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“Upon receipt of the claims in this office, Revenue Agent Chapin was directed to investigate the books and accounts of this corporation, in order to determine the correctness of claimant's contention. From the report received it appears that this company sustained and charged off in 1906 losses by reason of discount in the sale of bonds, and that it did not claim or take any credit for any part of these items in its returns for 1909 to 1912, inclusive.

“The revenue agent states that if permitted to prorate this loss over the life of the bond, the company would be entitled to increase its deductions each year in the sum claimed, thus decreasing its taxable income in a like amount.

"It appears that this office has in similar cases allowed corporations to deduct each year, up to the year of redemption, a prorated proportion of the amount of discount sustained upon the issuance of bonds, even though such discount had been charged off on its books prior to January 1, 1909."

VI. Thereafter, and on March 13, 1914, the Deputy Commissioner of Internal Revenue reconsidered the above-mentioned claims for refund and disallowed the claims. In his decision of that date denying the above-mentioned claims for refund, it was said:

“Referring to office letter of the 9th instant, relative to the claims of the Chicago & Alton Railroad Co., of Chicago, for the refunding of $574.97 and $574.98, special excise taxes claimed to have been paid in excess for the years 1911 and 1912, respectively, you are advised that after a recent consultation and discussion of the question involved, this office has formed the opinion that where losses suffered by reason of discount in the sale of bonds have been fully charged off, they become a 'closed incident,' and that it would be improper for the corporation to go back and bring forward these losses and prorate them for the purpose of securing a deduction from gross income of the amounts apportionable to the years subsequent to January 1, 1909.

"This office now holds that discounts, to be prorated and so deducted, must be charged off year by year in proportion to the number of years constituting the life of the bonds, and that losses previously charged off must stand as a charge against the income of the year in which so charged off.”


Upon the foregoing findings of fact the court decides, as a conclusion of law, that the plaintiff is not entitled to recover, and its petition should be, and the same is hereby, dismissed.

OPINION. Bootu, Judge, delivered the opinion of the court:

The claimant railroad company in 1906 issued and sold at a discount $11,000,000 refunding bonds and $1,960,000 of equipment notes. The transaction was fully consummated within the above year, and the books of the company disclose the loss under the profit and loss account. Subsequently Congress passed the act of August 5, 1909 (36 Stat. L., 112), the material portions of which are as follows:

“SEC. 38. That every corporation * organized for profit and having a capital stock represented by shares

now or hereafter organized under the of any State or Territory of the United States

shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation

equivalent to 1 per cent upon the entire net income over and above $5,000 received by it from all sources during each year, exclusive of amounts received by it as dividends upon stocks of other corporations

subject to the tax hereby imposed. * Second. Such net income shall be ascertained by deducting from the gross amount of the income of such corporation

received within the year from all sources (first) all the ordinary and necessary expenses actually paid within the year out of income in the mainte







laws *

* *








(T. D. 2628.)

War-revenue tax. Dues paid by members of chambers of commerce exempt from tax imposed by section

701, act of October 3, 1917.


Washington, D. C., January 9, 1918. To collectors of internal revenue and others concerned:

Section 701 of the act of October 3, 1917, provides in part as follows:

That froin and after the first day of November, nineteen hundred and seventeen, there shall be levied, assessed, collected, and paid, a tax equivalent to ten per centum of any amount paid as dues or membership fees (including initiation fees), to any social athletic, or sporting club or organization, where such dues or fees are in excess of $12 per year; such taxes to be paid by the person paying such dues or fees.

Particular attention is called to the fact that the tax is imposed only upon dues or membership feos, including initiation fees, paid "to any social, athletic, or sporting club or organization, where such dues or fees are in excess of $12 per year.” The tax does not attach upon dues paid to chambers of commerce or other business organizations primarily organized and maintained for the furtherance of business interests. Such organizations may have social features without incurring liability to tax, provided such social features are entirely subordinated to the predominant purpose of the organization. Any regulations in conflict herewith are hereby revoked.

DANIEL C. ROPER, Approved:

Commissioner of Internal Revenue. W. G. McAdoo,

Secretary of the Treasury.

(T. D. 2629.)

Fortified wines. Casks, tanks, or cases of wines fortified under act of September 8, 1916, to be con

spicuously marked or labeled.


Washington, D. C., January 7, 1918. To collectors of internal revenue and others concerned:

It has been brought to the attention of this office that many rectifiers have disliculty in determining whether wing used by them

38680°-18—YOL 20-l

in the manufacture of cordials and similar compounds has been fortified under the act of September 8, 1916. It is of primary importance that rectifiers be furnished with this information, for the reason that cordials made with wine fortified under the act of September 8, 1916, are subject to tax as cordials.

Therefore, all casks, tanks, or cases of wine fortified under the act of September 8, 1916, hereafter removed from bonded premises, must be conspicuously marked or labeled with the following legend, in addition to the information called for by regulations No 28, supplement 2, article 10: “Fortified under act September 8, 1916."

Such marks or label should be in reasonable proportion to the size of the container. Where a label is used it shall be pasted to the cask or other container, and secured thereto by five tacks, one in each corner and one in the middle of the label. Where the wine is contained in metal packages, the use of tacks will not, of course, be required.

If after removal from bonded premises such wine is transferred to other containers, the new containers must also bear a similar legend.


Commissioner oj Internal Revenue.
W. G. McAdoo,

Secretary of the Treasury.

(T. D. 2630.)


Withdrawa a' ohol.
Instructions relative to withdrawal of alcohol for use in central denaturing warehouses

from different distilleries under one bond.


Washington, D. (., January 1?, 1918.
To collectors of internal revenue and others concerned:

In order that alcohol intended for use in central denaturing warehouses may be obtained free of tax from different distilleries under one bond, Form 611A may hereafter be given. The bond in such cases will properly describe the distillery warehouses by location and number, and the penal sum of this general bond will be sufficient to cover the tax on all spirits to be withdrawn under a general permit (Form 670A), which will be issued by the collector upon the approval of the above-mentioned bond. Under this permit the proprietor of such central denaturing warehouse may obtain alcohol from time to time from any distillery designated in the permit and within the limits fixed by such perunit. The penal sum of the bond will be computed on the basis of $2.20 per tax gallon.

Upon receipt o permit (Form 670A) th · distiller, when d siring to make withdrawal, will execute an application for regauge and withdrawal on Form 573A (part 1) in duplicate, unless the entral denaturing warehouse is located in another district, in which hatter case it is to be made in triplicat. When properly completed as hereinafter provided on copy will be retained by the collector of the district in which the distillery is located, one copy, in case the warehouse is located in another district, will be forwarded to that district, and one copy in either case stated to the Commissioner of Inte nal Revenue. Upon receipt of such application from the distiller the collector of the district will issue a combined order to the gauger and storekeeper at the distillery for regauge of the alcohol and for delivery of the same for shipment to the designated denaturin warehouse. The storekeeper in such cases will, however, refuse to deliver the alcohol unless the permit (670A) is presented to him, and he will, upon such presentation, carefully enter therein, in ink, the actual quantity of alcohol delivered, but in no cas' will the storekeeper deliver any such alcohol unless the outstanding credit under the permit is sufficient to cover the entire quantity of alcohol applied for. Storekeeper will be held st ictly responsible fo any disregard on their pari of the instructions on this point. The gauger will also certify on this form (573A) that the alcohol secured thereunder has been gauged and found to be a described. The holder of permit (Form 670A) will surrender the same and obtain a new one when the credit the eof is no longer sufficient to cover the quantity of alcohol for which he desires to make application.

In view of the fact that a considerable time will elapse before these forms can be printed and issued by collectors, proprietors of specially bonded warehouses or others will be furnished sample copies from which to prepare forms for thei immediate needs.

DANIEL C. ROPER, Commissioner of Internal Revenue.

(T. D. 2631.) Special excise tax on corporations-Decision of court. Where a railroad company sold bonds and equipment notes at a discount in 1906

and the books show that the loss was entirely charged off under the profit and loss account for 1906, and the company in making returns under the act of August 5, 1909, for purpose of assessment of excise tax for years 1911 and 1912, failed to deduct the proportionate amount of discount sustained, it has no right to claim refund of such amiunt. The petition of claimant for refund of tax dismissed.


Washington, D. C., January 19, 1918. The appended opinion of the Court of Claims of the United States in the case of Chicago & Alton Railroad Co. v. United States is

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