election to report income from community property in separate returns, an extension of time granted the husband does not inure to the wife. (C. B. II-1, 167; I. T. 1702.)

WHEN TAXPAYERS ARE ABROAD.-Section 227 (a) of the law provides that the six months' limitation upon the power of the Commissioner to grant extensions of time for filing returns shall not apply to taxpayers who are abroad. The Commissioner has accordingly granted a general extension in the cases listed in the following regulation:

REGULATION. An extension of time for filing returns of income for 1925 and subsequent years and for paying the tax is hereby granted up to and including the fifteenth day of the sixth month following the close of the taxable year in the case of:

(a) Foreign partnerships and foreign corporations, regardless of whether or not they maintain an office or place of business within the United States;

(b) Domestic corporations which transact their business and keep their records and books of account abroad;

(c) Domestic corporations whose principal income is from sources within the possessions of the United States; and

(d) American citizens residing or traveling abroad, including persons in military or naval service on duty outside the United States.

The installments of tax which are actually due must be paid at the time of filing the return and the other installments shall be paid as they fall due. In all such cases an affidavit must be attached to the return, stating the cause of the delay in filing. Taxpayers who take advantage of this extension will be charged with interest at the rate of 6 per cent per annum on the first installment of tax from the original due date until paid. (Art. 444.)

EXTENSIONS OF TIME FOR RETURNS OF INFORMATION.-Collectors are instructed to restrict extensions of time for filing Forms 1096 and 1099 to fifteen days from the due date except in unusual cases. (C. B. IV-2, 71; Mim. 3370.)

TENTATIVE RETURNS.-Neither the law nor the regulations prescribe that a tentative return shall be filed on the original due date when an extension of time for filing a return is granted. In practice, however, taxpayers are usually required to file a tentative return as a prerequisite to the granting of the extension.

RULING. By a "tentative return" is meant a return on the appropriate income tax form, showing only the name and address of the taxpayer and the estimated amount, if any, of the tax due. The items and schedules shown on the form need not be filled in. (Letter from Deputy Commissioner E. H. Batson to Lybrand, Ross Bros. & Montgomery, dated March 25, 1922.)

EFFECT OF TENTATIVE RETURN ON STATUTE OF LIMITATIONS.In Dallas & Co.'s Appeal (3 B. T. A. 856) the Board said:

DECISION. We are, therefore, of the opinion that the form of tentative return used by this taxpayer and filed with the collector on March 12, 1919, was not a return required by the statute; that the return prepared and filed with the collector on June 13, 1919, was the return required by statute; and that the five-year period of limitation with which assessment might be made began to run on the day following June 13, 1919.

Place for filing returns.—

LAW. Section 227. . . . (b) [Individuals] Returns shall be made to the collector for the district in which is located the legal residence or principal place of business of the person making the return, or, if he has no legal residence or principal place of business in the United States, then to the collector at Baltimore, Maryland.

Section 241. ... . (b) [Corporations] Returns shall be made to collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland.

An individual whose legal residence and principal place of business are not in the same district may file his return in either place.

Returns filed by mail.-Returns may be delivered either by hand or by mail.

REGULATION. If placed in the mails, the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not actually be received by such officer until subsequent to that date. Where a question may be raised as to whether the return was posted in ample time to reach the collector's office on or before the due date, the envelope in which the return was transmitted will be preserved by the collector and forwarded to the Commissioner with the return. (Art. 445.)

Prudent taxpayers distrust the ordinary mails and require registry receipts. In the light of the Board's decision in Lawrence's Appeal (3 B. T. A. 40) the distrust will be increased. In this case a taxpayer signed and made oath to his 1918 return on March 7, 1919. The collector acknowledged in 1925 that the return had been. "located." Nevertheless, the Board upheld the Commissioner on the ground that the date of filing was not stamped on the return which the collector had "located" in his office and the taxpayer produced no "evidence" of the date of mailing to the collector.

The Tax Board's action is in line with the decision in McDonald Coal Co. v. Lewellyn [9 F. (2d) 994]. A waiver was deposited in a post office box addressed to the Commissioner. The Commissioner contended that it had not been received. The court said:

DECISION. There is no evidence of its receipt there. The act requires the waiver to be filed. The act imposes upon the taxpayer the duty of seeing that his waiver actually reaches the proper office for filing. That responsibility is his, and the burden rests upon him actually to convey the waiver to the Commissioner's office. The waiver was not in the files; there is no evidence that it ever actually reached the files. In our opinion, the act of Congress was not complied with until the waiver was actually filed with the Commissioner. The duty of the taxpayer was not discharged under this statute merely by depositing the waiver in the postoffice. He had the duty of seeing that it was received by the Commissioner of Internal Revenue for filing. If he chooses to trust the mails, rather than to make delivery to the Commissioner in person, it was at his own risk.

Period for which returns are made.-Returns of net income are ordinarily made for a "taxable year" of twelve months. Only in unusual circumstances are returns made for a shorter period, such as when corporations or partnerships are entering or going out of business, individuals, partnerships or corporations are changing fiscal years, and when administrators make returns for decedents or are beginning or ending the accountings of estates.

Maximum period to be covered by return.-The law refers to a taxable year or to a calendar year and to fractional parts of a year, and it states that a fiscal year means an accounting period of twelve months. (Section 200.) There is no specific prohibition in the law against a return covering a longer period; but the direction to file for a year or less would be held to be a prohibition. The regulations are specific.

REGULATION. No return can be made for a period of more than twelve months. (Art. 431.)

"TAXABLE YEAR" AND "FISCAL YEAR" DEFINED.—

LAW. Section 200. (a) The term "taxable year" means the calendar year or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 212 or 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The term “taxable year” includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the Commissioner with the approval of the Secretary,

the period for which such return is made. The first taxable year, to be called the taxable year 1925, shall be the calendar year 1925 or any fiscal year ending during the calendar year 1925. . . .

REGULATION. The taxable year is the time unit for the purpose of the tax. The term includes, in the case of a return made for a fractional part of a year under these regulations, the period for which the return is made. .. .. (Art. 1523.)

A return for a fractional part of a year comes within the definition of a "taxable year" return.10

FISCAL YEAR BASIS AVAILABLE TO ALL TAXPAYERS.

LAW. Section 212. . . . (b) The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be)" in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 200 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

(c) If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.12 . . .

....

A newly organized business, whether incorporated or not, may establish its fiscal year without securing the approval of the Commissioner.13 In such a case the first return may or may not be for less than twelve months, depending upon the date of organization and the month selected as the close of its fiscal period. For a discussion of the computation of the tax in the case of fiscal years ending in 1925, see Chapter 7.

10

[Former Procedure] The 1918 and 1921 laws defined a "fiscal year" as "an accounting period of twelve months. ...” (section 200). The Treasury held that a taxable period of less than twelve months was not a "taxable year." (See Chapter 34.) Consequently, those taxpayers who were required to report for a fractional part of a year were unable to gain the benefits of those sections of the law relating to "taxable years." The Board and the courts have held that where the first taxable period is less than twelve months, the said period is a taxable year. In the author's opinion, any fractional period not the result of a voluntary change is a taxable year within the meaning of the law. "For members of a partnership see section 218 (a).

12 See pages 52, 53, and 122.

"C. B. 2, 67; O. D. 404. C. B. III-2, 347; A. R. R. 7932.

FISCAL YEAR returns requIRED IF ACCOUNTS ARE KEPT ON THAT BASIS. The 1918 law 14 established the rule that if the taxpayer keeps his accounts on a fiscal year basis, he must use that basis in making his tax return, even though he had been required to use the calendar year basis for returns under laws prior to that of 1918.

However, in Marlboro Fertilizer Co.'s Appeal [3 B. T. A. 82 (A)] the Board required fiscal year returns even though new books were opened each year on January 1, no transfers to surplus were made until that date and no directors' meetings were held for the declaration of dividends until the end of December or beginning of January. The Board must have considered the holding of the annual stockholders meeting on July 1 to be the criterion, coupled with the ruling down of the profit and loss account at June 30. After finding that the taxpayer's books were kept on a calendar year basis, the Board required fiscal year returns!

BOOKS MUST be kept if RETURN MADE ON FISCAL YEAR BASIS.It has been held that in order to report on a fiscal year basis, it is necessary that the taxpayer keep books of account.15 In many cases, however, individual taxpayers keep practically all of their personal accounts in the books of the business in which they are interested. In such cases, the individual should be permitted to adopt the fiscal year of the business for tax purposes. The Treasury and the Board of Tax Appeals have held to the contrary,16 but in the opinion of the author an appeal to the courts on this question would eventually be successful.

Recognition of accounting periods as taxable years.-A sharp distinction must be drawn between the procedure which applies in cases in which a fiscal year has already been established, and cases in which it is desired to change the accounting period and to have the newly established year accepted as the taxable year.17

RECOGNITION OF EXISTING FISCAL YEAR AS "TAXABLE” YEAR.— The law provides no formality such as a notice to the collector as a

"1918 law, section 212 (b). All taxpayers have been on notice since February, 1919, regarding this rule. The Commissioner is given no discretion in enforcing it. If any taxpayer is still reporting on a calendar year basis when his books are kept on a fiscal year basis there has been a technical, but clear violation of the law which should be adjusted as speedily as possible.

25 C. B. 3, 81; O. D. 696. C. B. III-2, 347; A. R. R. 7932.

18 C. B. 4, 71; O. D. 941. Drake's Appeal, 1 B. T. A. 1235.

17

Taxpayers making their first returns must do so on the basis of fiscal years if they have established such fiscal years.