to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has beenmade. (See arts. 159, seq.)

The value to be cared for by depreciation is the actual amount in- 84 vested in the property and not the value which may be arbitrarily or otherwise fixed.

Eighth. Depletion: An allowance representing amount of invested 85 capital in quantity of oil, gas, or mineral extracted through wells and mines.

Depletion oil and gas wells.-Depletion or return of capital invest- 86 ment in the case of an individual owner or lessee will be calculated in the same manner as provided for corporate owners or lessees. (See arts. 170, 171 and 172.)

Ninth. Contributions or gifts, not in excess of 15 per cent of tax- 87 able net income, made within the year to corporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual. "Taxable net income" as used in section 5a, ninth deduction, is 88 construed to mean gross income, less deductions (except ninth deduction above) and less excess-profits tax, if any.

In connection with claim for this deduction on returns of income there shall be stated:

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(a) The name and address of each organization to which a gift 90 was made.

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(b) The date and amount of the gift in each case. Where the gift is other than money, the basis for calculation of 92 the value of the gift shall be the fair market value of the property the subject of gift at the time of the gift.

RULINGS AS TO DEDUCTIONS UNDER ARTICLE 8.

Bad debts-Compromise.-Where an indebtedness is claimed and 93 contested and a settlement is had by way of compromise whereby an amount, less than the debt claimed, is accepted in full payment and satisfaction of the debt, the difference between the amount paid and that claimed is not allowable as a deduction for bad debts. Where the settlement in compromise consists of a promise to pay an amount less than the debt claimed, the amount promised to be paid forms the basis of a new transaction, and upon failure to make good this promise the question will arise as to the deductibility of the new amount only.

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Bad debts. Where all of the surrounding and attendant circumstances indicate that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment, a showing of these facts will be sufficient showing of the worthlessness of the debt for purposes of deduction.

Bad debts.-A bad debt or worthless debt, as contemplated by the income-tax law and which may be deducted in a return of income, is a debt which has been actually ascertained to be worthless and charged off within the taxable year.

Bad debts.-Debts arising from unpaid wages, salaries, rents, and items of similar taxable income will not be allowed as a deduction unless the income they represent has been included in the return of gross income for the year in which the deduction as a bad debt is sought to be made or in a previous year and the debts themselves have been actually ascertained to be worthless and charged off.

Bad debts-Bankruptcy.-Bankruptcy may or may not be an indication of worthlessness of a debt. Actual determination of worthlessness in such cases is possible only when settlement in bankruptcy shall have been had. Only the difference between the amount received in distribution of assets of the bankrupt and the amount of proved claim may be considered for the purpose of deduction as a bad debt.

Bad debts-Foreclosure sale on a mortgage.-Where, under foreclosure, a mortgagee buys in the mortgaged property and credits the indebtedness with the purchase price the difference between purchase price and the indebtedness will not be allowable as a deduction for bad debt-the property which was security for the debt being in possession and ownership of the mortgagee is, for the purposes of income tax, held to be sufficient to justify a disallowance of a claim for bad debt.

Only where purchaser for less than debt is another than mortgagee may the difference between debt and net from sale credited be deducted as bad debt.

Expense.-Amounts to be assessed and paid under a mutual agreement between bondholders or stockholders of a corporation, to be used in a reorganization of a corporation, are held to be investments of capital and not deductible for any purpose in a return of income. Amounts paid from a salary received for all services rendered, are deductible in returns of income as business expenses, when the expenditures are occasioned by the service in respect of which the salary is paid.

Administration expense.-Expenses of administration of an estate, such as court costs, attorney's fees, executor's commissions, etc., are

chargeable against the corpus of the estate and are not allowable deductions in a return of income.

Expenditures from allowances. The pay and allowance of Army 103 officers are based on the obligation of an officer to provide equipment and mounts as a personal expense. The cost of mounts and equipment is not therefore a deductible expense.

Allowances to minor children.-The father is legally entitled to the 104 service of his minor children. As a rule, allowances which he gives them, whether said to be in consideration of service or otherwise, are not allowable deductions in his return of income nor are they income to the children.

Investment of capital.-Amounts expended for securing copyright 105 and plates which remain in possession of and as property of the person making the payments, are investments of capital and can not be allowed as deductions in returns of income.

Investment of capital.-Cost of defending title or perfecting title 106 to property, constitutes a part of the cost of the property and is not a business expense.

Expense-Capital investments.-The amount expended for archi-107 tect's service is part of the cost of the building and not a deductible business expense.

Expense Commissions paid.-Commissions paid in purchasing and 108 selling securities are a part of the cost or selling price of the securities and not otherwise deductible. They do not constitute expense deductions in a return of income.

Insurance premium.-Premium paid for insurance on property 109 used for business purposes is an allowable deduction. Insurance paid on a dwelling owned and occupied by a taxpayer is a personal expense and not deductible. Premium paid for life insurance by the insured is not deductible.

Business insurance.-Premiums paid in advance, covering a period 110 of several years, are to be taken as a deduction on the basis of one of two methods: When the books are kept on a cash basis, the entire amount is deductible in the year in which the premium is paid. Where the books are kept on an accrual basis the premium is to be prorated over the period covered by the insurance.

Special compensation-Bonus to employees. Special payments, some- 111 times denominated gifts or bonuses, made by corporations, partnerships, or individuals to employees, will constitute allowable deductions from gross income in ascertaining net income for the purpose of the income tax, when such payments are made in good faith and as additional compensation for the services actually rendered by the employees. If such payments, when added to the stipulated salaries do not exceed a reasonable compensation for the services rendered,

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they will be regarded as a part of the wage or hire of the employee, and therefore an ordinary and necessary expense of operation and maintenance, and as such will be deductible from gross income.

Expense Reimbursements.-Amounts paid out for expense incident to service rendered, and which are reimbursable, are not deductible as expense nor are they to be returned as income when received in reimbursements.

Rent or capital investment.-Where a leasehold is sold for a specified sum, the purchaser may take as a deduction in his return an aliquot part of such sum, each year, based on the number of years the lease has to run.

Rent for residential property.-In the case of a professional man who rents a property for residential purposes but receives there clients, patients, or callers in connection with his professional work (the place of business being elsewhere), no part of the rent is deductible as business expense.

Tenant.-Taxes paid by a tenant to or for a landlord for business property are additional rent and constitute a deductible item to the tenant and taxable income to the landlord. The amount of the tax will be deductible by the landlord.

Taxes.-All taxes levied by the general taxing authority, levied and paid on all taxable subjects, including tax imposed and paid under the act of October 3, 1917, except war-excess profits, income taxes, and taxes assessed against local benefits, are allowable deductions to the party paying the same. Although excess-profits tax paid is not an allowable deduction in ascertaining the net income, the net income shown on any return will be credited with the amount of excess-profits tax for which the taxpayer will be liable for the same year, in order to determine the amount of income-tax liability. 117 In the case of business, excise, license, or privilege taxes, they may be deducted either as taxes or items of expense, but not under both heads.

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Tax on bank stock.-Taxes on bank stock paid under legal requirement by the bank for its stockholders are deductible by the stockholders and not by the bank. Such payments are regarded as in the nature of additional dividends and should be included by the stockholder in his dividends received.

Where bank stock is sold and transferred between date of assessment and payment of the tax, in the absence of statute governing, the stockholder liable for the tax (if the tax was actually paid) will have the benefit of the tax deduction in returns of income. This is a question of fact and to be determined as such.

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Loss-Definition. The difference between "losses * incurred in his business or trade" (4th deduction) and losses "in

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ransactions entered into for profit but not connected with his busiess or trade" (5th deduction), is illustrated by the difference beween the definitions of "avocation": That which takes one from is regular calling; a minor occupation; and "vocation": The occuation or pursuit to which one devotes his time or life, a calling. t is possible for a man to give sufficient time, attention, and capital o the pursuit of different lines of business to constitute more than ne avenue of "business or trade or employment," his business or rade.

Paragraph 4 of section 5 (a), act of September 8, 1916, provides 121 for losses "actually sustained during the year, incurred in his business or trade, etc." These would be losses under the head of Vocation.

Paragraph 5 of section 5 (a), act of September 8, 1916, provides 122 for losses actually sustained during the year in transactions entered into for profit but not connected with his business or trade; that is, losses under the head of " avocation;" that which takes one from his regular calling; a minor occupation. Losses under the head of "avocation" may be deducted "to an amount not exceeding the profits arising from transactions under this head."

Loss-Good will.-Good will does not represent a value attaching 123 to physical property. It is held to be an intangible asset whose value, separate and apart from the business with which it is connected, is not capable of determination. For the purpose of income tax it is capable of neither appreciation nor depreciation. An amount claimed to represent its decline in value is not an allowable deduction from gross income in computing the tax liability of an individual or corporation.

Depreciation-Costumes.-Costumes purchased and used exclusively 124 in the production of a play and which are not adapted for occasional personal use and are not so used are part of the equipment of a business, and as such subject to depreciation in value on account of wear and tear arising from their use in the business, a reasonable allowance for such depreciation may be claimed in returns of income.

- Depletion-Timber.-In the case of timberlands, the fair market 125 price or value of timber standing March 1, 1913, or the cost of the timber where the purchase was made subsequent to March 1, 1913, will be the basis for calculation of depletion, and this value as of March 1, 1913, or cost when subsequently purchased, is not to be exceeded for purposes of deduction in returns of income. The whole of such value is to be distributed over the entire amount of standing timber on these respective dates. See Art. 173 of these regulations for rule of calculation.