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is limited to the amount of capital invested by such special partner or partners—are held to be associations within the meaning of this title, and as such are required to make returns of annual net income and pay any tax thereby shown to be due. The income received by the members out of the earnings of such limited partnerships will be treated in their personal returns in the same manner as if it were dividends on the stock of corporations and will be subject to the additional or surtaxes in the hands of the recipient.

Art. 63. Common-law partnerships.-Common-law partnerships are not associations within the meaning of income-tax law, and are therefore not required to make returns for the purpose of the income tax except as they may be requested by the Commissioner of Internal Revenue or by any district collector to make returns of their earnings, profits, and income.

FOREIGN CORPORATIONS.

Art. 64. Taxable income.-Under section 10 of Title I of the act of September 8, 1916, as amended, a tax of 2 per cent shall be levied assessed, collected, and paid annually upon the total net income received in the preceding calendar year, from all sources within the United States, by every corporation, joint-stock company or association or insurance company organized, authorized, or existing under the laws of any foreign country.

Art. 65. War income tax.-The additional tax of 4 per cent or net income imposed by the act of October 3, 1917, shall apply to foreign corporations in the same manner as in the case of domestic corporations, except that it shall apply only to income received from sources within the United States.

Art. 66. Source within United States. It is not necessary that the foreign corporation shall be engaged in business in this country or that it have an office, branch, or agency in the United States. Liability to the tax attaches with respect to the income, the source of which is in the United States.

"Source" as here used means the place of the origin of the income. 311 Every foreign corporation having income from sources within the United States must make returns of annual net income in accordance with the rule set out in section 12 (b) of the act of September 8, 1916, as amended by the act of October 3, 1917.

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CORPORATIONS EXEMPT FROM TAX.

Art. 67. Conditional.-Corporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes, business leagues, chambers of commerce, boards of trade, civic leagues, cemetery companies, and pleasure and recreation

clubs, are not, as such, exempt from the requirements of this title. Their exemption is conditional, and in order to be relieved from liability under the law they must file with the collector of internal revenue an affidavit setting out the character and purpose of the organizations, and showing that no part of any income which they receive inures to the benefit of any private stockholder or individual, and that such income is used exclusively for the promotion of the purposes for which organized as indicated in the particular paragraphs under which exemption is claimed.

Art. 68. Unconditional.—Among the corporations exempt from the 313 tax, without condition, are labor, agricultural and horticultural organizations, mutual savings bank not having capital stock represented by shares, 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, domestic building and loan associations, Federal land banks, and national farm loan associations, organized pursuant to the act of July 17, 1916, joint-stock land banks as to income specified in the law, and public utilities whose income inures to the benefit of any State, Territory, or political subdivision thereof.

In all cases wherein the exemption is without condition, and the 314 collector is satisfied that the organization comes within the exempted class, he will be authorized to eliminate it from his list and relieve it from the necessity of making returns.

Corporations exempt under the act of September 8, 1916, are also exempt from the war income tax imposed by Title I of the act of October 3, 1917.

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Art. 69. Mutual insurance companies, etc.-The organizations men- 316 tioned in paragraph "tenth" of section 11, act of September 8, 1916, as amended, are specifically exempt, provided that their entire income consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting expenses, incurred in pursuance of the purpose for which organized. If any of such organizations have income from any source other than assessments, dues, and fees, such income will be held to be subject to tax, and the organizations receiving the same will be required to make returns and to pay any tax thereby shown to be due. (T. D. 1933, 2152, 2161.)

Art. 70. Domestic building and loan associations.-A domestic build- 317 ing and loan association entitled to exemption is one organized under and pursuant to the laws of the United States or under and pursuant to the laws of some State or Territory thereof, and which is actually carrying on for the benefit of its members a building and loan association business in accordance with the laws under which it is organized. The fact that such an association issues fully paid or prepaid shares, calling for a specified rate of interest or dividends,

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will not disqualify it for exemption. The exemption is without qualification other than that the association is a domestic building and loan association. If a corporation by any other name is carrying on an exclusive building-and-loan business, before it is entitled to exemption it will be incumbent upon it to show to the satisfaction of the commissioner of internal revenue that it is in fact a building and loan association.

Art. 71. Cemetery company.-A cemetery company having a capital stock represented by shares, or which is operated for profit or for the benefit of others than its members, does not come within the exempted class, and will be required to make returns of annual net income and pay any income tax thereby shown to be due.

In the case of such company a reserve set aside out of profits as a "maintenance fund" is not deductible from gross income, and any accretions to such fund will be held to be income and, as such, must be returned by the corporation. The expenses of maintenance will be deductible as they are paid.

Art. 72. Social clubs.-Social clubs organized and operated exclu sively for pleasure, recreation, and other nonprofitable purposes are exempt from the tax, provided no part of any net income which they receive inures to the benefit of any private stockholder or indi vidual. This exemption will reach practically all social and recrea tion clubs which are supported by membership fees, dues, and

assessments.

If a club, by reason of the comprehensive powers granted in its charter, engages in traffic, in agriculture, or horticulture, in the sale of real estate, timber, etc., for profit, it will be held that such club is not organized and operated exclusively for pleasure, recreation, or social purposes. It thus becomes a business or commercial enterprise, and any profit realized from such activities is subject to the tax imposed by this title, and the club so operated must make returns of annual net income.

Art. 73. Labor, agricultural and horticultural organizations.-Agricultural or horticultural organizations, which are exempt under this title, do not include those corporations engaged in growing agricul tural or horticultural products, raising live stock or similar products for profit, but will include only those organizations which, having no net income inuring to the benefit of their members, are educational or instructive in character, and which have for their purpose the betterment of the conditions of those engaged in these pursuits, the improvement of the grade of their products, and the encouragement and promotion of those industries to a higher degree of efficiency. (T. D. 2090.)

Included in this class as exempt are those organizations such as county fairs and like associations of a quasi-public character, which,

hrough a system of awards, prizes, or premiums, are designed to ncourage the production of better live stock, better agricultural and orticultural products, and whose income, derived from gate receipts, ntry fees, donations, etc., is used exclusively to meet the necessary xpenses of upkeep and operation.

Societies or associations which have for their purpose the holding 324 of annual or periodical race meets, and from which profits inure or nay inure to the benefit of the members or stockholders do not come vithin the terms of this exemption.

Art. 74. Societies not agricultural or horticultural.-A corporation en- 325 gaged in the business of raising stock or poultry, or growing grain, fruits, or other products of this character, as a means of livelihood and for the purpose of gain, is an agricultural or horticultural society only in the sense that its name indicates the kind of business in which it is engaged and, as such, is not exempt from the requirements of the law, and must make returns and pay any income tax thereby shown to be due. (T. D. 2090.)

Art. 75. Cooperative associations defined.-Cooperative associations, 326 in order to come within the exemption provided in paragraph "eleventh" must establish to the satisfaction of the collector or Commissioner of Internal Revenue the fact that, for their own account, they have no net income, their business being to market the products of their members, and that the entire proceeds of such marketing, less necessary selling expenses, are turned back or paid to the members on the basis of the quantity of produce furnished by themquality and grade being considered-as the purchase price of such produce.

If in the course of their business such associations purchase for 327 cash at a stipulated price articles of produce with a view to selling them for gain, it will be held that such associations are organized for profit and such associations will be required to make returns of annual net income and include therein, for the purpose of the tax, all income derived from such transactions. (T. D. 2090.) If amounts paid to members are based solely upon the quantity of produce furnished, such amounts may be deducted from the gross pro ceeds of sales, and the taxable net income will be the amount of earnings passed to surplus, or distributed or distributable among members on the basis of their stock holdings.

Art. 76. Cooperative dairy defined.-Cooperative dairy companies or 328 associations not having capital stock and engaged in collecting milk and disposing of the same or the products thereof, and distributing the proceeds of the business, less necessary operating expenses, among their patrons, upon the basis of the quantity of butter fat in the miik furnished by such patrons, are held to be exempt from the tax imposed by this title.

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If, however, a dairy company purchases milk at a stipulated price and disposes of the same, or its products, through sale or otherwise, at a profit, and such profit inures to the benefit of the company or its members, on any basis other than the butter-fat content of milk furnished, such company will come within the requirements of the law, and will be subject to the tax. (T. D. 1996.)

330 Art. 77. Lodge system defined.-A society or association "operating under the lodge system" is one organized under a charter or dispensation with properly appointed or elected officers, with an adopted ritual or ceremonial, holding meetings at stated intervals. An order, society, or association coming within this definition is exempt from the requirements of the income-tax law.

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Art. 78. Qualifications for exemption.-In every instance wherein exemption is conditioned upon the ground that no part of the net income received by corporations inures to the benefit of any private stockholder or individual, it will be necessary, before such organizations will be classed as exempt, for them to show to the satisfaction of the collector or the Commissioner of Internal Revenue: (1) The character and purpose of the organization; (2) The source from which all its income is derived;

(3) What disposition is made of such incomes; and

(4) Whether or not any of it is credited to surplus or inures or may inure to the benefit of any private stockholder or individual. 332 Art. 79. Organizations, exemption doubtful.-Any corporation which entertains any doubt as to its status under the law, for the reason that it does not clearly come within one or another of the classes of those specifically enumerated as exempt, should, within the prescribed time, file a return and attach thereto for the consideration of the collector, a statement setting out fully the nature and purpose of the organization, the source of its income, what disposition is made of it, and particularly of any surplus which it may receive over and above its reasonable needs.

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If the collecter is in doubt, he will refer the statement and return to the Commissioner of Internal Revenue for decision, and withhold listing for assessment until a decision is reached. (T. D. 2090.)

Art. 80. Exemption established.-When a corporation or organization has established its right to exemption under any of the paragraphs of section 11 of this title, it will be unnecessary for it to make a return or to make any further showing thereafter with respect to its status under the law, unless it changes the character of its organization or the purpose for which it was originally created. 335 Collectors will keep a list of all corporations whose exemption is conditional, to the end that they may occasionally inquire into their status and ascertain whether or not they are violating the conditions upon which their exemption is predicated.