certain exceptions); (3) taxes paid or accrued within the taxable year, etc. (with certain exceptions); (4 et seq.) losses sustained of a certain character, bad debts, allowances for exhaustion, wear and tear, etc.

The question is presented whether corporations are entitled to deduct from their gross income for the purpose of the income tax the amount of contributions to religious, charitable, scientific, or educational corporations or associations, this question arising most frequently with reference to contributions made to the Red Cross and other war activities.

It will be observed that there is no express deduction permitted corporations of such contributions, as in the case of individuals, and unless, therefore, they fall within the definition of some item of deduction allowed to corporations they can not be allowed. The only head within which it might be suggested that such contributions could be included is that of ordinary and necessary expenses paid or incurred in carrying on any trade or business, including reasonable salaries or other compensation, rentals, and payments for use of property provided for in paragraph 11. Practically these same deductions are permitted in section 214 in the case of individuals, and had such words included the contributions or gifts mentioned in paragraph 11 of section 214, it would have been unnecessary to put in such paragraph, as they would have been covered by paragraph 1 of such section.

The attorney general, in an opinion dated May 19, 1919, states the view that ordinary and necessary expenses contemplated by paragraph 1 of sections 214 and 234 were not intended to include all necessary expenses, because the two immediately succeeding paragraphs provide for deducting interest and taxes, both of which are necessary expenses; also the provision in regard to allowance for salaries, compensation, rentals, etc., indicates that all of the expenses, which are contemplated under the terms used in paragraph 1 of these sections, are expenses incurred directly in the maintenance and operation of the business, and not all those which may be beneficial and even necessary in the broader sense.

In addition to the above considerations and to the fact that there is express provision for deducting contributions or gifts in the case of individuals, which is wanting in the section providing for deductions to be made by corporations, reference to the legislative history of the revenue act of 1918 (Congressional Record for September 17, 1918), shows that an amendment providing that corporations might make deductions of contributions or gifts, as in the case of individuals, came to a vote and was defeated, the principal reason assigned in the debate being that it would be dangerous to authorize directors to be generous with the money of their stockholders even for such laudable purposes.

It is concluded, therefore, that corporations are not entitled to deduct from their gross income for the purpose of the income tax the amount of contributions made to religious, charitable, scientific or educational corporations or associations, even though such contributions may be made to the Red Cross or other war activities.

(T. D. 2849, May 27, 1919.)
Income tax.

Correcting item 20, schedule A, page 2 of form 1120, corporation income and profits tax return.

Form A, revised (mining), and form N (oil and gas) have been prepared for the use of taxpayers engaged in mining or in the production of oil and gas. A sufficient supply will be sent to collectors of internal revenue for distribution.

These forms are prescribed to facilitate the compilation and presentation of certain information required for the audit and examination of the

returns of these classes of taxpayers. If, however, it is more convenient to use other methods of tabulation, the information so furnished, if complete, will be accepted in lieu of those forms.

The information called for by these forms should be filed with the returns in complete detail either on the forms prescribed or in other suitable manner. This requirement is necessary for the reason that depletion sustained must be taken into consideration in the computation of invested capital, regardless of whether or not a deduction for it is claimed or has been claimed for it in the past by the taxpayer.

This requirement applies to individual as well as corporate taxpayers. (T. D. 2850, May 21, 1919.)

Income and profits taxes.

Instructions relative to acceptance of certificates of indebtedness in payment of income and profits taxes due June 16, 1919.

Income and profits taxes due June 16, 1919, may be paid in treasury certificates of indebtedness of tax series of 1919, dated August 20, 1918, maturing July 15, 1919, series T 2, dated January 16, 1919, maturing June 17, 1919, and series T 3, dated March 15, 1919, maturing June 16, 1919. No other certificates of indebtedness will be accepted in payment of the taxes due on said date. Certificates of the three series mentioned will be accepted by collectors of internal revenue at par, without interest, when tendered in amounts not in excess of the amount of such taxes due June 16, 1919. They will be so accepted at any time on or before June 16, 1919. If so accepted before June 16, 1919, full interest to June 16, 1919, will be paid as below stated.

Coupons maturing on June 16, 1919, should be detached from certificates of series T 3, and coupons maturing on or before May 15, 1919, should be detached from certificates of the tax series of 1919, before presentation to the collector, and should be separately presented for payment in the ordinary course when due. Coupons maturing July 15, 1919, must, however, be attached to certificates of the tax series of 1919 and be surrendered to the collector with such certificates for cancellation; and collectors will not accept any certificates of the tax series of 1919 which have not attached thereto the coupon No. 5 maturing July 15, 1919.

Accrued interest on certificates of series T 2 (which were issued without coupons attached) from January 16, 1919, to June 16, 1919, and accrued interest on certificates of the tax series of 1919 from May 15, 1919 (the last coupon payment date), to June 16, 1919, will be remitted to the taxpayer by the federal reserve bank by cheque and the collector must furnish to the federal reserve bank the name and address of the taxpayer and the amount and serial numbers of the certificates presented in each case.

The procedure above provided will automatically adjust accrued interest in respect of all treasury certificates of indebtedness used in payment of taxes due June 16, 1919, whether presented on or before said date, and no other payment or credit will be allowed or made on account of interest in connection therewith.

Interest on treasury certificates accepted in payment of taxes ceases to accrue on (a) the date of the maturity of the certificates, or (b) the date the tax is due, whichever of said dates be earlier. The provisions hereof in relation to the payment of interest to June 16, 1919, do not apply to treasury certificates of indebtedness accepted in payment of taxes due prior to that date. Any treasury certificates of indebtedness accepted in payment of taxes becoming due before June 16, 1919, must be dealt with separately, and accrued interest will be paid only to the date the tax was due and upon surrender with the certificates of any coupons maturing subsequent to the date the tax was due. Collectors must specially notify

federal reserve banks in each case when treasury certificates are accepted in payment of taxes becoming due prior to June 16, 1919. The 15th day of June being a Sunday, the bureau of internal revenue has ruled that the taxes which by the terms of the revenue bill of 1918 are due on that date become due on June 16.

In order to avoid unnecessary dislocation of funds, it is of importance that treasury certificates of indebtedness of the three series mentioned be used by taxpayers to the utmost extent possible in payment of their taxes, in preference to making cash payment of their taxes, and federal reserve banks and collectors of internal revenue should use every effort to induce taxpayers who are the holders of such certificates to make such use of them and to facilitate such use in every manner in their power.

The instructions to collectors dated December 9, 1918 (T. D. 2778), issued by the commissioner of internal revenue and approved by the secretary of the treasury, and the instructions to federal reserve banks dated December 9, 1918, issued by the treasurer of the United States and approved by the assistant secretary of the treasury, not inconsistent herewith, remain in full force and effect.

There seems to be no reason to anticipate that the amount of taxes paid as of June 16, 1919, will exceed the amount of treasury certificates maturing on or about that date. It seems that there will be no unexpended cash proceeds arising from the payment of income and profits taxes on June 16, 1919, and therefore no redeposits will be made, nor will payment of income and profits taxes by credit be permitted.

Collectors of internal revenue will, however, be instructed to deposit cheques received on and after June 1, 1919, in payment of income and profits taxes, with federal reserve banks and branches, following to that extent substantially the procedure adopted in March. As to this procedure detailed instructions will follow.

(T. D. 2851, May 28, 1919.)

Authority of collectors to accept uncertified cheques.

Section 1314 of the revenue act of 1918 provides as follows:

That collectors may receive . . uncertified cheques in payment of income, war-profits, and excess-profits taxes, and any other taxes payable other than by stamp, during such time and under such regulations as the commissioner, with the approval of the secretary, shall prescribe; but if a cheque so received is not paid by the bank on which it is drawn the person by whom such cheque has been tendered shall remain liable for the payment of the tax and for all legal penalties and additions the same as if such cheque had not been tendered.

The following regulations apply to all internal-revenue taxes except those payable by stamp:

(1) Payment of tax by uncertified cheques.-Collectors may accept uncertified cheques in payment of taxes, except those payable by stamp, proIvided such cheques are collectible at par; that is, for their full amount, without any deduction for exchange or other charges. The collector will stamp on the face of each cheque before deposit the words "This cheque is in payment of an obligation to the United States and must be paid at par. No protest," with the name and title. The day on which the collector receives the cheque will be considered the date of payment so far as the taxpayer is concerned, unless the cheque is returned dishonored. If one cheque is remitted to cover two or more persons' taxes, the remittance must be accompanied by a letter of transmittal stating (a) the name of the drawer of the cheque; (b) the amount of the cheque; (c) the amount of any cash, money order, or other instrument included in the same re

mittance; (d) the name of each person whose tax is to be paid by the remittance; (e) the amount of the payment on account of each person; (f) the kind of tax paid.

(2) Procedure with respect to dishonored cheques.-If the bank on which any such cheque is drawn should refuse to pay it at par, the cheque should be returned through the depositary bank and be treated in the same manner as a bad cheque. All expenses incident to the attempt to collect such a cheque and the return of it through the depositary bank must be paid by the drawer of the cheque to the bank on which it is drawn, since no deduction can be made from amounts received in payment of taxes. If any taxpayer whose cheque has been returned uncollected by the depositary bank should fail at once to make the cheque good, the collector should proceed to collect the tax as though no cheque had been given. A taxpayer who tenders a certified cheque in payment for taxes is also not released from his obligation until the cheque has been paid.

(T. D. 2856, June 7, 1919.)
Income tax.

Extension of time for filing returns of partnerships, personal service corporations, and corporations having a fiscal year ending either on January 31, February 28, March 31, or April 30, 1919.

In view of the fact that the necessary forms are not yet available, a further extension of time to July 15, 1919, is hereby granted to partnerships and personal service corporations having a fiscal year ending January 31, February 28, March 31, or April 30, 1919. Corporations other than personal service corporations having a fiscal year ending January 31, February 28, March 31, or April 30, 1919, are hereby granted an extension to July 15, 1919, if they have prior to the date of this decision filed tentative return on form 1031 T, paying one-fourth of the estimated tax, or if they shall on or before June 15, 1919, file tentative return on form 1031 T, paying one-fourth of the estimated tax. Any deficiency in the first instalment as shown by the completed return must be paid with interest thereon from the original due date at the rate of one-half of 1 per cent a month at the time of filing the completed return.

This extension in the case of corporations shall not operate to extend the due date of any instalment of tax after the first. In the case of corporations filing form 1031 T, the time for filing completed returns is automatically extended as above, but not beyond the due date of the second instalment of the tax. The second instalment will be due five and one-half months after the close of the corporation's fiscal year ending in 1919.

(T. D. 2857, June 7, 1919.)

Original subscription to Victory notes.

For the purposes of the additional tax exemption for Liberty bonds granted by section 2 (b) of the Victory Liberty loan act, approved March 3, 1919, Victory notes of either series issued upon conversion of Victory notes of the other series which were originally subscribed for by any taxpayer will be deemed to have been originally subscribed for by such tax

payer.

(T. D. 2858, June 9, 1919.)

Income tax-Decision of the District Court, affirmed by the Circuit Court of Appeals.

1. TAXABILITY OF INCOME DERIVED FROM OR THROUGH PARTNERSHIP. A member of a partnership need not include as a part of his net income subject to normal tax such of his income derived from or through a partnership as has been received by the partnership in the shape of dividends on stocks owned by it in corporations taxable upon net income.

2. CONSTRUCTION OF THE ACT.

The law is so framed as to deal with the gains and profits of a partnership as if they were the gains and profits of the individual partners. 3. JUDGMENT for Defendant.

Judgment is rendered in favor of defendant.

4. JUDGMENT OF DISTRICT COURT AFFIRMED.

The judgment of the district court has been affirmed by the circuit court of appeals.

The appended decision of the district court of the United States for the northern district of Ohio, eastern division, in the case of United States of America, plaintiff, v. Harry Coulby, defendant (251 Fed., 982), which was on January 7, 1919, affirmed by the United States circuit court of appeals, sixth circuit, is published for the information of internal-revenue officers and others concerned.

IN THE DISTRICT COURT OF THE UNITED STATES, NORTHERN DISTRICT OF
OHIO, EASTERN DIVISION. No. 9771-Law.

United States of America, plaintiff, v. Harry Coulby, defendant.
[Memorandum.]

WESTENHAVER, District Judge: This is an action at law to recover $588.45, with interest and penalties thereon, alleged to be due as unpaid income tax for the nine months ending December 31, 1913, under the federal income tax law of 1913. A jury trial was waived by the parties and the case has been submitted to me for decision upon an agreed statement of facts. Briefly the facts are these:

The defendant, during the period in question, was a member of a partnership by the name of Pickands, Mather & Co. This partnership was then the owner of stocks in certain corporations which were taxable upon their net income under the provisions of section G of the income tax law. Dividends were declared and paid by these corporations upon the stocks held therein by the partnership. The defendant, in making return of his income for taxation, included as a part of his gross income his share of the profits of the partnership, but deducted therefrom such part thereof as was derived by or through the partnership from dividends on stocks in these corporations taxable upon their net income.

Later, on or about June 27, 1917, the commissioner of internal revenue examined the defendant's return and disallowed the deductions thus made and assessed the normal tax of 1 per cent. against the defendant on such deduction. The item of $588.45 represents that assessment.

The exact question presented for decision is whether or not a member of a partnership must include as a part of his net income subject to the normal tax such part of his income derived from or through a partnership which has been received by that partnership as dividends on stocks owned by it in corporations taxable upon their net income under section G of the federal income tax law of 1913.

Plaintiff's contention that profits thus derived are a part of the partner's net income, and subject to the normal tax, is based on the following paragraph of section D:

Provided further, That any persons carrying on business in partnership shall be liable for income tax only in their individual capacity, and the share of the profits of a 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 section. An examination of the entire income tax law convinces me that plaintiff's contention is erroneous. Section B defines what shall constitute the net income of a taxable person; it includes his gains, profits, and income