the enacting clause and inserting in lieu thereof the following: That the taxes on incomes herein imposed shall be levied on the first day of May, and be due and payable on or before the thirtieth day of June, in each year, until and including the year eighteen hundred and seventy, and no longer; and to any sum or sums annually due and unpaid after the thirtieth of June as aforesaid, and for ten days after notice and demand thereof by the collector, there shall be levied, and in addition thereto, the sum of ten per centum on the amount of duties unpaid, as a penalty, except from the estates of deceased or insolvent persons.

[SEC. 120.] That section one hundred and twenty be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That there shall be levied and collected a tax496 of five per centum on all dividends in scrip or money thereafter declared due, wherever and whenever the same shall be payable, to stockholders, policyholders, or depositors or parties whatsoever, including non-residents, whether citizens or aliens, as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any fire, marine, life, inland insurance company, either stock or mutual, under whatever name or style known or called, in the United States or Territories, whether specially incorporated or existing under general laws, and on all undistributed sums, 497 or sums made or added during the year to their surplus or contingent funds;498 and said banks, trust companies, savings institutions, and insurance companies shall pay the said tax, and are hereby authorized to deduct and withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid the said tax of five per centum. And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month follow

496 It was not the intent of the framers of the Constitution that a tax should be considered direct which could not be apportioned equitably. The income tax imposed by Sec. 120, as amended, Act of 1866, could not be apportioned equitably, therefore, it was "not a direct tax, but a duty or excise." Pacific Ins. Co. v. Soule, (1869) 7 Wall. 433.

497 Sec. 120, as amended, Act of 1866, taxed all earnings of the corporation whether divided or undivided and made it the duty of the corporation to pay the tax. Stockdale (Col.) v. The Atlantic Ins. Co., (1874) 20 Wall. 323.

498 The proviso of Sec. 120, as amended, Act of 1866, exempted interest paid to depositors by savings banks, but did not exempt such banks from the payment of the tax imposed upon "undistributed sum or sums made and added during the year to their sur

ing that in which any dividends or sums of money become due or payable as aforesaid; and said list or return shall contain a true and faithful account of the amount of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, savings institution, or insurance company, under oath or affirmation in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit as a penalty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal: Provided, That the tax upon the dividends of life insurance companies shall not be deemed due until such dividends are payable; nor shall the portion of premiums returned by mutual life insurance companies to their policyholders, nor the annual or semi-annual interests499 allowed or paid to the depositors in savings banks or savings institutions, be considered as dividends.

[SEC. 122.] That section one hundred and twenty-two be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That any railroad,500 canal, turnpike, canal navigation, or slack-water company, indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any

plus or contingent funds."' The Dollar Savings Bank v. U. S., (1874) 19 Wall. 227.

499 Where a savings bank contracted with its depositors that nine-tenths of the net profits would be appropriated for "dividends" to be declared and paid upon the capital stock and deposits, the sums so paid to the depositors were not interest but dividends; hence, they were not exempt under the proviso of Sec. 120, as amended, Act of 1866. Cary (Col.) v. The San Francisco Savings Union, (1875) 22 Wall. 38.

500 A company which engaged in mining and manufacturing, and also was authorized to condemn land and construct and operate a railroad, was a railroad company, and subject to the tax imposed by Sec. 122, as amended, Act of 1866. Kentucky Improvement Co. v. Slack (Col.), (1880) 100 U. S. 648.

such company that may have declared501 any dividend in scrip502 or money due or payable to its stockholders, including nonresidents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits503 of such company carried to the account of any fund,50 or used for construction,505 shall be subject to and pay a tax506 of five per centum on the amount of all such interest, or coupons, dividends,507 or profor profits, whenever and wherever the same shall be payable, and to whatsoever party or person the same may be payable, including nonresidents,508 whether citizens or aliens; and said companies are hereby authorized to deduct and withold from all payments on account of any interest," or coupons, and dividends, due and payable as aforesaid, the tax of five per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made and rendered to

509

501 See. 122, as amended, Act of 1866, taxed dividends "declared" from profits accruing during the last six months of 1869, although the same were not payable or paid until 1870, after the Act expired. Barnes v. Railroad Companies, (1873) 17 Wall. 294.

502 Sec. 122, as amended, Act of 1866, taxing scrip dividends was valid. Congress has the power to tax scrip as well as cash dividends. Bailey v. N. Y. Cent. R. R. Co., (1882) 106 U. S. 109, affirming Id., (1875) 22 Wall. 604, but modifying the later judgment so as to tax scrip dividends representing earnings only which accrued since the act became operative.

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503 Under Sec. 122, as amended, Act of 1866, in determining the amount of "profits carried to the account of any fund, or used for construction,'' the corporation was permitted to deduct as expenses, (1), depreciation in book accounts and choses in action,' (2) depreciation in the value of bonds," (3) "depreciation in value of the 'street connection track, and (4) depreciation in the value of stock of another corporation. Little Miami et al. R. R. Co. v. U. S., (1883) 108 U. S. 277, reversing Id., (C. C., S. D. Ohio 1880) 1 Fed. 700. No deduction could be made of sums carried to a sinking fund to meet aceruing interest on subsidy bonds, but such sums were taxable. Sioux City & Pac. R. R. Co. v. U. S., (1884) 110 U. S. 205.

504 A corporation was required to pay the tax in 1869 imposed by Sec. 122, as amended, Act of 1863, upon profits accruing in 1869 and carried to the account of an interest and dividend fund, although the interest and dividends were not declared, payable or paid until 1870. Barnes v. Railroad Companies, (1873)

17 Wall. 294.

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505 The expression "profits used in construction" found in Sec. 122, as amended, Act of 1866, did not embrace earnings expended on repairs to keep

the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of the payment of the tax or any part thereof, as aforesaid, the assessment and collection510 of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal.

That section one hundred and twenty-two be further amended by adding thereto the following proviso: Provided, That whenever any of the companies mentioned in this section shall be unable to pay the interest on their indebtedness,

the property up to its normal condition; but it had reference to new constructions adding permanently to the capital; and when these were made to take the place of prior structures, it included only the increased value of the new over the old when in good repair. Grant v. Hartford & N. H. R. R. Co., (1876) 93 U. S. 225.

500 The tax imposed by Sec. 122, as amended, Act of 1866, was a tax on the earnings of the corporation and not on the bondholder or stockholder. Barnes v. Railroad Companies, (1873) 17 Wall. 294; U. S. v. Little Miami, et al. R. R. Co., (C. C., S. D. Ohio 1880) 1 Fed. 700; Commissioners v. U. S., (1898) 169 U. S. 253; U. S. v. Erie Ry. Co., (1882) 106 U. S. 327; Michigan Cent. R. R. Co. v. Slack (Col.), (1880) 100 U. S. 595.

507 A state municipality, as stockholder, could not recover taxes paid by a corporation on profits carried to a fund or used for construction, although such payment reduced pro tanto a stock dividend subsequently issued and paid to the municipality. A stock dividend did not effect a distribution of surplus or convey property to the municipality. It was no richer or poorer than it was before. Commissioners v. U. S., (1898) 169 U. S. 253.

508 The provision of Sec. 122, as amended, Act of 1866, authorizing the withholding of the tax from nonresident bondholders and stockholders was valid. Mich, Cent. R. R. Co. v. Slack (Col.), (1880) 100 U. S. 595.

509 In a suit by the United States to recover the tax imposed by Sec. 122, as amended, Act of 1866, on interest payable to the City of Baltimore, it was held that the tax was in substance and in law a tax upon the creditor or stockholder." The tax did not apply to interest payable to a state municipality. U. S. v. B. & O. R. R. Co., (1873) 17 Wall. 322. 510 Where a railroad owning land at the time the

and shall in fact fail to pay such interest, that in such cases the tax levied by this section shall not be paid to the United States until said company resume the payment of interest on their indebtedness.

[SEC. 123.] That section one hundred and twenty-three be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including senators and representatives and delegates in Congress, when exceeding the rate of six hundred dollars per annum, a tax of five per centum on the excess above the said six hundred dollars, and a tax of ten per cent on the excess over five thousand dollars; and it shall be the duty of all paymasters and all disbursing officers, under the government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as aforesaid, or upon settling and adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax, and they shall, at the same time, make a certificate stating the name of the officer or person from whom such deduction was made, and the amount thereof, which shall be transmitted to the office of the commissioner of internal revenue, and entered as part of the internal tax; and the pay-roll, receipts, or account of officers or persons paying such tax, as aforesaid, shall be made to exhibit the fact of such payment. And it shall be the duty of the several auditors of the Treasury Department, when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes mentioned in this section have been deducted and paid over to the commissioner of internal revenue, or other officer authorized to receive the same: Provided, That payments of prize money shall be regarded as income from salaries, and the tax thereon shall be adjusted and collected in like manner: Provided further, That this section shall not apply to payments made to mechanics or laborers employed upon public works.

SEC. 9. (bis.) That an act, entitled "An act to declare the meaning of certain parts of the internal revenue act approved June thirty, eighteen hundred and sixty-four, and for other purposes," approved March tenth, eighteen hundred and sixty-six, be amended by striking out sections three, four and five of said act, and inserting in lieu thereof the following: That it shall be the duty of all persons required to make returns or lists of income and articles or objects charged with an internal tax, to declare in such returns or lists whether the several rates and amounts therein contained are stated according to their values in legal tender currency or according to their values in coined money; and in case of neglect or refusal so to declare to the satisfaction of the assistant assessor receiving such returns or lists, such assistant assessor is hereby required to make returns or lists for such persons so neglecting or refusing, as in cases of persons neglecting or refusing to make the returns or lists required by the acts aforesaid, and to assess the tax thereon, and to add thereto the amount of penalties imposed by law in cases of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists as aforesaid shall be stated in coined money, it shall be the duty of each assessor receiving the same to reduce such rates and amounts to their equivalent in legal tender currency, according to the value of such coined money in said currency for the time covered by said returns. And the lists required by law to be furnished to collectors by assessors shall in all cases contain the several amounts of taxes assessed, estimated, or valued in legal tender currency only.

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SEC. 19. And be it further enacted, That no suit shall be maintained in any court for the recovery of any tax alleged to have been erroneously or illegally assessed or collected, until appeal shall have been duly made to the commissioner of internal revenue according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof, and a decision of said commissioner shall be had thereon, unless such suit shall be brought within six months from the time of said decision, or within six months from the time this act takes effect: Provided, That if said decision shall be delayed more than six

months from the date of such appeal, then said suit may be brought at any time within twelve months from the date of such appeal.

SEC. 70. And be it further enacted, That this act shall take effect, where not otherwise provided, on the first day of August, eighteen hundred and sixty-six, and all provisions of any former act inconsistent with the provisions of this act are hereby repealed: Provided however, That all the provisions of said acts shall be in force for collecting all taxes, duties and licenses properly assessed or liable to be assessed, or accruing under the provisions of acts, the right to which has already accrued or which may hereafter accrue under said acts, and for maintaining and continuing liens, fines, penalties, and forfeitures incurred under and by virtue thereof,

and for carrying out and completing all proceedings which have been already commenced, or that may be commenced, to enforce such fines, penalties, and forfeitures, or criminal proceedings under said acts, and for the punishment of crimes of which any party shall be or has been found guilty: And provided further, That whenever the duty imposed by any existing law shall cease in consequence of any limitation therein contained before the respective provisions of this act shall take effect, the same duty shall be, and is hereby, continued until such provisions of this act shall take effect; and where any act is hereby repealed, no duty imposed thereby shall be held to cease, in consequence of such repeal, until the respective corresponding provisions of this act shall take effect.

An Act To amend existing laws relating to internal revenue, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That all acts in relation to the assessment, return, collection, and payment of the income tax, special tax, and other annual taxes now by law required to be performed in the month of May, shall hereafter be performed on the corresponding days in the month of March in each year; all acts required to be performed in the month of June, in relation to the collection, return, and payment of said taxes, shall hereafter be performed on the corresponding days of the month of April of each year.

512 Gains resulting from the sale of bonds which had been held four years were not taxable under Sec. 116, as amended, Act of 1867. That act, with the exception of gains resulting from the sale of real estate and gains resulting from trade and commerce, taxed only annual gains or profits which were realized from business transactions begun and completed during the same year. "The advance in the value of property during a series of years, can, in no just sense, be considered the gains, profits, or income of any one par

as follows: That there shall be levied, collected, and paid annually upon the gains,512 profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation, carried on in the United States, or elsewhere, or from any other source whatever, a tax of five per centum on the amount so derived over one thousand dollars, and a like tax shall be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons residing without the United States, and not citizens thereof. And the tax herein provided for shall be assessed, collected, and paid upon the gains, profits, and income for the year ending the thirty-first day of December next preceding the time for levying, collecting, and paying said tax.

[SEC. 117.] That section one hundred and seventeen be amended by striking out all after the enacting clause and inserting, in lieu thereof, the following: That in estimating the gains, profits, and income of any person, there shall

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ticular year of the series although the entire amount of the advance be at one time turned into money by a sale of the property. The mere fact that property has advanced in value between the date of its acquisition and sale does not authorize the imposiMere tion of the tax on the amount of the advance. advance in value in no sense constitutes the gains, profits or income specified in the statute. It constitutes and can be treated merely as increase of capital." Gray (Col.) v. Darlington, (1872) 15 Wall. 63.