ditional compensation. Of course, he would report on the basis of what the actual cost to him would be, taking the benefit of manufacturers' or wholesale prices, rather than what he would have had to pay if he had not been in a position to secure such concessions. (But see T. D. 3435 and Art. 31.)

There may be in some cases a question as to whether or not some items like the foregoing are compensation or gifts. This probably depends legally upon the contractual relation between the one who pays and the recipient. If the rent, fuel, automobile and similar privileges are part of the employment contracts, express or implied, and thus show on their face that more or less value attaches thereto, the cash equivalent of the items is taxable. If, however, the privileges are not part of a contract and are pure gifts or are for the convenience of the employer and are mere savings, and if no diminution of cash compensation results therefrom, they do not constitute taxable income.

It has been held 20 that when property is sold to employees or stockholders for substantially less than its fair market value, the difference shall be considered income to the employees or stockholders. Where there is an intention to distribute profits, or pay additional compensation, this ruling is sound, but taxable income can hardly be said to arise from the privilege accorded to employees to purchase merchandise at cost or at a price less than the usual retail price.

The principle applies only to cases where there is such a close. connection between sellers and buyers as to make the transaction colorable. When the relationship is that of the ordinary buyer and seller the prices fixed may be anything the seller chooses to accept. There is no law, statute or moral, which prevents a solvent owner of property from selling it for half its apparent market value.

Compensation received in the form of per diem allowances and mileage-According to article 102 of the Regulations (see chapter 30), stated allowances per mile or per diem to cover traveling or living expenses are income to the extent of any excess of such allowances over actual expenses.

In the case of liberal allowances, such as congressmen receive, part of the allowance obviously should be taxable. In other cases, such as that of army officers, the allowance closely approximates

2o C. B. II-1, 50; T. D. 3435, now incorporated in Art. 31.

the expenditure and it may not be worth while to attempt an exact accounting. There is, however, a definite obligation imposed upon the recipient to keep such a record as will indicate at the close of taxable periods whether or not return should be made. The record of deposits in one's cheque book usually is sufficient.

The Treasury has held that transportation charges paid by the government on account of the transportation of the families of army officers are in the nature of additional compensation. (C. B. 5,

174; O. D. 1135.)

RULING. A person in the service of the American Red Cross receiving maintenance but no pay should return as income any excess of the amount received for maintenance over his actual living expenses. (C. B. 1, 66; O. D. 11.)

Compensation received in the form of deductions for pension funds, etc.-When deductions are made from the salaries or wages of employees (other than state or municipal employees) to cover compulsory or voluntary contributions to pension, sick or insurance funds, such payments or deductions should be added to the amounts received in reporting income which is subject to tax. (C. B. V-1, 20; I. T. 2250.)

REGULATION.

pensions or retiring allowances paid by private persons.... are income to the recipients; (Art. 32.)

However, a pension bond received by an employee is not income when received, because not readily realizable, but the annuities payable thereunder will be income in the year in which received. (C. B. II-2, 70; I. T. 1810.)

This ruling is based on the assumption that the employer has deducted the purchase price as an expense. If it is a gift the recipient is not subject to tax.

Tuition fees paid by employer.—

RULING. Employees of a corporation are required to go to schools not owned by it and maintain a certain average as a condition precedent to continued employment. The amount expended by the company for books, tuition, etc., in connection with the schooling should be included in the gross income of the employees. (C. B. I-1, 72; I. T. 1304.)

The foregoing is not unreasonable. The amounts expended are properly classed by the employers as compensation paid to or for account of employees.

Unemployment benefits.

RULING. Amounts paid by an organized labor union as unemployed benefits to its unemployed members are required to be included in gross income of the recipients. (C. B. I-1, 63; I. T. 1293.)

Where deductions are made from the pay of an employee for an unemployment fund, the employee will return as taxable income any excess of benefits received from the fund over contributions made by him thereto. (C. B. III-1, 121; I. T. 1918.)

The line between the profits resulting from business, dealt with in this chapter, and the profits resulting from appreciation of property, discussed in Chapter 18, must be somewhat arbitrarily drawn. Most business consists of dealing in property, while all dealings in property are usually thought of as "business" transactions.

An attempt is made to distinguish between income from the purchase and sale of merchandise, securities and other property by dealers, and income or profits realized by investors and others who are not dealers. General principles regarding the nature and taxation of appreciation of fixed assets and investment securities, real estate, etc., are discussed in Chapters 17 to 21. Sales and exchanges of property (not forming part of a dealer's stock-in-trade) are also discussed therein. The discussion of inventories and installment sales falls within the scope of this chapter, but, owing to the special treat

ment which these subjects require, Chapters 16 and 20 respectively, are devoted to their discussion.

LAW. Section 213. ... (a) The term "gross income" includes gains, profits, and income derived from . . . trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from.... the transaction of any business carried on for gain or profit,

Gross income from business defined.

REGULATION. In the case of a manufacturing, merchandising, or mining business "gross income" means the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources. In determining the gross income subtractions should not be made for depreciation, depletion, selling expenses, or losses, or for items not ordinarily used in computing the cost of goods sold. (Art. 35.)

Business need not be lawful.-Since the law of 1913 (section II-B) provided that the tax was levied on the gains from "any lawful business carried on for gain or profit" and the word lawful was omitted from later laws, it would seem that Congress meant to make "stealings" and "winnings" taxable as well as "earnings." Income from gambling and bootlegging would, of course, come under this head. See Steinberg v. U. S. [14 F. (2d) 564].

In this country there is not a large class of professional gamblers; occasional betting is frequent, millions of dollars being wagered on the results of political campaigns, athletic contests, etc. The winnings are subject to tax. What is won cannot be termed a gift or any other item specifically exempt from taxation, and "gains derived from any source whatever" are taxable. One need however include only net receipts from gambling in his income tax return. The Treasury tried to hold that gross receipts were taxable and gross losses were not deductible, but the Tax Board overruled the Commissioner who has acquiesced in the Board's decisions. Net losses are deductible when the transactions were entered into for profit, but only in states where betting is not illegal. (C. B. IV-1, 147; S. M. 2680A.)

In McKenna's Appeal [1 B. T. A. 326 (A)] the Board held that "his gain or profit was the aggregate of his receipts less the

1 This statement of course does not modify those sections of the law and regulations which permit the use of recognized accounting practices. A taxpayer will not be required to change his method of accounting merely to ascertain items of "gross income."