to constitute a liability against the assets of the corporation, etc., making the return. 50. Mortgage indebtedness on real estate, if assumed by the corporation acquiring such real estate, to be included in the indebtedness of the corporation. But if not so assumed and remains only as a lien on the property, interest paid thereon may be deducted as a charge "made as a condition to the continued use or possession of the property." (See 28 Atty. Gen. Op. 198; 25 Treas. Decis. (1865); 19 Treas. Decis. (1595); Wall St. Journ. Art. VII.) 51. Cost of erecting building, if included in lease under which property is held by company, is a proper deduction, to be prorated according to time fixed by lease. 52. General expenses, such as coal, ship stores, etc., of foreign steamship companies, to be prorated as provided in act for interest deductions. 53. Amount received by nursery companies from sales of trees, etc., less amount expended for seedlings and young trees, to be included in gross income. Amount expended for labor, salesmen, etc., to be deducted as expenses. 54. Commissions allowed salesmen, paid in stock, may be deducted as expense if so charged on books. 55. Sales of stock and bonds are regarded as sales of capital assets and should be so accounted for. (Art. 2, regs. 31.) But proceeds derived from sale of bonds used in defraying ordinary and necessary expenses are a proper deduction in determining the company's net income. 56. Stock issued in payment of property purchased represents capital investments, and notes issued during the year represent indebtedness. Corporate funds applied to the payment of outstanding notes not a proper deduction in ascertaining net income. 57. Amounts expended in additions and betterments which constitute an increase in capital investment not a proper deduction. 58. Dividends received by corporations on stock of other corporations whose net income does not exceed $5,000 is nevertheless a proper deduction under the law. (28 Atty. Gen. Op. 140.) But see pp. 8, 125. 59. Dividends received on stock of foreign corporations not subject to tax not a proper deduction. 60. Dividends paid employees in lieu of wages not proper deduction as expenses. 61. Royalties on patent rights to be reported as income. Allowance for depreciation of patents expiring during the year, however, will be allowed. 62. In the case of lands bought prior to January 1, 1909, and sold during any subsequent year, the profits arising from such sale, if no accounting of increased value of land was made in returns for previous years, should be prorated in accordance with the number of years the land was held by the corporation and the number of years the law was in effect. 63. Banks paying taxes assessed against their stockholders because of their ownership of the shares of stock issued by such banks can not deduct the amount of tax so paid in making their return for the special excise tax on corporations. (See 22 Treas. Decis. 1763 and 1771.) 64. Amounts paid for pensions to retired employees, or to their families or others dependent upon them, or on account of injuries received by employees, are proper deductions as "ordinary and necessary expenses": gifts or gratuities to employees in the service of a corporation are not properly deductible in ascertaining net income. Donations made for purposes connected with the operation of the property when limited to charitable institutions, hospitals, or educational institutions, conducted for the benefit of its employees, or their dependents, shall be proper as a deduction under the same head. 65. Where allowances on account of salaries are deemed excessive and for the purpose of evading the tax due, investigation will be made, and if the facts warrant prosecution will follow. 66. Interest paid on time deposits and deposits subject to check constitutes a proper deduction from the amount of gross income during the year. 67. Interest on portions of bonded or other indebtedness bearing different rates of interest may be deducted from gross income during the year, provided the aggregate amount of such indebtedness does not exceed the paid-up capital stock of the corporation. 68. Interest paid during the year on notes given prior to January 1, 1909, to be prorated. But interest on notes given in 1909, and payable subsequent to December, 1909, unless charged on the company's books, is not a proper deduction from the income of that year. 69. Interest, taxes, or other items allowable as deductions, accruing prior to January 1, 1909, are not allowable deductions from the gross income of years subsequent thereto. 70. Unearned premiums set aside by insurance companies as reserve not to be included as income until earned, unless the same shall be entered on the ledger as income during the year in which received. 71. Funds set aside by company for insuring their own property not a proper deduction. 72. As the tax imposed is measured by and is not a tax upon the net receipts of corporations, etc., interest received during the year on government bonds is not a proper deduction from such income in determining the amount of tax due. (28 Atty. Gen. Op. 138.) 73. State, county, or municipal taxes paid during the year a proper deduction in ascertaining the net income of corporations. 74. Import duties or taxes if included in arriving at cost of goods are not deductible under the head of taxes paid during the year. 75. Bad debts, if so charged off the company's books during the year, are proper deductions. But such debts, if subsequently collected, must be treated as income. 76. The net addition to reserves of insurance companies, required by law, may be based on the highest amount of reserve required by any State in which the insurance company does business. (T. D. 1727.) 77. Reserves for taxes can not be allowed, as the law specifically provides that only such sums as are paid within the year for taxes can be deducted. (T. D. 1727.) 78. Where a corporation or insurance company holds bonds which were purchased at a |