rate above par, and a proportionate deduction of the value of such bonds is made on its books each year so that the book value shall be the redemption value of the bonds when they become due and payable, the return of annual net income may show the depreciation on account of amortization of such bonds. (T. D. 1727.)

79. Dividends declared by insurance companies are not deductible from gross income under the guise of rebates or otherwise, and such dividends when applied to the payment of renewal premiums, or to shorten the endowment or premium-paying period, or applied to purchase paid-up additions and annuities, must be considered and accounted for as income.

80. Railroad or other corporations which have leased their properties in consideration of a rental equivalent to a certain rate of interest on its outstanding capital stock and the interest on the bonded indebtedness, and such rental is paid by the lessee directly to the stock and bond holders, should, nevertheless, make a return of annual net income showing the rental so paid as having been received by the corporation. (See p. 108.)

81. Salaries paid to an officer who is a stockholder, to constitute an allowable deduction, must be a reasonable and fair compensation

for the services rendered, regardless of the amount of stock which such officer may hold, and must have been authorized by the board of directors and made a matter of record on the minute books of the corporation.

82. "Good will" represents the value attached to a business over and above the value of the physical property, and is such an entirely intangible asset that no clain for depreciation in connection therewith can be allowed.

DEPRECIATION.

83. Depreciation to be an allowable deduction in the return of annual net income of a corporation must be charged off on the ledger of the corporation, so as to show a reduction in the capital assets of the corporation to the extent of the depreciation claimed.

84. Deduction on account of depreciation of property must be based on lifetime of property, its cost, value, and use, and must be evidenced by a ledger entry and a like reduction in the plant and property account with respect to which depreciation is claimed.

85. In the case of corporations owning stocks and bonds or other securities, if an annual adjustment of the value of such securities is made and the adjusted values made a

matter of ledger entry, the appreciation of such securities as so entered must be accounted for as income, and the depreciation may be deducted from gross income. If no annual adjustment is made, and the securities are carried from year to year as a permanent investment, there will be neither gain nor loss, as to the principal of such securities, until the same shall have been disposed of, when the gain or loss as compared with the original cost shall be prorated, and the amount of such gain or loss apportioned to the years since the incidence of the tax, to wit, January 1, 1909, shall be added to or deducted from the gross income of the year in which the securities were disposed of. But see pp. 8, 125.

86. Where increase or decrease during the year in the value of real estate acquired in previous years, sold or held for sale, is taken up on the books and the rate can not be accurately determined with respect to individual years, such increase or decrease may be prorated as provided by regulations in cases of sale of capital assets.

87. Premiums on stocks and bonds arbitrarily charged off on the books of a corporation do not constitute a proper deduction on account of depreciation, unless there shall have been an actual shrinkage in value of such

stocks and bonds to the extent of the deduction claimed during the year for which the return is made.

88. Net income on uncompleted contracts may be estimated on the basis of the percentage of the work completed as compared with the contract price of the whole work.

89. Cost of drilling new wells by oil corporations is considered betterments and additions to the capital assets of the corporation. The expense of drilling dry wells may, however, be charged to profit and loss.

90. Discounts, other than bank discounts on notes executed by a corporation, should be segregated from the interest item on the return, and should be included under expenses, item 4.

91. The mere removal of timber by cutting from timber lands, unless the timber is otherwise disposed of through sales or plant operations, is considered simply a change in form of assets. If said timber is disposed of through sales or otherwise it is to be accounted for in accordance with regulations governing disposition of capital and other assets.

92. Deduction on account of depreciation of property must be based on lifetime of property, its cost, value, and use. (See 84 above.)

93. Loss due to voluntary removal of buildings, etc., incident to improvements is either

a proper charge to the cost of the new additions or to depreciation already provided, as the facts may indicate, but in no case is it a proper deduction in determining net income, except as it may be reflected in the reasonable amount allowable as a deduction for depreciation.

94. Depreciation of company's stock a loss to the stockholders, but not a loss to the company issuing the same, and therefore not a proper deduction.

PUBLICITY.

95. A person who as trustee or in any other fiduciary relation has the ownership or possessory right to stock in a corporation is a stockholder in such corporation within the equity of the rule set down in Treasury Decision No. 1665, governing the publicity of returns. See p. 174.

DEPRECIATION IN MINERALS, OILS, ETC.

96. In case of corporations whose business consists in part or wholly of mining, producing, and disposing of deposits of nature (ores, coals, gas, petroleum, and sundry minerals), the conduct of such business will be understood to