unpaid instalments. No penalty is assessed the taxpayer if the return was made in good faith, and the understatement was not due to his negligence, but interest at the rate of 6% per annum is added to the deficiency (Sec. 250(b)).

(b) In cases where claims for abatement have been filed and disallowed interest is charged against the taxpayer at 12% per annum on taxes for years prior to 1918; on subsequent taxes, 6%, except that where such claims refer to inventory losses the rate was 12% (Art. 1003).

(c) Fraudulent understatement of income and excess profits tax returns subjects the taxpayer to a 50% penalty, the 50% being applicable to the amount of the deficiency (Sec. 3176, revised statutes).

(d) A penalty of 5% is assessed against taxes unpaid for 10 days after demand by the collector, based on the unpaid amount, and interest at 12% accrues from the date due, as in (a) above (Sec. 250(e)). Remaining instalments also become due upon receipt of such notice and demand from collector.

(e) Failure to file a return when due and to give a satisfactory explanation results in a penalty of 25% of the tax (Sec. 3176, revised statutes). In addition a specific penalty of an amount not exceeding $1,000 attaches (Sec. 253). Refusal to file a return or to pay the taxes assessed may subject the individual or corporation to a fine not exceeding $10,000 (Sec. 253).

Where fraud exists, no limitation of time, during which taxes can be collected, applies (Sec. 1320 and 1322). Prosecution of an individual who has violated the act is limited, in general, to a period of three years following the commission of the offense (Sec. 1321).

Penalties should not be assessed because of failure of a corporation to adjust its invested capital in accordance with Article 845

of Regulations 45 which related to the necessity of the inclusion of a reserve for income taxes (A. R. R. 1167). Under Section 214 (a) (12) of the act of 1918 interest at the rate of 1% per month from the date the tax was due until paid was chargeable upon rejected claims for abatement filed on account of alleged losses in inventory (I. T. 1500). The 1% per month added to an unpaid instalment is to be computed from the date the instalment becomes due and attaches only to that instalment and not to the remaining instalments which become due under Section 250(a). Interest of 1% a month on a deficiency subsequently disclosed on the return attaches to the additional payment commencing with the date demand was made (S. O. 147). Taxes assessed within the five-year period of limitation may be collected by means of distraint after the expiration of the five-year period (I. T. 1446). Former stockholders of a corporation who received notice of an additional assessment after dissolution were not subject to the penalty for non-payment within ten days (I. T. 1455).

Where a delinquent erroneous return was filed and there was no reasonable cause for the delinquency, the penalty for failure to file within the time prescribed is applicable, but the penalty and interest relating to negligence are not applicable because the negligence penalty applies only to a deficiency in payment (Sol. Op. 151). The 25% ad valorem penalty of 3176, R. S. attaching to delinquent returns when filed need not be assessed if reasonable cause is shown; and because the tax becomes due immediately no interest is applicable (O. D. 1111 modified; Sol. Op. 150). Under the act of 1917 an individual who receives income from a trade or business having an invested capital was required to file a separate excess profits tax return in addition to his income tax return, even though he made an income tax return which implied that he was not engaged in a business having an invested capital. The fact that the taxpayer turned over to an expert accountant what he thought was sufficient data as a result of which his income was understated did not constitute reasonable cause for failure (Bean v. Hamilton; T. D. 3519). Where an executor or administrator is delinquent, without a reasonable cause, in making a required return, the 25% penalty must be asserted (I. T. 1727). Interest will not be collected on that portion not abated of an abatement claim filed by an estate. If, however, the demand was made upon the individual prior to his decease, the interest on the unabated portion will be collected (I. T. 1726). A claim for abatement was filed by a collector; no interest or penalty should attach until after ten days follow

ing notice and demand (I. T. 1599). Where a return contains a fraudulent understatement of tax but the deficiency is wiped out by applying an allowable deduction, the ad valorem penalty is not applicable. Where penalty and interest is assessed for failure to pay within ten days and by reason of a redetermination the tax is reduced, so much of the penalty and interest as is applicable to the tax refunded may be remitted (L. O. 96 modified; L. O. 1115).