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assessments, hence its income does not consist“ solely of assessments, dues and fees.” L. 0. 432, 574, 469 and S. 166.

You are accordingly advised that the M organization and similar organizations are mutual insurance companies within the purview of the Revenue Act of 1918, subject as such to capital stock tax computed in accordance with the provisions of section 1000 (c) and to tax on the issuance of insurance policies under section 503.

CARL A. MAPES, Solicitor of Internal Revenue.

SECTION 233.-GROSS INCOME DEFINED. SECTION 233, ARTICLE 541: Gross income.

7-21-1453 (Also Section 326, Article 831.)

0. D, 811 No taxable income accrues to a railroad corporation from a mere book entry charging construction account and crediting income account due to charging rental on its equipment such as locomotives, cars, etc., when used temporarily by the corporation for its construction work, as permitted under the Interstate Commerce Commission's classification. Neither will the company be allowed to include in its assets such amount of rental charged to capital account for the purpose of determining invested capital.

SECTION 233, ARTICLE 541: Gross income.

(See 13-21-1533; sec. 234, art. 561.) Interest on loans by parent corporation to subsidiary accrued but not paid. (Act of 1909.)

SECTION 233, ARTICLE 544 : Sale and retirement

22–21-1665 of corporate bonds.

O. D. 936 (Also Section 234, Article 563.)

Where bonds mature serially, a proper proportion of the total discount and expenses should be allocated to each series and each series then treated as a separate unit. The deduction applicable to each series should be prorated equally over the life of the bonds constituting the series, provided, however, that if the corporation retired any of the bonds before maturity, the deduction for that year should be increased by an amount equivalent to the amount which would ordinarily be deducted during the succeeding years on account of those particular bonds if they had not been prematurely retired.

SECTION 233, ARTICLE 545: Sale of capital

9-21-1485 assets.

0. D. 832 In the case of a bank the term “ Capital Assets," as used in article 545 of Regulations 45, includes bonds and other securities in which it has invested money received on deposit. Any gain derived by the bank from the sale of such securities must be reported in its gross income and the amount of the gain is to be ascertained in accordance with the rules laid down in that article.

SECTION 233, ARTICLE 545: Sale of capital assets.

13-21-1532 T. D. 3147

CORPORATION EXCISE TAX-ACT OF AUGUST 5, 1909. DECISION OF COURT,

1. INCOME-OBLIGATIONS OF TAXPAYER OUTLAWED AND WRITTEN OFF DURING

TAXABLE YEAR.

The amount of obligations of a railroad corporation carried on the books as liabilities, which became outlawed and were therefore written off during the taxable years 1910 and 1911, represented profit to the company which was properly included in its net income for the year in which so written off. 2. INCOME-PROPERTY SOLD FOR MORE THAN ITS VALI'E JANUARY 1, 1909, BUT

LESS THAN PURCHASE PRICE PRIOR THERETO. The excess of the sale price over the value on January 1, 1909, of property acquired prior to that date and sold during 1909 and 1910 was income for the year in which received, although the sale price was less than the purchase price of the property. 3. INCOME-PROPERTY SOLD FOR AMOUNT EQUIVALENT TO VALUE JANUARY 1, 1909,

BUT GREATER THAN PURCHASE PRICE PRIOR THERETO. The sale in 1910 and 1911 of property acquired prior to January 1, 1909, for an amount equivalent to its market value on that date, but in excess of its purchase price, did not result in income for the purposes of the corporation excise tax of August 5, 1909.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C. To collectors of internal revenue and others concerned:

The appended decision of the United States District Court for the District of Minnesota, Third Division, dated January 10, 1921, in the case of Great Northern Railway Company v. Lynch, Collector, is published for the information of revenue officers and others concerned.

WM. M. WILLIAMS,

Commissioner of Internal Revenue. Approved: March 11, 1921. A. W. MELLON,

Secretary of the Treasury.

is

case of connesota, Tht the United

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE DISTRICT OF MINNESOTA,

THIRD DIVISION, No. 797.

Great Northern Railway Company, plaintiff, v. E. J. Lynch, Collector of

Internal Revenue, defendant.

[January 10, 1921.]

BOOTH, District Judge. The above action came on regularly for trial on the 11th day of March, 1918, each party appearing by its respective counsel. From the admissions and stipulations of the parties then and there made and filed, and from the pleadings of the parties, the court finds as foilows:

FINDINGS OF FACT.

1. That plaintiff is a corporation duly formed and existing under the laws of the State of Minnesota and has a principal office at St. Paul, in Ramsey County, in said State.

2. That E. J. Lynch is and was on all of the dates hereinafter mentioned Collector of Internal Revenue for the District of Minnesota, being duly commissioned as such pursuant to the laws of the United States.

3. That on or about the 16th day of September, 1913, the United States Commissioner of Internal Revenue, presuming to act by virtue of due legal authority conferred by the statutes of the United States Congress, assessed against the plaintiff as a corporation having capital stock and alleged to be engaged in business in Minnesota an additional internal revenue special excise tax of $2,530.93, alleged to be due from said corporation to the United States for the rear ended December 31, 1910, and additional internal revenue special excise tax of $4,· 176.09, alleged to be due from said corporation to the United States for the year ended December 31, 1911, under the Art of Congress of August 5, 1909. That the lists upon which said assessments appeared were thereafter duly transmitted to the defendant, and defendant thereupon made a formal demand for the payment of said tax so assessed.

4. That under date of September 26, 1913, the plaintiff filed with the defend·ant and with the United States Commissioner of Internal Revenue a claim for the remission and abatement of said additional internal revenue special excise taxes.

5. That on or about the 18th day of October, 1913, the plaintiff paid to the defendant the amount of said additional assessment, but at the same time filed with defendant and with the United States Commissioner of Internal Revenue writings stating that each of said payments were made under protest, and with a denial of any legal obligation of liability, and solely for the purpose of avoid,ing the imposition of a penalty and distraint and sale of property, and reserving

to the plaintiff all rights for the recovery of the amounts of each of said payments.

6. That thereafter and on or about the 18th day of October, 1913, the plaintiff filed with the defendant and with the United States Commissioner of Internal Revenue claims for the refunding of $1,734.73 of the additional tax assessed for the year 1910 as aforesaid, and of $1,361.46 of the additional tax paid for the year 1911 as aforesaid.

7. That on or about the 11th day of November, 1913, the Deputy United States Commissioner of Internal Revenue denied plaintiff's claim for refund of said 1910 taxes, except as to $101.98 thereof, and that on or about the 20th day of November, 1913, the said Deputy United States Commissioner denied plaintiff's claim for refund of said 1911 taxes, except as to $57.68 thereof. That plaintiff has still outstanding the balance of said 1910 taxes, amounting to $1,632.75, and the balance of said 1911 taxes, amounting to the sum of $1,303.79, or an aggregate of $2,936.53.

8. That of said additional tax of $2,936.53, assessed and withheld from plaintiff as aforesaid, the sum of $70.01 consisted of an assessment of 1 per cent upon the sum of $7,001.32, entered upon the books of the plaintiff as profit during the year 1910, and consisting of unpaid obligations of plaintiff accruing prior to January 1, 1909, and which were carried as liabilities until they became outlawed, and were then written off of plaintiff's books as aforesaid, and the sum of $44.88 consisted of an assessment of 1 per cent upon the sum of $4,488, entered upon the books of plaintiff as profit during the year 1911, and consisting of unpaid obligations of plaintiff accruing prior to January 1, 1909, and which were carried as liabilities until they became outlawed and were then written off of plaintiff's books in 1911.

9. That of said additional tax of $2,936.53 assessed and withheld from plaintiff as aforesaid, the sum of $376.61 consisted of an assessment of 1 per cent upon receipts of $37.660.67, received by plaintiff as proceeds of the sale of 300 shares of stock of the Swan River Logging Company purchased on September 23, 1899, for $300,000 and entered on its books October 10, 1908, at a value of $75,000. On November 1, 1909, plaintiff received $95,000 for said stock, and the excess over said amount of $75,000, being $20,000, was assessed to plaintiff as income for the year 1909. The said sum of $37.660.67 represents additional proceeds of the sale of said stock received in 1910. No further evidence was offered as to the value of said stock on December 31, 1908.

10. That the balance of said sum of $2,936.53 assessed and withheld as afore. said, to wit, the sum of $2,415.03, consisted of an assessment of 1 per cent upon $244,503.79, being a portion of receipts during the years 1910 and 1911 from sales of real estate, the total excess of selling price over original cost of the same having been pro rated over the period of ownership, and the said sun of $244,503.79 having been treated as the pro rata proportion of said excess for the period since the Act of 1909 became effective. Said real estate had been purchased prior to 1909 and sold at a profit, as above stated, during the years 1910 and 1911, the selling price in all cases being exactly equal to the market value of said real estate as of the 31st day of December, 1908.

CONCLUSIONS OF LAW.

From the foregoing facts the court concludes as follows:

1. That the said sum of $2.445.03 referred to in Finding No. 10 was illegally and improperly assessed against and collected from the plaintiff, and that it was paid by plaintiff under duress and protest, and that claim for refund of said tax filed by plaintiff with the Commissioner of Internal Revenue as required by law was denied prior to the institution of this suit.

2. That the plaintiff is entitled to judgment against the defendant, E. J. Lynch, as Collector of Internal Revenue, for the said sum of $2,445.03, together with interest thereon at the rate of 6 per cent per annum from October 18, 1913, and for its cost herein.

3. That the items of the additional assessment mentioned in Findings 8 and 9 were properly and legally assessed and collected, and the plaintiff is not entitled to judgment against the defendant for or on account of said items amounting to an aggregate of $491.50.

4. That the said sum of $2,445.03 was received by the defendant and by him paid into the Treasury of the United States in the performance of his official duty, and that there was probable cause for his act, and that he acted under the directions of the proper officer of the Government, and that no execution should issue against him, but that the amount to be recovered should be provided for and paid out of the proper appropriation from the Treasury.

Done in open court this 10th day of January, 1921.

SECTION 233, ARTICLE 547: Gross income of

8-21-1468 corporation in liquidation.

0. D. 821 (Also Section 326, Article 831.)

Section 1764, Wisconsin Statutes (1915) provides that the corporate existence of a dissolved corporation shall be continued for the purpose of liquidating its assets and winding up its affairs. It is held, therefore, that profit resulting from the sale of assets of a Wisconsin corporation in process of liquidation is subject to income and excess profits taxes in the same manner as profits derived from the active operation of the corporation.

In such a case the invested capital to be used as a basis in determining the excess profits credit is arrived at in the same manner as invested capital of an active corporation, making due allowance for any amount of capital assets which have been liquidated and returned to the stockholders.

Section 1764, Wisconsin Statutes (1915) provides : * * and when any corporation shall become so dissolved the directors or managers of the affairs of such corporation at the time of its dissolution, by whatever name they may be known, shall, subject to the power of any court of competent jurisdiction to make, in any case, a different provision, continue to act as such during said term and shall be deemed the legal administrators of such corporation with full power to settle its affairs, etc.

Therefore, the responsibility for filing appropriate returns for the corporation and paying taxes shown thereby to be due devolves upon the trustees in liquidation or such other legal administrators as have charge of the property and affairs of the corporation during the period of liquidation. They must make returns of income for such corporation in the same manner and form as an active corporation. Conversely, they are not required to file returns as fiduciaries.

SECTION 233, ARTICLE 549: Exclusions from

17-21-1600 gross income.

T. D. 3153 GROSS INCOME. INVESTED CAPITAL, ARTICLE 549 AND ARTICLE 870, REGULA

· LATIONS 45 (1920 EDITION) AMENDED. Article 549 and * * *, Regulations 45 (1920 edition) are hereby amended to read as follows:

ART. 549. Dxclusions from gross income.-A life insurance company shall not include in gross income such portion of any actual premium received from any individual policyholder as is paid back, or credited to, or treated as, an abatement of premium of such policyholder within the taxable year.

" Paid back” means paid in cash.

“ Credited to” means applied by way of credit so as to reduce the premium received on the policy for the taxable year. It includes dividends applied (a) directly to the payment of the premium for the taxable year; (b) to purchase additional paid-up insurance or annuities; or (c) to shorten the endowment or premium paying period; or (d) left with the company to accumulate at interest. It does not include the amount of divisible surplus annually ascertained and apportioned to deferred dividend policies.

“ Treated as an abatement of premium” means of the premium for the taxable year.

Where the dividend paid back or credited to a policyholder is in excess of the premium received from such policyholder within the taxable year there may be excluded from gross income only the amount of the premium received, and where no premium is received from the policyholder within the taxable year the company is not entitled to exclude from its premiums received from other policyholders any amount on account of such dividend payment.

Approved : April 9, 1921.

SECTION 233, ARTICLE 550 : Gross income of

foreign corporations. (Also Section 213(c), Article 91.)

3–21-1401 T. D. 3111

INCOME FROM SOURCES WITHIN THE UNITED STATES DEFINED.

(1) There is no income from sources within the United States from goods manufactured there unless there is, in the language of section 233(b), both “ manufacture and disposition of goods within the United States.” The Act taxes only income that accrues within the United States.

(2) The mere buying of goods within the l'nited States, with capital furnished from abroad, to be sold abroad, is not a trade or business exercised in the United States so as to subject the purchaser of the goods to income tax. A merchant exercises his trade where he has his principal place of business, viz., where his profits come home to him.

(3) If income be taxed the recipient thereof must have a domicile within the jurisdiction imposing the tax, or the property or business out of which the income issues must be situate within such jurisdiction so that the income may be said to have a situs therein.

(4) Where a corporation purchases goods abroad and sells them within the United States, the profits accruing from such transactions are profits derived from business carried on within the United States and the gross income from such business is income from sources within the United States.

(5) In the case of a partnership organized abroad one of whose members is a resident citizen of the United States and whose business consists in selling abroad goods consigned to it from various parts of the world, including the United States, upon commission, title to the goods never vesting in the firm but passing directly from the consignors to the purchasers, the business of the United States member consisting of soliciting consignments of goods, disbursing proceeds of sales made abroad in payment to consignors in the United States, attending to the shipment of goods, and making advances to consignors on security of bills of lading and express receipts, the funds for

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