Act of 1924.

SEC. 2. (b) The terms "includes" and "including" when used in a definition contained in this Act shall not be deemed to exclude other things otherwise within the meaning of the term defined.

TITLE II.-INCOME TAX. PART I.-GENERAL PROVISIONS.

DEFINITIONS.

SEC. 200. When used in this title

(a) The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 2129 or 232.10 The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The term "taxable year" includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the Commissioner with the approval of the Secretary, the period for which such return is made. The first taxable year, to be called the taxable year 1924, shall be the calendar year 1924 or any fiscal year ending during the calendar year 1924.

SEC. 200. (b) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.

9 Sec. 212, p. 72.

plied to a contract of the kind plied to a contract of the kind referred to in clause (a) of this referred to in clause (a) of this subdivision, includes all such paragraph, includes all such contracts which, although en- contracts, which, although entered into during such period, tered into during such period, were originally not enforceable, were originally not enforceable, but which have been or may be- but which have been or may become enforceable by reason of come enforceable by reason of subsequent validation in pursu- subsequent validation in pursuance of law. ance of law;

TITLE II.-INCOME TAX. PART I.-GENERAL PROVISIONS.

DEFINITIONS.

SEC. 200. That when used in this title

9

TITLE II.-INCOME TAX. Part I.-GENERAL PROVISIONS.

DEFINITIONS.

SEC. 200. That when used in this title

(1) The term "taxable year" The term "taxable year" means the calendar year, or the means the calendar year, or the fiscal year ending during such fiscal year ending during such calendar year, upon the basis of calendar year, upon the basis of which the net income is com- which the net income is computed under section 212 or sec-puted under section 212° or section 232.10 The term "fiscal tion 232.10 The term "fiscal year" means an accounting pe-year" means an accounting period of twelve months ending on the last day of any month other than December. The first taxable year, to be called the taxable year 1921, shall be the calendar year 1921 or any fiscal year ending during the calendar year 1921;

(2) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person, trust or estate;

riod of twelve months ending on the last day of any month other than December. The first taxable year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year ending during the calendar year 1918;

The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person, trust or estate;

10 Sec. 232, p. 188.

son

Act of 1924.

SEC. 200. (c) The term "withholding agent" means any perrequired to deduct and withhold any tax under the provisions of section 22111 or 237.12 SEC. 200. (d) The terms "paid or incurred" and "paid or accrued" shall be construed according to the method of accounting upon the basis of which the net income is computed under section 21213 or 232.14 The deductions and credits provided for in this title shall be taken for the taxable year in which "paid or accrued" or "paid or incurred", dependent upon the method of accounting upon the basis of which the net income is computed under section 212 or 232, unless in order to clearly reflect the income the 'deductions or credits should be taken as of a different period.

SEC. 200. (e) (e) The term "stock" includes the share in an association, joint-stock company, or insurance company.

SEC. 200. (f) The term "shareholder" includes a member in an association, joint-stock company, or insurance company.

Act of 1921.

(3) The term "withholding agent" means any person required to deduct and withhold any tax under the provisions of section 221 11 or section 237;12

(4) The term "paid," for the purposes of the deductions and credits under this title, means “paid or accrued" or "paid or incurred," and the terms "paid or incurred" and "paid or accrued" shall be construed according to the method of accounting upon the basis of which the net income is computed under section 212;13 and

(5) The term "personal serv- The term "personal service ice corporation" means a corpo- corporation" means a corporaration whose income is to be as- tion whose income is to be ascribed primarily to the activities cribed primarily to the activities of the principal owners or stock- of the principal owners or stockholders who are themselves reg- holders who are themselves reguularly engaged in the active con- larly engaged in the active conduct of the affairs of the corpo- duct of the affairs of the corration and in which capital poration and in which capital (whether invested or borrowed) (whether invested or borrowed) is not a material income-produc- is not a material income-producing factor; but does not include ing factor; but does not include any foreign corporation, nor any any foreign corporation, nor any corporation 50 per centum or corporation 50 per centum or more of whose gross income con- more of whose gross income consists either (1) of gains, profits, sists either (1) of gains, profits or income derived from trading or income derived from trading as a principal, or (2) of gains, as a principal, or (2) of gains, profits, commissions, or other in- profits, commissions, or other income, derived from a Govern- come, derived from a Government contract or contracts made ment contract or contracts made between April 6, 1917, and No- between April 6, 1917, and November 11, 1918, both dates in-vember 11, 1918, both dates inclusive. clusive;

11 Sec. 221, p. 146.

12 Sec. 237, p. 220.

Act of 1917.

Act of 1916.

Act of 1913.

13 Sec. 212, p. 72,

14 Sec. 232, p. 188,

Act of 1924.

DISTRIBUTIONS BY CORPORATIONS.

SEC. 201. (a) The term "dividend" when used in this title (except in paragraph (9) of subdivision (a) of section 23419 and paragraph (4) of subdivision (a) of section 245) 20 means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accumulated after February 28, 1913.

SEC. 201. (e) Any distribution made by a corporation, which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 or the Revenue Act of 1921, out of its earnings or profits which were taxable in accordance with the provisions of section 21823 of the Revenue Act of 1918 or section 21823 of the Revenue Act of 1921, shall be exempt from tax to the distributees.

SEC. 201. (b) For the purposes of this Act every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. Any earnings or profits accumulated,

15 Title I, Part III, Act of 1916, as amended by Sec. 1211, Title XII, Act of 1917.

16 A distribution by a corporation from a depletion reserve is income and not capital to the stockholders under the Act of 1917. Douglas v. Edwards (Col.), (C. C. A., Second Cir. 1924) 298 Fed. 229, affirming Id., (D. C., S. D. N. Y. 1922) 287 Fed. 919, which held that the distribution was taxable because "calling the distribution of corporate assets a distribution of depletion reserve does not make it a payment out of capital instead of income, when there are net earnings or accumulated surplus sufficient to meet it."

17 (a) Money received in 1916 by a corporation in settlement of a claim for damages equal to the value thereof on March 1, 1913, is not profit arising since that date; hence, a dividend declared and paid to stockholders from said money so received in 1916, does not constitute taxable income under the Act of 1916. Park v. Gilligan (Col.), (D. C., S. D. Ohio, W. D. 1921) 293 Fed. 129.

17 (b) Stockholders, receiving as dividends debenture bonds based upon undivided surplus, were required to return as income under the Act of 1916, the portion of such bonds which represented the surplus accumulated after March 1, 1913. Debenture bonds are negotiable securities available for disposition as cash, as distinguished from stock dividends which represent no income to the stockholder. Doerschuck, et al. v. U. S., (D. C., E. D. N. Y. 1921) 274 Fed. 739.

Act of 1918.

DIVIDENDS.

SEC. 201. (a) That the term "dividend" when used in this title (except in paragraph (10) of subdivision (a) of section 234) 18 means (1) any distribution made by a corporation, other than a personal service corporation, to its shareholders or members, whether in cash or in other property or in stock of the corporation, out of its earnings or profits accumulated since February 28, 1913, or (2) any such distribution made by a personal service corporation out of its earnings or profits accumulated since February 28, 1913, and prior to January 1, 1918.23

SEC. 201. (b) Any distribution shall be deemed to have been made from earnings or profits unless all earnings and profits have first been distributed. Any distribution made in the year 1918 or any year thereafter shall

17 (c) The mere crediting of dividends to the accounts of stockholders, said dividends not being segregated or set apart from the other corporate assets in money or securities or other property, does "not constitute the receipt of income" by the stockholders. Park v. Gilligan (Col.), (D. C., S. D. Ohio, W. D. 1921) 293 Fed. 129.

17 (d) Under the Act of 1916, distributions made from earnings accumulated prior to March 1, 1913 were not subject to tax, regardless of whether profits earned subsequent to that date had been distributed. Douglas v. Edwards, (C. C. A., Second Cir. 1924) 298 Fed. 229, affirming Id., (D. C., S. D. N. Y. 1922) 287 Fed. 919; Harder v. Irwin (Col.), (D. C., N. D. N. Y. 1923) 285 Fed. 402.

17 (e) In a reorganization plan a new corporation was organized under the laws of the same state as the old, with the same name except the word "Manufacturing" was dropped, with the same corporate powers, and for the purpose of taking over the assets and assuming the liabilities and continuing the business of the old corporation under the same management. The capital stock of the new corporation was five times as large and the par value of the stock one-half as great as that of the old. The stockholders of the old corporation deposited their stock with a trustee. Onehalf of the issue of the new corporation, the par value of which was $50, was sold to a third party for $30