Act of 1924.

SEC. 211. (b) In the case of a bona fide sale of mines, oil or gas wells, or any interest therein, where the principal value of the property has been demonstrated by prospecting or exploration and discovery work done by the taxpayer, the portion of the tax imposed by this section attributable to such sale shall not exceed 16 per centum of the selling price of such property or interest.

NET INCOME OF INDIVIDUALS
DEFINED.

SEC. 212. (a) In the case of an individual the term "net income" means the gross income as defined in section 213, less the deductions allowed by sections 21494 and 206.95

SEC. 212. (b) The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly

94 Sec. 214, p. 90.

95 Sec. 206, p. 40.

Act of 1921.

SEC. 211. (b) In the case of a bona fide sale of mines, oil or gas wells, or any interest therein, where the principal value of the property has been demonstrated by prospecting or exploration and discovery work done by the taxpayer, the portion of the tax imposed by this section attributable to such sale shall not exceed, for the calendar year 1921, 20 per centum, and for each calendar year thereafter 16 per centum, of the selling price of such property or interest.

NET INCOME OF INDIVIDUALS
DEFINED.

SEC. 212. (a) That in the case of an individual the term "net income" means the gross income as defined in section 213, less the deductions allowed by section 214.94

Act of 1918.

by which the net income exceeds $200,000 and does not exceed $300,000;

63 per centum of the amount by which the net income exceeds $300,000 and does not exceed $500,000;

64 per centum of the amount by which the net income exceeds $500,000 and does not exceed $1,000,000;

65 per centum of the amount by which the net income exceeds $1,000,000.

SEC. 211. (b) In the case of a bona fide sale of mines, oil or gas wells, or any interest therein, where the principal value of the property has been demonstrated by prospecting or exploration and discovery work done by the taxpayer, the portion of the tax imposed by this section attributable to such sale shall not exceed 20 per centum of the selling price of such property or interest.

NET INCOME DEFINED.

SEC. 212. (a) That in the case of an individual the term "net income" means the gross income as defined in section 213, less the deductions allowed by section 214.94

SEC. 212. (b) The net income SEC. 212. (b) The net income shall be computed upon the basis shall be computed upon the basis of the taxpayer's annual acof the taxpayer's annual ac- counting period (fiscal year or counting period (fiscal year or calendar year, as the case may calendar year, as the case may be) in accordance with the methbe) in accordance with the method of accounting regularly emod of accounting regularly employed in keeping the books of ployed in keeping the books of such taxpayer; but if no such such taxpayer; but if no such method of accounting has been method of accounting has been so employed, or if the method so employed, or if the method employed does not clearly reflect employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner

the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. If the tax

ship. At the termination thereof in 1918, he was paid a large sum "for all services rendered by him during the receivership." In prior years he returned his income on the "cash" basis, and at no time had he kept books whereby he could have reported on the

Act of 1924. reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 2007 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

SEC. 212. (c) If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.99

tion 226.99

If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, 98 be computed on the basis of such new accounting period, subject to the provisions of section 226.99

GROSS INCOME DEFINED.

SEC. 213. For the purposes of this title, except as otherwise provided in section 233-101

(a) The term "gross income" includes gains, profits, and income derived from from salaries, wages, or compensation for personal service (including in the case of the President of the United States, the judges of the

97 Sec. 200, p. 6.

GROSS INCOME DEFINED.

SEC. 213. That for the purposes of this title (except as otherwise provided in section 233) 101 the term "gross in

come'

104

98 A corporation filed a tentative return of income for the calendar year 1918 on March 14, 1919. It obtained an extension of time for filing final return, and on June 14, 1919, filed final return on a fiscal year basis for the year ended June 30, 1918. This was the first time it had filed a return on a fiscal year basis and no permission was given by the Commissioner so to do. Annually thereafter up to and including 1922, it filed its returns on a fiscal year basis. In February, 1922, it asked permission of the Commissioner to change its returns for 1918 and thereafter to a calendar year basis. It was refused. Mandamus was brought against the Commissioner to compel him to accept amended returns on a calendar year basis.

The petition was dismissed by the Supreme Court of the District of Columbia, and the judgment affirmed by the Court of Appeals of the District of Columbia on the ground of laches. U. S. ex rel. Greylock Mills v. Blair (Com.), (C. A., D. C. 1923) 293 Fed. 846, Certiorari denied, Id., (1924)

S.

99 Sec. 226, p. 168.

U.

100 Title I, Part I, Act of 1916, as amended by Sec. 1200, Title XII, Act of 1917.

101 Sec. 233, p. 190.

102 The profit derived from the sale of a stock subscription right is determined as follows: Divide the total cost to the taxpayer of the old shares and new

shares combined by the total number of old and new shares combined, as though he actually subscribed and paid for the new shares. This gives the average cost of one share. Subtract the average cost of one share so ascertained from the sum of the selling price of the right and the cost of the right of one share, which the purchaser is required to pay. This gives the profit derived by the taxpayer from the sale of the right to subscribe for one share. Miles (Col.) v. Safe Deposit & Trust Co., (1922) 259 U. S. 247, affirming Id., (D. C., D. Md. 1921) 273 Fed. 822. 103 Beginning in 1911 a corporation borrowed money from a German bank. The corporation advised the New York agent of the German bank its requirements in dollars. The agent cabled the German bank for the equivalent in marks. The latter cabled its agent the marks requested and the agent then drew a check in favor of the corporation in dollars. The notes given by the corporation called for the payment of the loan in German marks or their equivalent in United States gold coin at prime bankers' rate in the city of New York for cable transfer to Berlin. The corporation advanced this money to a subsidiary corporation, which used it for construction purposes. The subsidiary sustained great losses through these operations and deducted the same in its income tax returns during the years 1913 to 1918, inclusive. By September 1, 1913, the corporation had paid a part of this indebtedness to the German bank and on that date gavę

In

a new note payable on April 1, 1915, for the balance of such unpaid loan. The old outstanding notes were surrendered and cancelled by the German bank. The new note was payable to the corporation's own order in German marks or their equivalent in United States gold coin, as were the original notes. Only a portion of this note was paid on or before maturity. 1921 the corporation was compelled to pay this unpaid balance with interest to the Alien Property Custodian. This settlement was made at a rate slightly above the prevailing current rate of exchange. The corporation discharged this obligation for approximately $80,000, which represented approximately $770,000 originally. The transaction resulted in no income to the corporation either within the purview of the Sixteenth Amendment or the Act of 1921. Kerbaugh Empire Co. v. Bowers, (Col.), (D. C., S. D. N. Y. 1924) 300 Fed. 938. 104 (a) The tax required to be deducted and withheld by the obligor under Sec. 221 (b) of the Act of 1918 and Sec. 9 (c) of the Act of 1916, as amended by Sec. 1205 of the Act of 1917, was not income to the obligee. Pitney v. Duffy (Ex-Col.), (D. C., D. N. J. 1923) 291 Fed. 621.

104 (b) Income means that which has come in, just as expenditures mean what has been paid out or goes out." Pitney v. Duffy (Ex.-Col.), (D. C., D. N. J. 1923) 291 Fed. 621.

104 (c) The word "income" means the gain which accrues from property, labor or business. The Sup

B. [1] That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person

plee-Biddle Hardware Co. v. U. S., (1923) 58 Ct. Cl.

343.

104 (d) Income includes gains and profits derived through the sale or conversion of capital assets, whether done by a dealer or trader, or casually by a non-trader, as by a trustee in the course of changing investments. Act of 1918. Miles (Col.) v. Safe Deposit & Trust Co., (1922) 259 U. S. 247, affirming Id., D. C., D. Md. 1921) 273 Fed. 822.

104 (e) The Act of 1918 did not deprive domestic corporations of their property without due process of law, as guaranteed by the Fifth Amendment, because they were required to pay a tax on net income derived from the exportation of goods from the U. S. and the sale thereof in foreign countries, although foreign corporations which imported such goods from the U. S. to and sold them in such foreign countries, escaped the tax. National Paper & Type Co. v. Edwards (Col.), (D. C., S. D. N. Y. 1923) 292 Fed. 633.

104 (f) Increasing the capital stock of a corporation and offering the right to subscribe therefor to stockholders of record at a price less than the value thereof, does not constitute income or a distribution of the assets of the company to the stockholders. It is a privilege of contributing new capital to the corporation. Act of 1918. Miles (Col.) v. Safe Deposit & Trust Co., (1922) 259 U. S. 247, affirming Id., (D. C., D. Md. 1921) 273 Fed. 822.