these stamps is done under contracts, and without cost to the Government, the contractors receiving their remuneration from the purchasers of the stamps and reimbursing the Government for the salaries of agents and counters necessary to properly supervise the work.

RESTAMPING.

One hundred and ninety-four applications for restamping tax-paid articles, under section 3315, Revised Statutes, were considered and disposed of during the year.

STAMPS RETURNED.

Stamps of various kinds and denominations, fractional books from outgoing officials, and stamps for which there was no use, to the value of $48,097,752.29, were returned by collectors and credited in their accounts.

CLAIMS.

At the beginning of the fiscal year ended June 30, 1917, there were pending 10,093 claims of all kinds, amounting to $4,579,360.55. There were received during the year 93,082 claims of all kinds, amounting to $15,991,705.77.

During the year 91,719 claims were disposed of, amounting to $12,867,428.97, leaving on hand July 1, 1917, 11,456 claims of all kinds, amounting to $7,703,637.35.

During the year 1916 the number of claims disposed of was 42,304, which was then the highest number ever attained. The number of claims disposed of in the year 1917 was more than twice the number disposed of in 1916, and the amount of money involved nearly $3,000,000 more. The increase in the number of claims received in 1917 was due mainly to the repeal of the act of October 22, 1914, causing redemption of documentary and proprietary stamps. Approximately 65,000 claims, aggregating $3,000,000, covering this redemption were adjusted within 8 months of the year 1917, with an increase in the force of but 25 clerks. The work of redeeming the stamps was not wholly completed during the year 1917, but on October 1, 1917, was completely finished as to current work.

A few of these claims are being received each day and promptly adjusted. A little more than 12,000 of these claims, aggregating more than $700,000, have been adjusted since the close of the year 1917, and will appear in the report of the next year.

LITIGATION AND LEGISLATION.

LITIGATION.

On July 1, 1916, there were pending 495 civil cases and 3,077 criminal cases growing out of violations of the internal-revenue laws. During the year there were instituted 307 civil cases and 4,598 criminal cases. Three hundred and twenty-nine civil cases and 3,950 criminal cases were disposed of during the year, and the number of civil cases pending June 30, 1917, was 473, and of criminal cases 3,725, as shown by reports received from the Department of Justice.

SEIZURES.

The total number of reports of seizures received, examined, and recorded during the fiscal year was 3,345, as compared with 4,607 during the year previous.

COMPROMISE CASES.

During the fiscal year 29,675 compromise offers were received, as against 36,829 in the fiscal year 1916.

COURT DECISIONS.

There have been a number of cases decided involving questions under the internal-revenue law, among the important of which are the following:

DECISIONS UNDER THE CORPORATION TAX ACT OF AUGUST 5, 1909.

Decision of United States Supreme Court, McCoach, collector, v. Insurance Co. of North America (T. D. 2501):

Reserve against unpaid losses.-Fire insurance companies not "required by law" of Pennsylvania to hold a reserve against unpaid losses within the meaning of the act of Congress.

Reserve funds required by law.-The words "reserve funds," as used in the act of Congress, have reference to the funds ordinarily held as against the contingent liability on outstanding policies.

Decision of Circuit Court of Appeals (224 Fed. Rep., 657) reversed.

INCOME-DEPLETION.

Von Baumbach v. Sargent Land Co. (242 U. S., 503; T. D. 2436). reversing decisions of United States District Court (207 Fed. Rep., 423), and the Circuit Court of Appeals (219 Fed. Rep., 31):

Proceeds of sale of ore in a mine income and exhaustion or depletion of capital can not be deducted therefrom as depreciation.

COURT OF CLAIMS DECISION.

Maryland Casualty Co. v. United States. (T. D. 2451.) Claim for refund of certain excise and income taxes said to have been illegally collected under the acts of August 5, 1909, and October 3, 1913:

Receipt by agent is receipt by principal.-Company obligated to report in full the total sums received in cash, both amounts received at the home office and those paid to its lawful agencies during the calendar year.

Net addition to reserve funds.-Only the net addition to reserve funds required by State statutes is deductible from gross income.

TIMBERLANDS-CAPITAL ASSETS.

Doyle v. Mitchell Bros. Co.:

Involves the question whether increase in value which accrued prior to the time when the law went into effect is taxable as income under act of August 5, 1909. Decision of Circuit Court of Appeals against United States. (225 Fed. Rep., 437.) Case taken to Supreme Court.

C., C., C. & St. Louis Ry. Co. v. United States:

Gain in assets which accrued before the taxing period began.

Decided in favor of United States in United States District Court, southern district of Ohio. Judgment reversed in Circuit Court of Appeals. (242 Fed. Rep., 18.) Case taken to Supreme Court.

PUBLIC UTILITIES.

Union Hollywood Water Co. v. Carter, collector. Southern district of California. Decision of Circuit Court of Appeals (T. D. 2475; 233 Fed. Rep., 329):

The fact that plaintiff was a public utilities corporation which, under the laws of the State, was not the owner of the property but merely intrusted with the use thereof, which it must devote to the public, does not entitle it to more favorable treatment

than other corporations, it being a corporation organized for profit, having a capita! stock represented by shares, and the act making no exceptions in favor of public utilities. Contributions paid by consumers of water or owners of land tracts for service connections and pipe extensions are income within the meaning of the act. Such contributions are moneys which come to the corporation in the ordinary course of its business, and they are properly included in a statement of its gross income "received within the year from all sources," and the corporation is liable to pay a tax thereon notwithstanding that all or nearly all of the sum so received may have been expended within the year in betterments and the extension of its system.

SUITS AGAINST COLLECTORS.

Philadelphia, Harrisburg & Pittsburgh R. R. Co. v. Lederer, collector. Eastern district of Pennsylvania.

Opinion of Judge Thompson in 239 Fed. Rep., 184, in the United States District Court, affirmed by the Circuit Court of Appeals. (242 Fed. Rep., 492; T. D. 2507.) A suit can not be brought to recover taxes against any collector except the one who collected the taxes.

INTEREST ON BONDS-ENGAGING IN BUSINESS.

Boston Terminal Co. v. Gill, collector. United States District Court, district of Massachusetts. Decision in favor of United States. (T. D. 2428.) Pending in Circuit Court of Appeals.

The plaintiff corporation to which payments were required to be made by the railroads using the terminal, and which granted concessions and licenses to others than the said stockholding railroads for the transaction of various kinds of business and which operated facilities for supplying power, heat, light, gas, etc., manufactured by it was engaged in business.

Interest on bonded or other indebtedness paid within the year is to be deducted from gross income, according to the second clause of section 38; but only the interest paid upon such indebtedness to an amount not exceeding the corporation's paid-up capital stock. The question was decided by the Supreme Court, decision of Anderson v. Forty-two Broadway Co. (239 U. S., 69; T. D. 2261).

BANKS DEDUCTING TAXES.

First National Bank of Jackson, Miss., v. McNeel, collector. United States Circuit Court of Appeals, Northern District of Alabama.

The opinion of the lower court was affirmed. (238 Fed. Rep., 533.)

Where banks pay the State tax on shareholders the tax is not imposed on the banks, following Bank of Commerce v. Allen, collector (211 Fed. Rep., 743), and other cases.

EMERGENCY REVENUE LAW, ACT OCTOBER 22, 1914.

Calkins v. Smietanka. Northern District of Illinois.

Tax on transactions had on the board of trade. Order to produce books sustained. Motion for temporary injunction overruled.

Assessment of delinquent stamp tax. (240 Fed. Rep., 138.)

Kohlhammer v. Smietanka. Northern District of Illinois.

Stamp tax on sales, agreements to sell, and agreements of sale. Section 22, act of October 22, 1914. Two hunderd per cent penalty. (239 Fed. Rep., 408.) Relief by injunction denied. Motion for injunction overruled.

Special tax on bankers. Act of October 22, 1914, section 3. Anderson v. Farmers' Loan & Trust Co. Southern District of New York. Decision of Circuit Court of Appeals. (241 Fed. Rep., 322; T. D. 2460.)

The capital, surplus, and undivided profits of a trust company doing business as banker invested in stocks, bonds, and securities are treated as used and employed in banking within the meaning of section 3 of the act of October 22, 1914. The tax imposed is upon so much thereof as are used in the banking business.

The deposits and the investments are all equally assets of the bank. The claims of depositors are liabilities of the bank. The capital, surplus, and undivided profits are simply what may be left after the satisfaction of the liabilities to depositors and other creditors. The creditors may be paid out of any portion of the assets of the company, and the capital, surplus, and undivided profits represent a residue which, like the claims of creditors, may be made good out of any of the securities, cash, bills of exchange, promissory notes, or other resources of the bank, including its real estate. It is a question of fact to be determined at the trial how far the permanent investments were employed in banking. The fact of employment or nonemployment is not to be determined by methods of bookkeeping but by real transactions.

POLICIES OF INSURANCE-EMERGENCY REVENUE ACT.

The Central Manufacturer's Mutual Insurance Co. and Ohio Underwriters' Mutual Fire Insurance Co. v. Niles, collector. United States District Court, Northern District of Ohio.

Decision against the collector. Demurrers overruled. Exemption relative to insurance companies not carried on for profit applies. Case appealed.

INCOME-TAX CASES.

Union Pacific Coal Co. v. Skinner, collector. United States District Court, District of Colorado.

Decision against collector. On appeal in Circuit Court of Appeals.

Dividends paid in 1913 from earnings of 1912 not income of recipient under act of October 3, 1913.

Everett v. Williamson, collector.

of Ohio.

Decision against collector.

United States District Court, Southern District

Dividends paid in 1913 out of assets acquired by the corporation prior to 1913 not income of stockholders under act of October 3, 1913.

Turrish v. Lynch, collector. United States District Court, District of Minnesota. Decision against collector. Affirmed by Circuit Court of Appeals (236 Fed., 653). Pending in United States Supreme Court.

The complainant received a dividend of 200 per cent upon the liquidation of a corporation in 1913. Held that no part of this dívidend was income under the act of October 3, 1913.

Hornby v. Lynch, collector. United States District Court, District of Minnesota. Decision against collector. Affirmed by Circuit Court of Appeals (236 Fed., 661). Pending in United States Supreme Court.

Dividends paid in 1913 out of a surplus earned prior to 1913 not income under act of October 3, 1913.

Southern Pacific Co. v. Lowe, collector. United States District Court, Southern District of New York.

Decision for collector (238 Fed., 847). Dividends paid out of surplus earned under act of October 3, 1913.

Gulf Oil Co. v. Lewellyn, collector. of Pennsylvania (242 Fed. Rep., 709), 2542).

On appeal in United States Supreme Court. prior to 1909 constitute income of recipient

United States District Court, Western District reversed by Circuit Court of Appeals (T. D.

Dividends paid out of surplus earned prior to 1913 constitutes income of recipient under act of October 3, 1913.

Towne v. Eisner, collector. United States District Court, Southern District of New York (242 Fed. Rep., 702).

Decision for collector (T. D. 2506). On appeal in United States Supreme Court. Stock dividends paid from surplus constitute income of recipient under act of October 3, 1913.

Rensselaer & Saratoga R. R. Co. v. Irwin, collector. United States District Court, Northern District of New York (239 Fed. Rep., 739).

Decision for collector. On appeal in Circuit Court of Appeals.

A corporation which leased its property held liable for tax on rental paid by lessee direct to stockholders of lessor corporation.

West End Street Railway Co. v. Gill, collector. United States District Court, District of Massachusetts.

Decision for collector. On appeal in Circuit Court of Appeals.

Same as above.

Northern Railroad Co. of New Jersey v. Lowe, collector. United States District Court, Southern District of New York.

Decision for collector.

Same as above.

Brady et al. v. Anderson, collector. United States District Court, Southern District of New York.

Decision for collector. Affirmed by Circuit Court of Appeals (240 Fed., 665; T. D. 2494). Writ of certiorari denied by United States Supreme Court May 21, 1917.

The income of a person dying after March 1, 1913, and prior to October 3, 1913, is liable to tax. The tax is against citizens and residents of the United States personally.

Peck & Co. v. Lowe, collector. United States District Court, Southern District of New York.

Decision for collector. On appeal in United States Supreme Court.

Plaintiff claimed that in so far as tax is imposed on income derived from exports it is in violation of the Constitution of the United States.

Butterick Co. v. United States. Federal Publishing Co. v. United States. United States District Court, Southern District of New York.

Decision against United States (240 Fed., 539). On appeal in United States Supreme Court.

Holding companies transacting no business other than voting the stock of subsidiary companies not liable to tax upon income received in January and February, 1913. Woods v. Lewellyn, collector. United States District Court, Western District of Pennsylvania.

Decision for collector. On appeal in Circuit Court of Appeals.

Commissions on renewal premiums of life insurance policies issued prior to 1913 constitute income under act of October 3, 1913.

Cohen v. Lowe, collector. United States District Court, Southern District of New York.

Decision for collector. (T. D. 2343; 234 Fed. Rep., 474.)

The words "exhaustion, wear, and tear" of a building contemplates only depreciation of the physical property itself, irrespective of its adaptability to the use originally intended or the changing environments.

No allowance can be made for depreciation by reason of decrease in rental value or in value arising from lack of modern improvements.

Barwin Realty Co. v. Keith, collector. United States District Court, Southern District of New York.

Decision against collector.

The entire amount of interest paid upon indebtedness created by other parties and charged as a lien upon land, which indebtedness was not assumed by the purchaser of the equity may be deducted from gross income in annual tax returns as a payment "required to be made as a condition to the continued use or possession of property." Crocker et al., trustees, v. Malley, collector. United States District Court, District of Massachusetts.

Decision against collector. On appeal in Circuit Court of Appeals.

The Wachusett Realty Trust organized under a trust agreement is not a joint stock association within the meaning of the act of October 3, 1913.

De Ganay v. Lederer, collector. United States District Court (239 Fed., 568), Eastern District of Pennsylvania.

Decision for collector. On appeal in Circuit Court of Appeals.

Income from stocks and bonds of domestic corporations owned by nonresident alien, legal title being vested in trustee resident in United States liable to tax under act of October 3, 1913.