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at the time of the enactment of the Revenue Act of 1918. Section 327 of the 1918 Act reads in part as follows:

That in the following cases the tax shall be determined as provided in section 328:

(b) In the case of a foreign corporation.

Congress further provided for the determination of profits tax in the cases specified in section 327 under section 328 in the following

manner:

(a)

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In the case of a foreign corporation the tax shall be computed without deducting the specific exemption of $3,000 either for the taxpayer or the representative corporations.

The taxpayer contends that, in the various sections relating to the profits tax preceding section 327, Congress used language clearly embracing both foreign and domestic corporations, specifically mentioning foreign corporations in connection with the tax imposed by section 301, and that subsection (b) of section 327 was for the purpose of bringing foreign corporations within the class of corporations entitled to claim the benefits of the relief provisions of the Act. It further contends that sections 327 and 328 are relief provisions by which Congress was seeking to prevent inequality in taxation due, among other things, to inability satisfactorily to determine invested capital, and where, due to abnormal conditions affecting invested capital or income, exceptional hardship would be worked upon corporate taxpayers.

The Commissioner contends that, notwithstanding the provisions of sections 301, 311, 312, etc., section 327 (b) is mandatory and requires that the profits tax of every foreign corporation shall in every case be computed under section 328, subject to the provisions of section 302.

The question before the Board is, What did Congress really intend to direct? We must seek this intention from the Act taken as a whole and the provisions of the law relating to this question as they existed at the time of the enactment of the Revenue Act of 1918. Section 207 of the Revenue Act of 1917, after defining invested capital, provided:

In the case of a foreign corporation or partnership or of a non-resident alien individual the term "invested capital" means that proportion of the entire invested capital, as defined and limited in this title, which the net income from sources within the United States bears to the entire net income.

Section 326 of the Revenue Act of 1918, so far as this question is concerned, defines invested capital of corporations in substantially the same manner as section 207 of the Revenue Act of 1917, except that the 1918 Act, as finally enacted, omitted entirely the provision

for the determination of the invested capital of foreign corporations, and provided in section 327, "That in the following cases the tax shall be determined as provided in section 328:

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(b) In the

By reference to the legislative history of the Revenue Act of 1918, it appears that section 326 of House Bill 12863, as passed by the House, contained the following provision in subsection (d): "In the case of a foreign corporation the term invested capital' includes only its invested capital used or employed in the United States." Section 327 of that bill contained no provision relative to foreign corporations.

Upon consideration the Senate Finance Committee struck out of the bill subsection (d) of section 326 relative to invested capital of a foreign corporation and amended section 327 relative to cases in which the tax should be computed under section 328 by adding thereto subsection (b) "In the case of a foreign corporation." The bill, as amended by the Finance Committee, was passed by the Senate and went to the Conference Committee of the House and Senate. The conference report relating to this matter stated:

Amendent No. 262: This amendment strikes out the definition provided in the House bill of the invested capital of a foreign corporation (see amendment No. 263), makes clerical changes in the method of computing the invested capital for a fractional part of a year, and defines the average invested capital for the pre-war period; and the House recedes.

Amendment No. 263: The House bill in the so-called relief provisions" provided that in certain specified cases the invested capital of a corporation shall be the amount which bears the same ratio to the net income of the corporation for the taxable year as the average invested capital for the taxable year of representative corporations engaged in a like or similar trade or business bears to their average net income for such year.

The Senate amendment increases the classes of cases in which the tax is to be fixed by reference to the experience of representative corporations; includes therein all foreign corporations (see amendment 262), and provides that in such cases the tax shall be the amount which bears the same ratio to the net income of the taxpayer (in excess of the specific exemption of $3,000) for the taxable year as the average tax of representative corporations engaged in a like or similar trade or business bears to their average net income (in excess of the specific exemption of $3,000) for such year. The House recedes with amendments:

The amendments following the above quotation do not relate to the question here involved.

From the foregoing it appears that it was the intention of Congress that the profits tax of domestic corporations should be computed under section 301 and that the profits tax of all foreign corporations should be computed under the provisions of section 328.

It is apparent from the language of section 302 that its provisions were not intended to apply to the tax computed under the provisions

of section 328. Since the profits tax of a foreign corporation must be computed under the provisions of section 328, the Commissioner erred in applying the provisions of section 302 in his determination. of the deficiency involved in this appeal.

Docket No. 3901.

APPEAL OF JOHN W. BAILEY.

Submitted November 2, 1925. Decided January 16, 1926.

Upon the evidence submitted, held, that the taxpayer did not
realize a profit in the years 1919 and 1920 upon the sale of certain
stock of which he had made an absolute gift prior to the date of
the sale, and that his returns for the years 1919 and 1920 were
not willfully false and fraudulent with intent to evade the tax by
reason of his failure to report as income to him the difference be-
tween the cost of the stock to him and the price at which it was
sold by the donees.

W. D. Jamison and Paul E. Shorb, Esqs., for the taxpayer.
Bruce A. Lowe and C. H. Curl, Esqs., for the Commissioner.

Before JAMES, LITTLETON, SMITH, and TRUSSELL.

This is an appeal from the determination of deficiencies in income tax for the calendar years 1919, 1920, and 1921, in the amounts of $17,663.02, $5,596.10, and $314.84, respectively, and 50 per cent ad valorem fraud penalty for the calendar years 1919 and 1920, in the amounts of $8,831.51 and $3,212.14, respectively. Only the deficiencies including penalties for the years 1919 and 1920 are in controversy. The questions presented are: (1) Whether an alleged profit arising from the sale of certain stock constituted income to the taxpayer or to six other individuals to whom he claims to have made gifts of stock prior to the sale thereof; and (2) whether the taxpayer willfully filed false and fraudulent returns with intent to evade the tax for each of the years 1919 and 1920 in failing to include therein as income to him the alleged profit resulting from the sale of the stock.

FINDINGS OF FACT.

Taxpayer is a resident and citizen of Battle Creek, Mich., where he has been engaged for many years in the practice of law. Prior to July 17, 1919, he was the owner of 160 shares of common capital stock of the Consolidated Press Co. at Hastings of the par value of $100 per share. For many years he had rendered financial assistance to his five sisters, three of whom had always lived at his home. For some weeks prior to July 17, 1919, taxpayer talked with his wife

and five sisters and made known to them the fact that he was making them a gift of certain shares of the stock owned by him in the Consolidated Press Co. On July 17, 1919, he transferred and conveyed by gift and delivery to his wife, five sisters and his private secretary shares of stock of the Consolidated Press Co., as follows:

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At the time of delivery of the said shares of stock, taxpayer executed to each of the donees a bill of sale of equal import, except as to name and number of shares transferred, the bill of sale executed to his wife, Lillian C. Bailey, being in words and figures as follows:

KNOW ALL MEN BY THESE PRESENTS, that I, JOHN W. BAILEY of the City of Battle Creek in the County of Calhoun and State of Michigan, party of the first part, for and in consideration of the sum of One Dollar ($1.00), lawful money of the United States, to me paid by LILLIAN C. BAILEY, of the same place, party of the second part, the receipt whereof is hereby acknowledged, have bargained and sold, and by these presents do sell, grant and convey unto the said party of the second part, her heirs, executors, administrators or assigns, the following,

70 Shares of the face value of $100.00 each, of the capital stock of Consolidated Press Company;

TO HAVE AND TO HOLD the same unto the said party of the second part, her heirs, executors, administrators and assigns, FOREVER.

And the said party of the first part for himself, his heirs, executors and administrators, does covenant and agree to and with the said party of the second part, her heirs, executors, administrators and assigns, to WARRANT AND DEFEND the sale of said stock hereby made, unto the said party of the second part, her heirs, executors, administrators and assigns against all and every person or persons whatsoever.

Neither at the time nor prior to the date of the gifts of stock had there ever been made to the taxpayer or the stockholders of the Consolidated Press Co. a definite offer to purchase the stock of that company, nor had the taxpayer or the other stockholders of the Consolidated Press Co. made any offer to sell their stock in that company. On July 17, 1919, taxpayer was advised by H. B. Sherman, the principal officer and owner of 70 per cent of the entire capital stock of the Consolidated Press Co., who resided at Hastings, Mich., that the E. W. Bliss Co., of Brooklyn, N. Y., had informed him that they were desirous of having a conference in New York for the purpose of discussing the matter of a possible purchase by them of the plant of the Consolidated Press Co., and requested taxpayer

to go to New York with him. Taxpayer accompanied Sherman to New York about July 20, where, after a conference lasting until July 22, an agreement was signed by H. B. Sherman, who held power of attorney to act for other stockholders, and the E. W. Bliss Co., the agreement providing as follows:

Mr. Sherman agrees:

I.

That, on the 28th day of July, 1919, he will sell and deliver to the Company One thousand nine hundred and sixty (1,960) shares of the Capital stock of Consolidated Press Company, a Corporation created and existing under the laws of the State of Michigan, of the par value of One hundred and ninety six thousand dollars ($196,000.00) all in negotiable form duly indorsed in blank and properly stamped for transfer.

II.

That, on said 28th day of July, 1919, Mr. Sherman will deposit with the Equitable Trust Co. of the City of New York, Two thousand and forty (2,040) shares of said Consolidated Press Co., of the par value of Two hundred and four thousand dollars ($204,000.00), all in negotiable form, duly indorsed in blank and properly stamped for transfer, and will also execute and deliver to said Trust Company, the document hereto attached marked "A.”

III.

The 1,960 shares referred to in paragraph I above and the 2,040 shares referred to in paragraph II above together, constitute all the shares of stock of said Consolidated Press Company.

The Company agrees in consideration of Mr. Sherman selling and delivering the stock referred to in paragraph I above and depositing the stock referred to in paragraph II above and of the guarantees and agreements of Mr. Sherman hereinafter set forth.

IIII.

That, it will simultaneously with the delivery to it of the shares described and specified in paragraph I, and the delivery to the Equitable Trust Company of the shares and agreement marked "A," referred to in paragraph II, pay to Mr. Sherman the sum of Nine hundred and eighty thousand dollars ($980,000.00) in payment for the shares referred to in paragraph I.

As a part of the consideration for the payment to be made to him by the Company as provided in paragraph IIII, Mr. Sherman agrees and guarantees to the Company

(a)

That, the Consolidated Press Company is a Corporation duly organized and existing under the laws of the State of Michigan with a Capital stock of Four hundred Thousand Dollars ($400,000.00) divided into 4,000 shares of the par value of $100.00 each, all of which stock has been duly issued, full paid and nonassessable.

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