under the Act of October 3, 1917, and reporting and paying the same to the Government.

First-Labor, agricultural or horticultural organization; Second-Mutual savings bank not having a capital stock represented by shares; Third-Fraternal beneficiary society, order, or association, operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents; Fourth-Domestic building and loan association and coöperative banks without capital stock organized and operated for mutual purposes and without profit;

Fifth Cemetery company owned and operated exclusively for the benefit of its members;

Sixth-Corporation or association organized and operated ex

clusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual;

Seventh-Business league, chamber of commerce, or board

of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual;

Eighth-Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;

Ninth Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; Tenth-Farmers, or other mutual hail, cyclone, or fire insurance company, mutual ditch or irrigation company, mutual or coöperative telephone company; or like organization of a purely local character; the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses;

Eleventh-Farmers', fruit growers', or like association, organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them;

Twelfth Corporation or association organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title; or

Thirteenth-Federal land banks and national farm-loan associations as provided in section twenty-six of the Act approved July seventeenth, nineteen hundred and sixteen, entitled "An act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farms loans, to furnish a market for United States bonds, to create Government depositaries and financial agents for the United States, and for other purposes." Fourteenth-Joint-stock land banks as to income derived from

bonds or debentures of other joint-stock land banks or any Federal land bank belonging to such joint-stock land bank.

Exempt Corporations Required to Withhold Tax.

Under the language of the Income Tax Law of 1913, it was held that exempt corporations and organizations were exempt from all provisions of the law. Under the law, enacted September 8, 1916, it was ruled by the Commissioner of Internal Revenue that the fourteen different kinds of exempt corporations and organizations named in the law are relieved only of the tax on their income, and “that said corporations and organizations are required to answer under all the other provisions of the statute as to withholding and making returns of tax withheld." Under the Act of October 3, 1917, this ruling will only be applicable to income payable to nonresident alien individuals, foreign corporations and partnerships, and in respect of interest on corporate obligations containing a tax-free covenant clause.

Doubtful

In all cases where there is a question of doubt as to whether an organization is or is not exempt, it is recom- Organizamended that a special ruling be obtained from tions the Commissioner of Internal Revenue. The ap- as to Explication for such ruling should be accompanied emption. by an affidavit stating:

(a) The purpose and nature of the organization

(b) The source of its income

(c) The disposition of its income

(d) Whether or not any of its net income will inure to the benefit of any private stockholder or individual.

Foreign

It has been ruled that foreign as well as domestic Exempt corporations and organizations, of the classes Organizaenumerated in the exempt list, are included therein. tions.

"Receipt is acknowledged of your letter of November 17, 1916, and in reply you are advised that the Federal Income Tax Law of September 8, 1916, provides that every organization enumerated in Section II of that statute is exempt from Federal Income Tax on its net earnings, profits or income, and the office holds that the provisions apply whether the organization be domestic or foreign. In a case where a foreign organization desires to be held exempt from Federal Income Tax, and a doubt exists as to whether or not it comes within the class of organizations enumerated in Section II, it will be required to file a copy of its charter and by-laws, and an affidavit executed by its principal officer showing the disposition made of such income as it receives, and stating specifically, whether or not any of the income so received inures to the benefit of any individual stockholder. The question of whether or not the office will hold the organization to be 'exempt' will be determined by the facts shown in its charter, by-laws and affidavit." (Letter to the Corporation Trust Company, signed by Commissioner W. H. Osborn, and dated December 6, 1916.)

A so-called "close corporation," which usually consists of members of a family, is not such corporation as is Close Corexempt from the requirements of the income tax poration. law.

A corporation formed as a family affair to hold property together and not to sacrifice in selling does not come within the class of corporations specifically enumerated as exempt from the requirements of the Federal Income Tax Law, and is required to make a return of annual net income showing therein all income arising and accruing to it from all sources. and to pay any income tax shown by such return to be due. (T. D. 2137.)

The fact that a corporation or association was not organized for profit is immaterial in determining whether or not such Corpora- corporation or association must make returns of net income. All corporations, joint-stock companies Organized for Profit. or associations and insurance companies, unless specifically mentioned in the law as exempt, must make returns.

tions not

The tax imposed by the Federal income tax law is not imposed only upon such corporations as are organized and operated for profit. Any corporation, joint-stock company, or association, and any insurance company, no matter how created or organized or what the purposes of its organization may be, unless it comes within the class of organizations specifically enumerated in the act as exempt, will be required to make returns of annual net income and pay income tax upon the net income which arises and accrues to it during the year.

A corporation is not exempt simply and only because it is primarily not organized and operated for profit. If income within the meaning of the law arises and accrues to a corporation which is not organized and operated for profit, such income will be subject to the tax imposed by this act.

It is therefore held that commercial men's associations, . . . and like organizations come within the requirements of the law. (T. D. 2152.)

The fact that all the stock of a nonexempt corporation is owned and controlled by an association, exempt under the Corpora- law, does not relieve such corporation of making tions Con- returns. The liability of a corporation to report trolled by and pay the income tax is not contingent upon Exempt Organiza- the ownership of its stock but upon the character of the organization, which latter alone determines whether or not it is exempt.

tions.

A stock corporation all of whose stock is owned by a "corporation or association organized and operated exclusively for religious, charitable, scientific or educational purposes, no part of whose net income inures to the benefit of any member, stockholder, or individual," is required under the provisions of the Federal Income Tax Law to make a return of annual net income and pay income

tax.

The fact that all of the stock of the corporation, except shares qualifying the directors, is owned by a corporation which itself comes within the class specifically enumerated as exempt, does not relieve the first-named corporation from liability under the Income Tax Law. The liability of a corporation to the requirements of the Federal income tax law is not contingent upon the ownership of its stock. (T. D. 2137.)

tion

Treasury Department rulings indicate that organizations operated for profit, regardless of the character of their pursuits, are subject to the income tax and must make returns. OrganizaSpecific rulings to this effect have been made with Operated respect to agricultural and horticultural organiza- for Profit. tions (T. D. 2090) and coöperative dairies. (T. D. 1996.) In Union Hollywood Water Co. v. John P. Coster, Water Collector (238 Fed. 329), it was held that: Company not

The fact that plaintiff was a public utilities cor- Exempt. poration which, under the laws of the State, was not the owner of the property but merely intrusted with the use thereof which it must devote to the public, does not entitle it to more favorable treatment than other corporations, it being a corporation organized for profit, having a capital stock represented by shares, and the Act making no exceptions in favor of public utilities.

XIV. INCOME OF CORPORATIONS

The term "net income" as used in the income tax law with respect to corporations, may be defined as the Net "gross income" less deductions allowed by law.

Income.

Gross income of manufacturing companies shall con