written application signed by the governor of such State under the seal of the State, designating the officer to make the inspection and showing that the inspection is solely for such State income and/or intangible-property tax purposes. 9. The return of a trust shall be open to inspection (a) by the trustee or trustees, jointly or severally, or the duly constituted attorney in fact of such trustee or trustees; (b) by any individual who was a beneficiary of such trust during any part of the time covered by the return, upon satisfactory evidence of such fact being furnished, or by his duly constituted attorney in fact; (c) if any individual who was a beneficiary of such trust during any part of the time covered by the return has died, by the administrator, executor, or trustee of his estate, or by the duly constituted attorney in fact of such administrator, executor, or trustee; (d) in the discretion of the Commissioner of Internal Revenue, by any heir at law, next of kin, or beneficiary under the will, of such deceased person, upon a showing that such heir at law, next of kin, or beneficiary has a material interest which will be affected by information contained in the return, or by the duly constituted attorney in fact of such heir at law, next of kin, or beneficiary; and (e) in the discretion of the Commissioner of Internal Revenue, and at such time and in such manner as the commissioner may prescribe for the inspection, by an officer of any State having a law imposing an income tax upon the trust or upon any beneficiary of the trust in respect of income therefrom, or a tax upon intangible property owned by the trust, measured by the income derived therefrom, upon written application signed by the governor of such State under the seal of the State, designating the officer to make the inspection and showing that the inspection is solely for such State income and/or intangibleproperty tax purposes. Approved March 22, 1932: HERBERT HOOVER, The White House. OGDEN L. MILLS, Secretary of the Treasury. EXECUTIVE ORDER Inspection of income-tax returns Pursuant to the provisions of section 257 (a) of the revenue act of 1926 and section 55 of the revenue act of 1928, it is hereby ordered that returns may be open to inspection by State officers for State intangible property tax purposes, in accordance and upon compliance with the amendment, bearing even date herewith, to the rules and regulations prescribed by the Secretary of the Treasury and approved by the President, bearing date of April 13, 1926, as amended. HERBERT HOOVER. THE WHITE HOUSE, March 22, 1932. (T. D. 4333) Charges to capital and to expense in the case of oil and gas wells-Restatement of article 223, Regulations 45; article 223, Regulations 45 (1920 ed.); article 223, Regulations 62; article 225, Regulations 65; article 223, Regulations 69; and article 243, Regulations 74 TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To Collectors of Internal Revenue and Others Concerned: Charges to capital and to expense in the case of oil and gas wells.—(a) Items chargeable to capital or to expense at taxpayer's option. (1) Option with respect to intangible drilling and development costs in general: All expenditures for wages, fuel, repairs, hauling, supplies, etc., incident to and necessary for the drilling of wells and the preparation of wells for the production of oil or gas, may, at the option of the taxpayer, be deducted from gross income as an expense or charged to capital account. Such expenditures have for convenience been termed intangible drilling and development costs. Examples of items to which this option applies are all amounts paid for labor, fuel, repairs, hauling, and supplies, or any of them, which are used (A) in the drilling, shooting, and cleaning of wells; (B) in such clearing of ground, draining, road making, surveying, and geological work as are necessary in preparation for the drilling of wells; and (C) in the construction of such derricks, tanks, pipe lines, and other physical structures as are necessary for the drilling of wells and the preparation of wells for the production of oil or gas. In general, this option applies only to expenditures for those drilling and development items which in themselves do not have a salvage value. For the purpose of this option labor, fuel, repairs, hauling, supplies, etc., are not considered as having a salvage value, even though used in connection with the installation of physical property which has a salvage value. Drilling and development costs shall not be excepted from the option merely because they are incurred under a contract providing for the drilling of a well to an agreed depth, or depths, at an agreed price per foot or other unit of measurement. (2) Option with respect to cost of nonproductive wells: In addition to the foregoing option the cost of drilling nonproductive wells may, at the option of the taxpayer, be deducted from gross income as an expense or charged to capital account returnable through depletion and depreciation as in the case of productive wells. (3) Elections once made under these options will control the taxpayer's returns for all subsequent years: Where deductions for depreciation or depletion have either on the books of the taxpayer or in his returns of net income been included in the past in expense or other accounts, rather than specifically as depreciation or depletion, or where capital expenditures have been charged to expense in lieu of depreciation or depletion, a statement indicating the extent to which this practice has been carried should accompany the return. (b) Recovery of optional items, if capitalized. (1) Items returnable through depletion: If in exercising these options, or either of them, the taxpayer charges such expenditures as fall within the options to capital account, the amounts so capitalized, in so far as they are not represented by physical property, are returnable through depletion. For the purposes of this article the expenditures for clearing ground, draining, road-making, surveying, geological work, excavation, grading, and the drilling, shooting and cleaning of wells, are considered not to be represented by physical property, and when charged to capital account are returnable through depletion. (2) Items returnable through depreciation: If in exercising these options, the taxpayer charges such expenditures as fall within the options to capital account, the amounts so capitalized, in so far as they are represented by physical property, are returnable through depreciation. Such expenditures are, amounts paid for wages, fuel, repairs, hauling, supplies, etc., used in the installation of casing and equipment and in the construction on the property of derricks and other physical structures. (3) In the case of capitalized intangible drilling and development costs incurred under a contract, such costs shall be subject to the foregoing segregation for the purposes of determining the depletion and depreciation allowances. (c) Nonoptional items distinguished. (1) Capital items: The option with respect to intangible drilling and development costs in general does not apply to expenditures by which the taxpayer acquires tangible property ordinarily considered as having a salvage value. Examples of such items are the costs of the actual materials in those structures which are constructed in the wells and on the property, and the cost of drilling tools, pipe, casing, tubing, tanks, engines, boilers, machines, etc. The options do not apply to any expenditure for wages, fuel, repairs, hauling, supplies, etc., in connection with equipment, facilities, or structures, not incident to or necessary for the drilling of wells, such as structures for storing or treating oil or gas. These are capital items and are returnable through depreciation. (2) Expense items: Expenditures which must be charged off as expense, regardless of the options provided by this article, are those for labor, fuel, repairs, hauling, supplies, etc., in connection with the operation of the wells and of other facilities on the property for the production of oil or gas. General overhead expense, taxes, and depreciation of drilling equipment, are not considered as capital items, even when incurred during the development of the property. Article 20, Regulations 63 (1922 edition), as amended by T. D. 4183, as amended by T. D. 4283, revoked TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Article 20 of Regulations 63 (1922 edition), approved July 27, 1922, as amended by T. D. 4183, approved July 27, 1928, as amended by T. D. 4283, approved March 15, 1930, is hereby revoked. DAVID BURNET, Commissioner of Internal Revenue. Approved April 11, 1932: OGDEN L. MILLS, Secretary of the Treasury. (T. D. 4335) Estate tax-Transfers Article 18, Regulations 68 (1924 edition), as amended by T. D. 4184, as amended by T. D. 4284, revoked TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: Article 18 of Regulations 68 (1924 edition), approved March 26, 1925, as amended by T. D. 4184, approved July 27, 1928, as amended by T. D. 4284, approved March 15, 1930, is hereby revoked. DAVID BURNET, Commissioner of Internal Revenue. Approved April 11, 1932: OGDEN L. MILLS, Secretary of the Treasury. |