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INTERNAL REVENUE.

(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.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

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 from 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 fees, 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.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

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 difficulty in determining whether wine used by them

38680°-18--VOL 20

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.

DANIEL C. ROPER,

Commissioner of Internal Revenue. Approved: W. G. McAdoo,

Secretary of the Treasury.

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Instructions relative to withdrawal of alcohol for use in central denaturing warehouses

from different distilleries under one bond.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. (., January 17, 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 suflicient 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 permit. 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 part 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 ami'unt. The petition of claimant for refund of tax dismissed.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

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 published for the information of internal-revenue officers and others concerned.

DANIEL C. ROPER, Commissioner of Internal Revenue.

COURT OF CLAIMS OF THE UNITED States. No. 33198.

(Decided Dec. 3, 1917.) Chicago & Alton Railroad Company v. The United States. This case having been heard by the Court of Claims, the court, upon the evidence, makes the following

FINDINGS OF FACT.

1.

Prior to the years 1911 and 1912 the Chicago & Alton Railroad Co. had disposed of, at a discount, refunding bonds of a face value of $11,000,000 and equipment notes of a face value of $1,960,000, which bonds and notes were, during said years, outstanding, not paid, and not yet due.

11.

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Under the rule of administration established by the Commissioner of Internal Revenue for arriving at the net income of corporations in reckoning the tax due under the act of August 5, 1909 (36 Stats., 11-112), where bonds or notes issued by a corporation are disposed of for a price above or less than par, the same being redeemable at par, the profit or loss thereby resulting is required to be prorated yearly during the period for which the bonds or notes are to run.

The commissioner did not, however, extend the above rule to bonds or other indebtedness of corporations issued prior to 1909.

III. The Chicago & Alton Railroad Co., in making its return under the said act of August 5, 1909, for the years 1911 and 1912, failed to deduct the proportionate amount of the discount sustained on the above-mentioned outstanding bonds and notes, and by reason of such failure there was passed against said company and said company paid to the collector of internal revenue for the first district of Ilinois, as taxes due under said act for each of said years, a sum in excess of that which should have been assessed and paid had the proportionate deduction been made, and allowed as a proper deduction by the Treasury Department, amounting to $574.97 for each of the years 1911 and 1912.

The assessments next above stated were voluntarily paid by plaintiff company, not under protest or with notice of intention to test their validity, and not under duress. No claim for refund was made until several months after the tax was paid.

IV. Thereafter, and within two years after the said payments were made, the Chicago & Alton Railroad Co. filed due and formal claims with the Commissioner of Internal Revenue for the refund of $574.97, as amounts paid in excess of those due under the above-mentioned act for each of the years 1911 and 1912.

V. On March 9, 1914, the Commissioner of Internal Revenue, upon consideration of the claims for refund, allowed the same under section 3220, Revised Statutes, and in his decision grantino said allowance made the following findings of fact:

"The claims are based upon the ground that the company in preparing its returns for the years in question failed to deduct, under item 4, what is claimed was the proportion ni the amount of discount sustained upon the issuance of bonds in 1906.

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