VIMU

of the gospel applies only to ordained ministers (I. T. 1306). The pension of a retired clergyman, paid from a fund obtained by assessments against the churches of the denomination, is taxable income (I. T. 1157). Army chaplains were not required to include quarters furnished as income, but an allowance in lieu thereof was income (I. T. 1307). However, army officers and members of the United States Public Health Service were required to report commutation whether received in kind or in money (O. D. 921, O. D. 1098). Post allowances received by members of the Diplomatic Service were likewise held to be additional compensation (O. D. 997). Where hospital employees were subject to call at any time, meals, quarters, and so forth, furnished them while at the hospital were not income, but furnished "for the convenience of the employer" (O. D. 915). The same rule was applied to employees of a fishing company where quarters and meals were furnished near their work (O. D. 814), to seamen while on board ship (O. D. 265), and to employees who were furnished with "supper money" (O. D. 514). But the rental value of quarters furnished employees in the Indian service was taxable, for such quarters were charged to the appropriation from which services were paid (O. D. 914). Business traveling expenses allowed in excess of those incurred were considered income (O. D. 1015). Amounts received in excess of actual expenses should have been reported by a Red Cross worker (O. D. 11). Where the corporation paid premiums on life insurance policies taken out on employees and the employees are permitted to designate the beneficiary, such premiums are additional compensation to the employees and must be reported as income (O. D. 627). Employees who had subscribed for stock which was being paid in part or whole by dividends on the stock, were required to report the dividends so applied as additional compensation for services at the time the title to the stock passed to the employee (O. D. 791). The cost of books and tuition paid out by a corporation for the benefit of its employees who were required by the corporation to go to school was held to be taxable income to the employees (I. T. 1304). An officer of a corporation who performed services for the corporation outside of his required duties was required to report the "gratuity" received therefor as taxable income (I. T. 1262). Property acquired from a corporation or employer by a shareholder or employee for less than its fair market value gives rise to taxable income for the difference (T. D. 3425). Amounts withheld from the salary of Government employees for retirement annuities should be reported as income as well as the amount finally received in excess

of the actual withholdings (T. D. 3112). An inventor should have reported as income contributions which he used to defray living expenses (O. D. 1145).

Distinction between compensation for services and other forms of receipt. Where the president of a corporation, upon the sale of the corporation, agreed for a certain sum not to engage in a similar business, such sum was income to him and not conversion of capital (O. D. 668). Where an executor received a bequest contingent on continuous services in addition to regular salary, the sum received was regarded as additional salary and not a bequest (0.980). Commissions received by an executor for selling property of the estate is income taxable in the personal return of the executor (O. D. 632). Bonuses are taxable income, but not if they are gifts (O. D. 570). An amount equal to the salary of an officer of a corporation was given to his widow, and was held to be a gratuity (O. D. 1017). But a gratuity for long and faithful service was held to be taxable (O. D. 1029). Benefits received from a labor union during strike was held to be gross income (O. D. 552 and I. T. 1293). Pensions received by teachers under the Carnegie Foundation were held at first to be taxable (O. D. 361) but later were held exempt as the compensation was classed as a gift rather than a pension (L. O. 1040). A prize from a newspaper guessing contest (I. T. 1651) and an automobile received by the holder of a certain restaurant ticket (I. T. 1667) were regarded as forms of compensation.

Military exemptions. Pensions paid by the United States to widows of soldiers, as such, are not taxable income (O. D. 957), and this includes pensions received under the act of March 4, 1917, commencing January 1, 1921 (I. T. 1640). A state bonus to service men is tax exempt income to the recipient (O. D. 286). Civilian attachés, instructors, employees, and so forth, in the employ of naval or military divisions cannot claim the $3,500 exemption allowed under the 1918 act for compensation received between January 1, 1918, and December 31, 1920 (O. D. 1203, overruling O. D. 900) by soldiers and sailors (O. D. 435, 752, 462, 436, 329, 485, 663, 904 overruling 495). The Public Health Service was held not to be part of the military forces of the United States (T. D. 3242), but members of the United States Coast and Geodetic Survey were entitled to the exemption (I. T. 1402). Naval reservists' retainer fees are taxable income (O. D. 463). The $3,500 military exemption included discharge bonus, mileage from point of discharge to home, and ration money for periods of furlough (O. D. 370) but did not apply in

1921 to retirement pay received by a member of the Marine Corps (I. T. 1237). Soldiers and sailors are entitled to an exemption of $3,500 on salaries received from the United States over and above the personal exemption (O. D. 123).

Non-taxable compensation. Compensation of state officers and employees is wholly exempt (T. D. 2843), but they must be in continuous and regular employment of a state, a political subdivision thereof (O. D. 545, 256), or an institution wholly supported by a state (O. 826, O. D. 1038); but compensation received by regular employees of a state under the SheppardTowner Act was held to be non-taxable, although one-half is received from the United States (I. T. 1652). Payment on a per diem basis does not affect the rule (O. D. 33). Exempt income from a state has been held as not including:

1

(a) Court appointees, such as administrators, executors, appraisers, and attorneys (O. D. 256, 369, 1305, 1316, 1245). (b) Witness fees (O. D. 195).

(c) Salary jointly paid by state and private company (O. D. 553).

(d) Salary paid from endowment fund owned by state (0. D. 449), or from fees collected from the Federal Government (O. D. 484).

(e) Pensions paid to Confederate soldiers (O. D. 903). (f) Salaries of public school teachers where the school was maintained by a corporation (O. D. 963).

(g) Salaries of library employees were where the library was a private corporation, notwithstanding that most of the funds came from a city (O. D. 973).

(h) Compensation of harbor pilots, appointed by state, but paid by those for whom service was performed (O. D. 916; A. R. R. 933).

(i) Salaries of teachers in Hawaii (O. D. 12).

(j) Salaries paid by foreign states (O. D. 20).

(k) Salary of chief engineer appointed by a sewerage commission created by a city council (O. D. 309).

1 The Sheppard-Towner Act, passed by Congress November 23, 1921, provides for the establishment of state agencies "for the promotion of welfare and hygiene of maternity and infancy and for other purposes." The Federal Government pays one-half of the expenses of these agencies.

(1) Notary fees turned over to a corporation (I. T. 1685). (m) Income received by a proxy which a state court stenographer was permitted by law to substitute (I. T. 1674). Exempt income from a state has included:

(a) Fees for serving on a jury of a state or political subdivision thereof (O. D. 434).

(b) Compensation as a receiver appointed jointly by state and Federal courts; that portion paid by state only is exempt income (O. D. 503).

(c) Salary of referee in a drainage (state) project (O. D. 525).

(d) Compensation of a national guard officer; but when paid by the United States is not exempt (O. D. 942).

(e) Pensions to retired employees (O. D. 434, I. T. 1607). (f) Compensation to Spanish War veterans (I. T. 1253). (g) Salary from a state received by a non-resident alien (O. D. 274).

(h) Salary paid attorney aiding state controller (O. D. 494).

(i) Salaries of members of the Virginia Debt Commission (O. D. 257).

(j) Compensation of public administrators in Missouri (I. T. 1693).

Evans v. Gore does not prohibit the taxation of salaries of Federal judges at rates existing at the time of their appointment (T. D. 3049), but has no application to retired pay (I. T. 1243). Federal referees in bankruptcy are not exempt (O. D. 678), nor are judges in territorial courts (O. D. 899). The United States General Appraisers were given the status of an inferior United States court by the act of August 5, 1909, and members thereof are subject to the same exemptions as Federal judges (I. T. 1739).

FORGIVENESS OF INDEBTEDNESS

The cancellation of indebtedness, dependent on the facts of the case, may actually be a payment of income, a gift, or

a capital transaction to the person or business benefited. If cancelled in consideration of services rendered, it is income. If cancelled without consideration, but only to benefit the creditor, it amounts to a gift and is not income to the creditor. If a stockholder in a corporation forgives a debt due him from the corporation, it is a contribution of capital to the corporation (Art. 50).

Under the act of 1909 accounts payable outlawed and written off during the year represented taxable income for that year (T. D. 3147). Similarly, debts cancelled in part through a composition with creditors were taxable income in the year of cancellation (I. T. 1547) but no income arises from a cancellation of debts as the result of an adjudication in bankruptcy or from a composition with creditors following such adjudication (I. T. 1564).