are therefore not deductible from gross income in arriving at the net income upon which the income tax is computed.

Publicity of supplementary statements.-The supplementary statement which is made a part of the return form prescribed for the use of corporations in making returns of annual net income is by express terms made a part of the return, and to the same extent that the return constitutes a public record and is open to inspection, to that extent the supplementary statement is also a public record and open to inspection "only upon the order of the President under rules and regulations prescribed by the Secretary of the Treasury and approved by the President."

Place of filing returns.—In the case of domestic corporations whose books of account and other data are kept in foreign countries, the returns should be made to the collector of internal revenue of the district in which they have branch offices in this country, if they have such branch offices. Otherwise, the returns of annual net income of such corporations should be made to the collector of the district in which are located the statutory offices of the corporations.

Private banks-Associations.-Private banks which have the form of corporate organizations, elect officers and a board of managers, have a distinctive name, a fixed situs, and distribute their net earnings upon the basis of the amount of capital invested by the members or owners are held to be associations within the meaning of the Federal Income Tax Law, and in their organized capacity should make returns of annual net income and pay any income tax thereby shown to be due.

The holders of the stock or the owners of the bank will be exempt from the normal tax to the extent of the dividends or earnings which they receive from such private banks as make returns in their organized capacity and pay income tax in accordance therewith. The individual owners of the bank will not be required to return as income for the purpose of the normal tax any dividends or earnings received from the private bank which pays the tax on its net earnings, but for

the purpose of the supertax the dividends will be returned as income by the individual stockholders or owners.

Private banks-Individual ownership.-When it can be clearly shown that a private bank is owned by one man, it is evident that such bank is not an association within the meaning of the Federal Income Tax Law, and that therefore such bank will not be required to make a return such as corporations and associations are required to make, but the individual owner, if he has a net income of $3,000 or more, will be required to make a return on Form 1040, showing in such return the income which he receives not only from the bank but from all other sources.

Paid-up capital stock.-In making returns of annual net income for the purpose of the income tax, every corporation, in making such returns, must report under item 1 of the return form the total par value of its stock, both common and preferred, outstanding at the close of the year.

Stock outstanding at the close of the year and upon the basis of which dividends are or may be paid is held to be paid-up capital stock within the meaning of the law. For this purpose it is immaterial whether the stock be paid for in cash, promissory notes, or other assets. The fact that notes are given in payment of the stock issued and that the notes have not been paid in full at the time the return is made is immaterial.

Returns of holding companies.-In a case wherein a holding company actually takes up each month on its books its proportionate share of the earnings of the underlying companies, such holding company will be required to include in its gross income the amounts thus taken up regardless of the fact that the same may not have been actually paid to it in cash. The fact that the underlying companies credit to the holding company the amount of earnings to which it is entitled on the basis of the stock it holds, together with the fact that the holding company takes up on its books the amount thus credited, renders it incumbent upon the holding company to return these amounts as income, regardless of the fact that

the underlying companies needed these earnings and used them in making extensions and improvements and in furtherance of their business.

Expenditures for such extensions and improvements being chargeable to the property account of the subsidiary companies are not deductible from the gross income and will therefore not have the effect to reduce the earnings to their respective shares of which the stockholders are entitled.

Returns of subsidiary companies-Where made.—Under the provisions of the Federal Income Tax Law and the regulations of this department, every corporation, joint-stock company or association, and every insurance company, regardless of its relation to another corporation, is held to be a separate and distinct entity, and unless it comes within the class of organizations specifically enumerated in the act as exempt must make a separate and distinct return, complete in every detail.

If the subsidiary companies of any parent corporation making a return in any particular district have their principal places of business in the same district, such corporations will be listed by the collector of that district on his Form 632, and will be required to make separate returns as above indicated.

If, however, the subsidiary companies keep separate books of account and have their principal accounting offices in other districts, returns of such corporations will be made to the collector of internal revenue of the district in which they have such principal offices.

Real estate collateral.-The Federal Income Tax Law provides that in case of indebtedness wholly secured by collateral the subject of sale in the ordinary business of such corporation, joint-stock company or association, the total interest secured and paid by such company, corporation, or association within the year on any such indebtedness may be deducted as a part of its expenses of doing business.

Real estate to constitute collateral within the meaning of this clause of the law must be such real estate as is in fact

the subject of sale in the ordinary business of the corporation. If the corporation whose ordinary business is the purchase and sale of real estate has an office building under mortgage, which office building is not subject to sale in the ordinary business of the corporation, the interest paid on such mortgage will not be deductible under item 4 of the return form (1031), but in that case would be deductible under item 6 (a) of the return form to an amount not in excess of the limit fixed by the law as set out in said item.

Tentative returns.-In cases wherein foreign corporations or domestic corporations doing business in foreign countries are unable to assemble their data in time to make their returns of annual net income within the prescribed time, it will be permissible for such corporations upon a showing of this fact to file with the collector of internal revenue a tentative return in which there shall be approximated, as nearly as possible, the actual business transacted during the year.

This tentative return will be substituted by a true and accurate return as soon as the necessary data to make such true and accurate return shall be available.

Collectors of internal revenue are authorized to grant an extension of time not in excess of 30 days from the date when returns are due, such extension to be granted only in cases wherein the neglect to file the return within the prescribed time was due to the sickness or absence of an officer whose signature to the return was necessary. Foreign corporations or domestic corporations doing business in foreign countries cannot be granted an extension of time merely for the reason that they are unable to assemble their data to make the return within the prescribed time. In all such cases liability to the penalty of the act can be obviated only by filing a tentative return as herein before indicated.

Tax payable at source on bond coupons.-Interest received by a corporation on bonds by the terms of which the debtor corporation is required to pay any tax which may be assessed thereon must be returned by the corporation receiving the same as a part of its gross income, and, notwithstanding the

fact that the debtor corporation may have withheld and paid the tax on such interest, the receiving corporation is not permitted to deduct from its gross income the amount of interest upon which this tax may have been paid.

Tax-free covenant.-The contract between the issuing corporation and the bondholder whereby the bonds are guaranteed to be tax free is a contract in which this office in the administration of the Federal Income Tax Law can have no concern. Each corporation must account for, in its return of annual net income, all income which it receives from all sources. Interest received by a corporation on bonds which it holds, whether they are guaranteed to be tax free or not, must be included in the income of the corporation receiving the same and so accounted for in its return of annual net income. In other words, the corporation receiving the income must pay the tax upon the same, if it have a net income subject to tax, and the matter of complying with the covenant of the bond is a matter to be adjusted between the debtor corporation and the bondholder.

Subsidiary companies must make returns.-In the case of parent corporations owning all or practically all of the stock of subsidiary companies, it is held that both corporations are separate and distinct entities and that each must make true and accurate returns, accounting for, in detail, their separate gross income and deductions therefrom, and each such company will be required to pay the income tax on the net earning shown by such return.

It is not sufficient for the purpose of the Income Tax Law that the parent company shall report the gross income of the subsidiaries and deduct from such gross income the expenses of such subsidiaries. The net earnings of the subsidiary companies turned over to the parent company are dividends within the meaning of the law, and as such dividends are not deductible from gross income, the parent company must pay income tax on its net income notwithstanding the fact that the earnings out of which the dividends were paid had been subject to tax as against the subsidiary companies.