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Taxable Years
Beginning in 1940

gard to the amendments made by section 101 (a), (b), and (c) of the Second Revenue Act of 1940. In no case shall the effect of this section be to increase the tax computed without regard to this section by more than 10 per centum of the amount by which the net income exceeds such tax. For the purposes of this section, the tax computed without regard to this section shall be such tax before the application of the credit provided in section 31 ("foreign tax credit"), and the credit provided in section 32 (taxes withheld at the source).

Sec. 15, I. R. C., supra, as shown in italics before being stricken through and before addition of underlined italics added to I. R. C. by Sec. 201, R. A. of 1940, which by its Own terms is applicable to taxable years beginning after Dec. 31, 1939.

Sec. 15, I. R. C., again amended by Sec. 101 (d), Second R. A. of 1940, by omission of language in stricken through italics and addition of language in underlined italics. Sec. 101 (e) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1939.

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Sec. 21. (a) Definition.-"Net

Sec. 21. (a) Definition.-"Net income" means the gross income income" means the gross income computed under section 22, less the computed under section 22, less deductions allowed by section 23. the deductions allowed by section 23.

PART II-COMPUTATION OF NET
INCOME

Sec. 21. Net income.

See p. 22, Eighth Edition.

Taxable Years
Beginning in 1943

Sec. 21. (b) Cross references.—

For definition of "adjusted net income" and "normal tax net income," see section 13. Sec. 21 (b), I. R. C, supra, amended by Sec. 210 (a), R. A. of 1939 to read as above. Sec. 229 of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1939.

For Sec. 21 (b), I. R. C., before amendment, see 1939 column.

Sec. 22. Gross income.

Sec. 22. (a) General definition.—

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Sec. 22. Gross income.

Sec. 22. (a) General definition.—

Taxable Years
Beginning in 1941

Sec. 21. (b) Cross references.—

For definition of "adjusted net income" and "normal tax net income," see section 13.

Sec. 21 (b), I. R. C., supra, amended by Sec. 210 (a), R. A. of 1939 to read as above. Sec. 229 of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1939.

For Sec. 21 (b), I. R. C., see 1939 before amendment, column.

Sec. 22. Gross income. Sec. 22. (a) General definition.— "Gross income" includes gains, "Gross income" includes gains, "Gross income" includes gains, profits, and income derived from profits, and income derived from profits, and income derived from salaries, wages, or compensation salaries, wages, or compensation salaries, wages, or compensation for personal service (including per- for personal service (including per- for personal service (including personal service as an officer or em- sonal service as an officer or em-sonal service as an officer or employee of a State, or any political ployee of a State, or any political ployee of a State, or any political subdivision thereof, or any agency subdivision thereof, or any agency subdivision thereof, or any agency or instrumentality of any one or or instrumentality of any one or or instrumentality of any one or more of the foregoing), of what- more of the foregoing), of what- more of the foregoing), of whatever kind and in whatever form ever kind and in whatever form ever kind and in whatever form paid, or from professions, voca- paid, or from professions, voca- paid, or from professions, vocations, trades, businesses, commerce, tions, trades, businesses, commerce, tions, trades, businesses, commerce, or sales, or dealings in property, or sales, or dealings in property, or sales, or dealings in property, whether real or personal, growing whether real or personal, growing whether real or personal, growing out of the ownership or use of or out of the ownership or use of or out of the ownership or use of or interest in such property; also from interest in such property; also from interest in such property; also from interest, rent, dividends, securities, interest, rent, dividends, securities, interest, rent, dividends, securities, or the transaction of any business or the transaction of any business or the transaction of any business carried on for gain or profit, or carried on for gain or profit, or carried on for gain or profit, or gains or profits and income derived gains or profits and income derived gains or profits and income derived from any source whatever. In the from any source whatever. In the from any source whatever. In the case of Presidents of the United case of Presidents of the United case of Presidents of the United States and judges of courts of the States and judges of courts of the States and judges of courts of the United States taking office after United States taking office after United States taking office after June 6, 1932, the compensation re- June 6, 1932, the compensation re- June 6, 1932, the compensation received as such shall be included in ceived as such shall be included in ceived as such shall be included in gross income; and all Acts fixing gross income; and all Acts fixing gross income; and all Acts fixing the compensation of such Presi- the compensation of such Presi- the compensation of such Presidents and judges are hereby dents and judges are hereby dents and judges are hereby amended accordingly. In the case amended accordingly. In the case amended accordingly. In the case of judges of courts of the United of judges of courts of the United of judges of courts of the United States who took office on or before States who took office on or before States who took office on or before June 6, 1932, the compensation re- June 6, 1932, the compensation re- June 6, 1932, the compensation received as such shall be included in ceived as such shall be included in ceived as such shall be included in gross income. gross income. gross income.

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or

Sec. 22. (a) General definition.— Sec. 22. (a) General definition.— "Gross income" includes gains, "Gross income" includes gains, profits, and income derived from profits, and income derived from salaries, wages, or compensation salaries, wages, or compensation for personal service (including per- for personal service (including personal service as an officer or em-sonal service as an officer or employee of a State, or any political ployee of a State, or any political subdivision thereof, or any agency subdivision thereof, or any agency or instrumentality of any one or or instrumentality of any one more of the foregoing), of what- more of the foregoing), of whatever kind and in whatever form ever kind and in whatever form paid, or from professions, voca- paid, or from professions, vocations, trades, businesses, commerce, tions, trades, businesses, commerce, or sales, or dealings in property, or sales, or dealings in property, whether real or personal, growing whether real or personal, growing out of the ownership or use of or out of the ownership or use of or interest in such property; also from interest in such property; also from interest, rent, dividends, securities, interest, rent, dividends, securities, or the transaction of any business or the transaction of any business carried on for gain or profit, or carried on for gain or profit, or gains or profits and income derived gains or profits and income derived from any source whatever. In the from any source whatever. In the case of Presidents of the United case of Presidents of the United States and judges of courts of the States and judges of courts of the United States taking office after United States taking office after June 6, 1932, the compensation re- June 6, 1932, the compensation received as such shall be included in ceived as such shall be included in gross income; and all Acts fixing gross income; and all Acts fixing the compensation of such Presi- the compensation of such Presidents and judges and hereby dents amended accordingly. In the case of judges of courts of the United States who took office on or before June 6, 1932, the compensation received as such shall be included in gross income.

are

Sec. 22(a), I R. C., supra, amended to read as above by Sec. 1, Pub. Sal. Tax Act of April 12, 1939.

For Sec. 22(a) I. R. C., before amendment, see 1939 column.

judges are hereby amended accordingly. In the case of judges of courts of the United States who took office on or before June 6, 1932, the compensation received as such shall be included in gross income.

Sec. 22 (a), I. R. C., supra, amended by Sec. 1, Pub. Sal. Tax Act of April 12, 1939, by adding first italicized language and by Sec. 3 of said Act by adding second italicized language. See fn. 3 for Pub. Sal. Tax Act of 1939.

SEC. 2. Section 116 (b) of the Internal Revenue Code (exempting compensation of teachers in Alaska and Hawaii from income tax) is repealed.

SEC. 3. Section 22 (a) of the Internal Revenue Code is amended by adding at the end thereof a new sentence to read as follows: "In the case of judges of courts of the United States who took office on or before June 6, 1932, the compensation received as such shall be included in gross income".

Taxable Years Beginning before 1939

Sec. 22. Gross Income.

Sec. 22. (a) General definition.
See p. 22, Eighth Edition.

SEC. 4. The United States hereby consents to the taxation of compensation, received after December 31, 1938, for personal service as an officer or employee of the United States, any Territory or possession or political subdivision thereof, the District of Columbia, or any agency or instrumentality of any one or more of the foregoing, by any duly constituted taxing authority having jurisdiction to tax such compensation, if such taxation does not discriminate against such officer or employee because of the source of such compensation.

Taxable Years,
Beginning in 1943

Sec. 22. (b) Exclusions from gross income. The following items shall not be included in gross income and shall be exempt from taxation under this chapter:

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Sec. 22. (b) Exclusions from Sec. 22. (b) Exclusions from gross income. The following items gross income. The following items shall not be included in gross in- shall not be included in gross income and shall be exempt from come and shall be exempt from taxation under this chapter: taxation under this chapter:

Sec. 22. (b) (1) Life insurance. Sec. 22. (b) (1) Life insurance. Sec. 22. (b) (1) Life insurance. -Amounts received under a life-Amounts received under a life-Amounts received under a life insurance contract paid by reason insurance contract paid by reason insurance contract paid by reason of the death of the insured, whether of the death of the insured, whether of the death of the insured, whether in a single sum or otherwise (but in a single sum or otherwise (but in a single sum or otherwise (but if such amounts are held by the if such amounts are held by the if such amounts are held by the insurer under an agreement to pay insurer under an agreement to pay insurer under an agreement to pay interest thereon, the interest pay- interest thereon, the interest pay- interest thereon, the interest payments shall be included in gross ments shall be included in gross ments shall be included in gross income); income); income);

Sec. 22. (b) (2) Annuities, etc.— Sec. 22. (b) (2) Annuities, etc.Sec. 22. (b) (2) Annuities, etc.— (A) In General.-Amounts re- (A) In General.-Amounts re- Amounts received (other than ceived (other than amounts paid by ceived (other than amounts paid by amounts paid by reason of the reason of the death of the insured reason of the death of the insured death of the insured and interest and interest payments on such and interest payments on such payments on such amounts and

TITLE II

SEC. 201. Any amount of income tax (including interest, additions to tax, and additional amounts) for any taxable year beginning prior to January 1, 1938, to the extent attributable to compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing

(a) shall not be assessed, and no proceeding in court for the collection thereof shall be begun or prosecuted (unless pursuant to an assessment made prior to January 1, 1939);

(b) if assessed after December 31, 1938, the assessment shall be abated, and any amount collected in pursuance of such assessment shall be credited or refunded in the same manner as in the case of an income tax erroneously collected; and

(c) shall, if collected on or before the date of the enactment of this Act, be credited or refunded in the same manner as in the case of an income tax erroneously, collected, in the following cases

(1) Where a claim for refund of such amount was filed before January 19, 1939, and was not disallowed on or before the date of the enactment of this Act;

(2) Where such claim was so filed but has been disallowed and the time for beginning suit with respect thereto has not expired on the date of the enactment of this Act;

(3) Where a suit for the recovery of such amount is pending on the date of the enactment of this Act; and (4) Where a petition to the Board of Tax Appeals has been filed with respect to such amount and the Board's decision has not become final before the date of the enactment of this Act.

SEC. 202. In the case of any taxable year beginning after December 31, 1937, and before January 1, 1939, compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing, shall not be included in the gross income of any individual under Title I of the Revenue Act of 1938 and shall be exempt from taxation under such title, if such individual either

(a) did not include in his return for a taxable year beginning after December 31, 1936, and before January 1, 1938, any amount as compensation for personal service as an officer or employee of a State, or any po

litical subdivision thereof, or any agency or instrumentality of any one or more of the foregoing; or

(b) did include any such amount in such return, but is entitled under section 201 of this Act to have the tax attributable thereto credited or refunded.

SEC. 203. Any amount of income tax (including interest, additions to tax, and additional amounts) collected on, before, or after the date of the enactment of this Act for any taxable year beginning prior to January 1, 1939, to the extent attributable to compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing, shall be credited or refunded in the same manner as in the case of an income tax erroneously collected, if claim for refund with respect thereto is filed after January 18, 1939, and the Commissioner of Internal Revenue, under regulations prescribed by him with the approval of the Secretary of the Treasury, finds that disallowance of such claim would result in the application of the doctrines in the cases of Helvering against Therrell (303 U. S. 218), Helvering against Gerhardt (304 U. S. 405), and Graves et al. against New York ex rel O'Keefe, decided March 27, 1939, extending the classes of officers and employees subject to Federal taxation.

SEC. 204. Neither section 291 nor section 203 shall apply in any case where the claim for refund, or the institution of the suit, or the filing of the petition with the Board, was, at the time filed or begun, barred by the statute of limitations properly applicable thereto.

SEC. 205. Compensation shall not be considered as compensation within the meaning of sections 201, 202, and 203 to the extent that it is paid directly or indirectly by the United States or any agency or instrumentality thereof.

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SEC. 206. The terms used in this Act shall have the same meaning as when used in Chapter I of the Internal Revenue Code.

SEC. 207. No collection of any tax (including interest, additions to tax, and penalties) imposed by any State, Territory, possesion, or local taxing authority on the compensation, received before January 1, 1939, for personal service as an officer or employee of the United States or any agency or instrumentality thereof which is exempt from Federal income taxation and, if a corporate agency or instrumentality, is one (a) a majority of the stock of which is owned by or on behalf of the United States, or (b) the power to appoint or select a

Taxable Years
Beginning in 1940

Sec. 22. (b) Exclusions from gross income. The following items shall not be included in gross income and shall be exempt from taxation under this chapter:

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Sec. 22. (b) Exclusions from Sec. 22. (b) Exclusions from gross income.-The following items gross income. shall not be included in gross income and shall be exempt from taxation under this chapter:

Sec. 22. (b) (1) Life insurance. Sec. 22. (b) (1) Life insurance.— -Amounts received under a life Amounts received under a life ininsurance contract paid by reason surance contract paid by reason of of the death of the insured, whether the death of the insured, whether in a single sum or otherwise (but in a single sum or otherwise (but if such amounts are held by the if such amounts are held by the insurer under an agreement to pay insurer under an agreement to pay interest thereon, the interest pay-interest thereon, the interest payments shall be included in gross ments shall be included in gross income); income);

Sec. 22. (b) (2) Annuities, etc.— Sec. 22. (b) (2) Annuities, etc.Amounts received (other than Amounts received (other than amounts paid by reason of the amounts paid by reason of the death of the insured and interest death of the insured and interest payments on such amounts and payments on such amounts and majority of the board of directors of which is exercisable by or on behalf of the United States, shall be made after the date of the enactment of this Act.

SEC. 208. This title shall not apply with respect to any officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing, after the Secretary of the Treasury has determined and proclaimed that it is the policy of such State to collect from any individual any tax, interest, additions to tax, or penalties, on account of compensation received by such individual prior to January 1, 1939, for personal service as an officer or employee of the United States or any agency or instrumentality thereof. In making such determination the Secretary of the Treasury shall disregard the taxation of officers and employees of any corporate agency or instrumentality which is not exempt from Federal income taxation, or which if so exempt is one (a) a majority of the stock of which is not owned by or on behalf of the United States and (b) the power to appoint or select a majority of the board of directors of which is not exercisable by or on behalf of the United States.

SEC. 209. In the case of the judges of the Supreme Court, and of the inferior courts of the United States created under article III of the Constitution, who took office on or before June 6, 1932, the compensation received as such shall not be subject to income tax under the Revenue Act of 1938 or any prior revenue Act.

SEC. 210. For the purposes of this Act, the term "offieer or employee" includes a member of a legislative body and a judge or officer of a court.

SEC. 211. If either title of this Act, or the application thereof to any person or circumstances, is held invalid, the other title of the Act shall not be affected thereby. Approved, April 12, 1939.

Amendments

Sec. 401, R. A. of 1940, provides:

SEC. 401. Section 205 of the Public Salary Tax Act of 1939 is amended by adding at the end thereof a new sentence to read as follows:

"If the amount of the deficiency in income tax for any taxable year beginning before January 1, 1939, attributable to compensation paid indirectly by the United States, or any agency or instrumentality thereof, for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or in

See p. 24, Eighth Edition.

Sec. 22. (b) (1) Life insurance.
See p. 24, Eighth Edition.

Sec. 22. (b) (2) Annuities, etc.
See p. 24, Eighth Edition.

strumentality of any of the foregoing, is paid on or before March 15, 1941, then with respect to failure to pay such amount or make return of such compensation: (a) No criminal penalty shall apply; and (b) the additions to tax provided in sections 291 and 293 of the Internal Revenue Code shall not apply."

Approved, June 25, 1940, 11:45 a. m., E. S. T.

Sec. 509, R. A. of 1942, provides:

Sec. 509. Amendment to the Public Salary Tax Act of 1939.

(a) EXEMPTION OF CERTAIN COMPENSATION FOR PERIOD BEFORE 1939.-Section 203 of the Public Salary Tax Act of 1939 is amended by designating the present language contained therein as subsection (a) and by adding at the end thereof a new subsection to read as follows:

"(b) Any amount of income tax (including interest, additions to tax, and additional amounts) for taxable years beginning after December 31, 1938, to the extent attributable to compensation for personal service rendered in a taxable year beginning prior to January 1, 1939 (other than compensation received as a pension, retirement pay, or similar allowance), as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing

"(1) shall not be assessed; and

"(2) if assessed, the assessment shall be abated and any amount collected in pursuance of such assessment shall be credited or refunded in the same manner as in the case of an income tax erroneously collected,

if the Commissioner of Internal Revenue, under regulations prescribed by him with the approval of the Secretary of the Treasury, finds that assessment of such tax, or disallowance of a claim for credit or refund, except for Title I of this Act, would result in the application of the doctrines in the cases of Helvering against Therrell (303 U. S. 218), Helvering against Gerhardt (304 U. S. 405), and Graves et al. against New York ex rel. O'Keefe (306 U. S. 466), extending the classes of officers and employees subject to Federal taxation."

(b) EFFECTIVE DATE OF AMENDMENT.-The amendment made by this section shall be effective as of the date of enactment of the Public Salary Tax Act of 1939.

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