Section 8 establishes the rule of evidence that, upon proof that a defendant was producing, importing, manufacturing, dealing in, dispensing, selling, distributing, or giving away, as mentioned in section 1, clause 1, opium or coca leaves, and that a narcotic was found in his possession, he is presumptively guilty of violating the act that then the burden of proof is upon defendant to show affirmatively that he is not one of the class mentioned in section 1 as being required to register, or, if so, that he had registered and paid the special tax. In a prosecution under this act the uncontradicted evidence that defendant obtained the opium found in her possession from a Chinaman, and that she had it for her personal use and consumption, and that she never sold, gave away, or dealt in it in any form was held to overcome the presumption of guilt arising from the possession of opium under section 8 of the act, providing that possession or control of opium shall be presumptive evidence of a violation of the act. (United States v. Wilson, 225 Fed. 82, 1915.)

Held, that section 8 has no relation to the failure of a registered physician to keep a duplicate of an order given by him for the prescribed drugs, or a record of the amount of any such drugs dispensed and distributed by him as required by section 2. (United States v. Charter, 227 Fed. 331, 1915.)

The words "any person not registered" in section 8 of the opium registration act of 1914 do not mean any person in the United States, but refer to the class dealt with by the statute those required to register and one not in that class is not subject to the penalties prescribed by the statute. (United States v. Jin Fuey Moy, 241 U. S. 394, 1916.) 225 Federal 1003, affirmed. See later case between same parties pending in United States Supreme Court.

The provisions of section 8 apply only to the classes of persons required by the act to register and pay the tax. (United States v. Denker, 255 Fed. 339, 1918.)

Under Revised Statutes, section 1025, providing that defects of form, not prejudicing defendant, shall not invalidate indictments, and Harrison Narcotic Act, section 8, relative to negativing exceptions in an indictment, an indictment under sections 1 and 2 of the Harrison Act need not negative exceptions in those sections. (United States v. Loewenthal, 257 Fed. 444, 1919.)

In a prosecution for violation of the Harrison Narcotic Drug Act, section 8, defendant not being charged as a physician or a druggist, and the indictment not negativing the exception of section 6 of the act, it was open to him to show he was merely dispensing medicinal preparations and remedies containing not more than the amount of morphine permitted by section 6. (Stetson v. United States, 257

Fed. 689, 1919.)

See also the case of United States v. Woods, 224 Federal 278, under section 1 of this act.

INCOME, ESTATE, MUNITION MANUFACTURER'S, AND

SPECIAL TAXES.

INCOME TAX-ACT OF SEPTEMBER 8, 1916.

[Repealed by Act of Feb. 24, 1919.]

INCOME DEFINED.

SEC. 2. (a) That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits, and income derived from any source whatever: Provided, That the term "dividends" as used in this title shall be held to mean any distribution made or ordered to be made by a corporation, joint-stock company, association, or insurance company, out of its earnings or profits accrued since March first, nineteen hundred and thirteen, and payable to its shareholders, whether in cash or in stock of the corporation, joint-stock company, association, or insurance company, which stock dividend shall be considered income to the amount of its cash value.

Construction.

Where an income tax law is doubtful, doubt should be resolved in favor of the taxpayer against the Government. (Miller v. Gearin, 258 Fed. 225, 1919.)

Section 2 (a)-Income defined "Stock dividends."

United States District Court of New York. The provision of this section taxing stock dividends to the same extent as cash dividends was attacked as unconstitutional on the grounds that to tax "stock dividends" is to tax capital or principal, and that such a tax may not be imposed except as other direct taxes are laid, namely, by apportionment among the several States according to population. (Macomber v. Eisner, pending in U. S. Supreme Ct. Govt's demurrer overruled, on authority of Towne v. Eisner, in Dist. Ct.)

Section 2 (a)-Income defined.

Where, in 1907, the owner of land leased the same for 23 years under an agreement requiring the tenant to construct an expensive brick building, and on the tenant's default the owner retook possession in 1916, the value of the building can not be deemed income accruing in the year 1917, within this section, for under the lease the title to the building vested in the owner immediately upon construction, and the lessee's default caused the owner a loss. (Miller v. Gearin, 258 Fed. 225, 1919.)

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SECTION 8 (e)—RETURNS.

SEC. 8. (e) Persons carrying on business in partnership shall be liable for income tax only in their individual capacity, and the share of the profits of the partnership to which any taxable partner would be entitled if the same were divided, whether divided or otherwise, shall be returned for taxation and the tax paid under the provisions of this title: Provided, That from the net distributive interests on which the individual members shall be liable for tax, normal and additional, there shall be excluded their proportionate shares received from interest on the obligations of a State or any political or taxing subdivision thereof, and upon the obligations of the United States and its possessions, and all taxes paid to the United States or to any possession thereof, or to any State, county, or taxing subdivision of a State, and that for the purpose of computing the normal tax there shall be allowed a credit, as provided by section five, subdivision (b), for their proportionate share of the profits derived from dividends. And such partnership, when requested by the Commissioner of Internal Revenue, or any district collector, shall render a correct return of the earnings, profits, and income of the partnership, except income exempt under section four of this act, setting forth the item of the gross income and the deductions and credits allowed by this title, and the names and addresses of the individuals who would be entitled to the net earnings, profits, and income if distributed.

The provision of the 1916 act that members of partnerships shall be allowed credit for their proportionate share of partnership gains and profits derived from corporations taxable. on their net income Held, to be a mere declaration of the rule under the 1913 act and not legislative recognition of a change. (U. S. v. Coulby, 251 Fed. 982, affirmed in 258 Fed. 27, 1919.)

SECTION 12 (a)-DEDUCTIONS.

SEC. 12. (a) In the case of a corporation, joint-stock company or association, for insurance company, organized in the United States, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources-

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Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments made to increase the value of any property or estate, and no deduction shall be made or any amount of expense of restoring property or making good the exhaustion thereof

for which an allowance is or has been made: Provided further, That mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable incoure all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, and life insurance companics shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year;

An operating lessee is entitled to the deductions allowed by Sec. 12 (second) of the act of September 8, 1916. (Op. Judge Westenhaver, U. S. D. C., No. Dist. of Ohio, Nov. 3, 1919, unreported, case of Mohawk Mining Co. v. Weiss.)

SECTION 13 (c)-RETURNS CORPORATIONS.

SEC. 13. (c) In cases wherein receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, joint-stock companies or associations, or insurance companies, subject to tax imposed by this title, such receivers, trustees, or assignees shall make returns of net income as and for such corporations, joint-stock companies or associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any income tax due on the basis of such returns made by receivers, trustees, or assignees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody and control;

A trustee of a bankrupt corporation, who is not carrying on its business, but has received funds as a result of a compromise made by him with a foreign corporation of a claim for nonpayment of salary and commissions, is not liable to pay an income tax under this section, since under such section only net income earned by a trustee while operating the business of a bankrupt corporation is taxable. (In re Heller, Hirsh & Co. 258 Fed. 208, 1919.)

SECTION 16-ADMINISTRATIVE.

SEC. 16. "SEC. 3173. It shall be the duty of any person, partnership, firm, association, or corporation, made liable to any duty, special tax, or other tax imposed by law, when not otherwise provided for, (1) in case of a special tax, on or before the thirty-first day of July in each year, (2) in case of income tax on or before the first day of March in each year, or on or before the last day of the sixty-day period next following the closing date of the fiscal year for which it makes a return of its income, and (3) in other cases before the day on which the taxes accrue, to make a list or return, verified by oath, to the collector or a deputy collector of the district where located, of the articles or objects, including the amount of annual income charged with a duty or tax, the quantity of goods, wares, and merchandise, made or sold and charged with a tax;

the several rates and aggregate amount, according to the forms and regulations to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, for which such person, partnership, firm, association, or corporation is liable: Provided, That if any person liable to pay any duty or tax, or owning; possessing, or having the care or management of property. goods, wares, and merchandise, article or objects liable to pay any duty, tax, or license, shall fail to make and exhibit a list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares, and merchandise, articles, and objects liable to pay any duty or tax, or any business or occupation liable to pay any tax as aforesaid, then, and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which being distinctly read, consented to, and signed and verified by oath by the person so owning, possessing, or having the care and management as aforesaid, may be received as the list of such person: Provided further, That in case no annual list or return has been rendered by such person to the collector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or the deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at such place of residence or business, with some one of suitable age and discretion, if such be present, otherwise to deposit in the nearest post office, a note or memorandum addressed to such person, requiring him or her to render to such collector or deputy collector the list or return required by law within ten days from the date of such note or memorandum, verified by oath. And if any person, on being notified or required as aforesaid, shall refuse or neglect to render such list or return within the time required as aforesaid, or whenever any person who is required to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which, in the opinion of the collector, is erroneous, false, or fraudulent, or contains any undervaluation or understatement, or refuses to allow any regularly authorized Government officer to examine the books of such person, firm, or corporation, it shall be lawful for the collector to summon such person, or any other person having possession, custody, or care of books of account containing entries relating to the business of such person, or any other person he may deem proper, to appear before him and produce such books at a time and place named in the summons, and to give testimony or answer interrogatories, under oath, respecting any objects or income liable to tax or the returns thereof. The collector may summon any person residing or found within the State or Territory in which his district lies; and when the person intended to be summoned does not reside and can not be found within such State or Territory, he may enter any collection district where such person may be found and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned: Provided, That 'person,' as used in this section, shall be construed to include any corporation, joint-stock company or association, or insurance company when such construction is necessary to carry out its provisions.

"SEC. 3176. If any person, corporation, company, or association fails to make and file a return or list at the time prescribed by law, or makes, willfully or otherwise, a false or fraudulent return or list, the collector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. Any return or list so made and subscribed by a collector or deputy collector shall be prima facie good and sufficient for all legal purposes.

"If the failure to file a return or list is due to sickness or absence the collector may allow such further time, not exceeding thirty days, for making and filing the return or list as he deems proper.

"The Commissioner of Internal Revenue shall assess all taxes, other than stamp taxes, as to which returns or lists are so made by a collector or deputy collector. In case of any failure to make and file a return or list within the time prescribed by law or