individual injured or sick, if living, or of his estate or other beneficiaries entitled to receive such damages, if dead. See further article 293. Since June 25, 1918, no assessment of any Federal tax may be made on any allotments, family allowances, compensation, or death or disability insurance payable under the War Risk Insurance Act of September 2, 1914, as amended, even though the benefit accrued before that date. In addition to this exemption from all Federal taxes, the Revenue Act of 1924 exempts from income tax amounts received as compensation, family allotments, and allowances under the provisions of the War Risk Insurance, the Vocational Rehabilitation Acts, or the World War Veterans' Act, 1924, or as pensions from the United States for service of the beneficiary or another in the military or naval forces of the United States in time of war, or as a State pension for services rendered by the beneficiary or another for which the State is paying a pension. As to meaning of "military and naval forces of the United States," see section 2 of the statute.

ART. 73. Gifts and bequests.-Property received as a gift, or received under a will or under statutes of descent and distribution, is exempt from the income tax, although the income therefrom derived from investment, sale, or otherwise is not. An amount of principal paid under a marriage settlement is a gift. Neither alimony nor an allowance based on a separation agreement is taxable income. See article 291.

ART. 74. Interest upon State obligations.-Interest upon the obligations of a State, Territory, or any political subdivision thereof, or the District of Columbia is exempt from the income tax. Obligations issued for a public purpose by or on behalf of the State or Territory or a duly organized political subdivision acting by constituted authorities empowered to issue such obligations, are the obligations of a State or Territory or a political subdivision thereof. The term "political subdivision " denotes any division of the State or Territory made by the proper authorities thereof acting within their constitutional powers for the purpose of carrying out a portion of those functions of the State or Territory which by long usage and the inherent necessities of government have always been regarded as public. Political subdivisions of a State or Territory, within the meaning of the exemption, include special assessment districts so created, such as road, water, sewer, gas, light, reclamation, drainage, irrigation, levee, school, harbor, port improvement, and similar districts and divisions of a State or Territory. The purchase by a State of property subject to a mortgage executed to secure an issue of bonds does not render the bonds obligations of the State, and the interest upon them does not become exempt from taxation whether or not the State assumes the payment of the bonds.

ART. 75. Dividends and interest from Federal land banks, Federal intermediate credit banks, and national farm loan associations.-As section 26 of the Federal Farm Loan Act of July 17, 1916 (39 Stat. 360), as amended by an act approved March 4, 1923 (42 Stat. 1454), provides that Federal land banks, Federal intermediate credit banks, and national farm loan associations, including the capital and reserve or surplus therein and the income derived therefrom, shall be exempt from taxation, except taxes upon real estate, and that first mortgages executed to Federal land banks, Federal intermediate credit banks, or to joint stock land banks, farm loan bonds, and debentures issued by intermediate credit banks, with the income therefrom, shall be exempt from taxation, the income derived from dividends on stock of Federal land banks, Federal intermediate credit banks and national farm loan associations and from interest on promissory notes secured by such first mortgages, or from such farm loan bonds or debentures, is not subject to the income tax. See also section 231 (13) of the statute.

ART. 76. Dividends from Federal reserve bank.-Section 7 of the Federal Reserve Act of December 23, 1913, provides that Federal reserve banks, including the capital stock and surplus therein and the income derived therefrom, shall be exempt from taxation, except taxes upon real estate. This exemption attaches to and follows the income derived from dividends on stock of Federal reserve banks in the hands of the stockholders, so that the dividends received on the stock of Federal reserve banks are not subject to the income tax. Dividends paid by member banks, however, are treated like dividends of ordinary corporations.

ART. 77. Interest upon United States obligations.--Although interest upon the obligations of the United States and its possessions is generally exempt from tax, in the case of obligations issued by the United States after September 1, 1917, which include Treasury certificates of indebtedness, Treasury bonds, Treasury notes, Treasury (war) savings certificates, the Liberty bond issues (except the first Liberty loan 32 per cent bonds and Victory Liberty loan 334 per cent convertible notes), and Victory Liberty loan 434 per cent convertible notes, the interest is exempt from tax only if and to the extent provided in the acts authorizing the issue thereof, as amended and supplemented.

Treasury bonds, Treasury notes, Treasury certificates of indebtedness, and Treasury (war) savings certificates have the exemptions described in paragraph (2) of article 82 and all of these certificates and bonds (but not the notes) also have the exemptions from surtaxes and profits taxes described in paragraph (3) of article 82. Interest credited to postal savings accounts upon moneys deposited in postal savings banks is exempt from income tax. Interest on the first

Liberty loan 32 per cent bonds is entirely exempt from Federal, State, and local taxation, except estate or inheritance taxes, but this absolute exemption does not extend to the bonds of the first Liberty loan converted.

ART. 78. Liberty bond exemptions, as amended and supplemented by the Revenue Act of 1924.-The Liberty bond exemptions from surtaxes, war-profits and excess-profits taxes under the Second Liberty Bond Act of September 24, 1917 (as amended by the Third Liberty Bond Act of April 4, 1918, by the Supplement to the Second Liberty Bond Act approved September 24, 1918, the Fourth Liberty Bond Act of July 9, 1918), the Victory Liberty Loan Act of March 3, 1919, and the Revenue Act of 1921, have been amended and supplemented by section 1028 of the Revenue Act of 1924, which provides as follows:

CONSOLIDATION OF LIBERTY BOND TAX EXEMPTIONS

SEC. 1028. The various Acts authorizing the issues of Liberty bonds are amended and supplemented as follows:

(a) On and after January 1, 1921, 4 per centum and 44 per centum Liberty bonds shall be exempt from graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States upon the income or profits of individuals, partnerships, corporations, or associations, in respect to the interest on aggregate principal amounts thereof as follows:

Until the expiration of two years after the date of the termination of the war between the United States and the German Government, as fixed by proclamation of the President, on $125,000 aggregate principal amount; and for three years more on $50,000 aggregate principal amount.

(b) The exemptions provided in subdivision (a) shall be in addition to the exemptions provided in section 7 of the Second Liberty Bond Act, and in addition to the exemption provided in subdivision (3) of section 1 of the Supplement to the Second Liberty Bond Act in respect to bonds issued upon conversion of 31⁄2 per centum bonds, but shall be in lieu of the exemptions provided and free from the conditions and limitations imposed in subdivisions (1) and (2) of section 1 of the Supplement to the Second Liberty Bond Act and in section 2 of the Victory Liberty Loan Act.

Accordingly, in addition to the exemptions provided in section 7 of the Second Liberty Bond Act and in subdivision (3) of section 1 of the supplement to the Second Liberty Bond Act, but in lieu of the exemptions provided and free from the conditions and limitations imposed in subdivisions (1) and (2) of section 1 of the Supplement to the Second Liberty Bond Act and in section 2 of the Victory Liberty Loan Act, the interest on the 4 per cent and 44 per cent Liberty bonds shall be exempt on an aggregate principal amount of $125,000 of such bonds until the expiration of two years after July 2, 1921, the

date of the termination of the war between the United States and the German Government as fixed by proclamation of the President, and for three years more (from July 3, 1923, to July 2, 1926) on an aggregate principal amount of $50,000 of such bonds. Since none of the Liberty or Victory issues is subject to normal income tax, and since the Revenue Act of 1921 repealed the excess-profits and war-profits taxes as of January 1, 1922, from that date the question of exemption from such taxes is immaterial and the only important question is the surtax exemption.

ART. 79. Liberty bond exemption under Second, Third, and Fourth LibBerty Bond Acts.-Under the Revenue Act of 1924 the exemption provided by section 7 of the Second Liberty Bond Act of September 24, 1917, has not been changed. Section 7 of the Second Liberty Bond Act of September 24, 1917, as amended by the Third Liberty Bond Act of April 4, 1918, and by the Fourth Liberty Bond Act of July 9, 1918, provides that in addition to the entire exemption of interest on first Liberty loan 32 per cent bonds, there shall be exempt from normal income tax all interest on first Liberty loan converted 4 per cent bonds, first Liberty loan converted 44 per cent bonds, first Liberty loan second converted 44 per cent bonds, second Liberty loan 4 per cent bonds, second Liberty loan converted 44 per cent bonds, third Liberty loan 44 per cent bonds, and fourth Liberty loan 41⁄4 per cent bonds, Treasury bonds, Treasury certificates of indebtedness, Treasury notes, and Treasury (war) savings certificates. Interest on an aggregate of not exceeding $5,000 principal amount of bonds included in such later issues, bonds of the first Liberty loan converted, Treasury certificates of indebtedness, and Treasury (war) savings certificates (but not the notes) is exempt from the surtax as well as the normal tax. Interest in excess of the interest on not exceeding $5,000 principal amount of such bonds and certificates may, however, be subject to surtaxes and may accordingly be required to be included in gross income.

ART. 80. Exemption of Treasury (war) savings certificates.-Treasury (war) savings certificates are issued under the Second Liberty Bond Act of September 24, 1917, as amended, and include war savings certificates and Treasury savings certificates. Such certificates are not transferable, nor is it lawful for any one person at any one time to hold more than $5,000, maturity value, of any one series thereof. The principal amount of such certificates for the purpose of computing the exemption is their issue price.

In the case of a taxpayer reporting income on a basis of cash receipts and disbursements, the difference between the issue price of the savings certificates and the amount received upon their redemption is deemed to be income to the holder in the taxable year when received. The amount thus received is exempt from all State and

local taxation (except estate and inheritance taxes) and from the normal Federal income tax and the corporation income tax. It is not exempt from surtaxes, except to the extent that it falls within the above-described exemption in respect of the interest on an aggregate principal amount of 4 and 41⁄44 per cent Liberty bonds, Treasury certificates of indebtedness and savings certificates, not exceeding $5,000. For the purpose of computing this limited exemption, savings certificates are to be taken at issue price, and if the exemption is claimed with respect to any holdings of savings certificates it will be deemed to cover the period during which the taxpayer holds the savings certificates in respect of which the exemption is claimed, and not merely the taxable year in which the certificates are redeemed. In other words, if the taxpayer holds and claims exemption upon $4,000 (issue price) of savings certificates of the Series of 1922, for the full period of 5 years to maturity, he will not be able to claim any exemption with respect to any other holdings in excess of $1,000 of Liberty bonds, Treasury certificates of indebtedness or savings certificates under the $5,000 limited exemption above described, for any part of the five-year period. If, on the other hand, the holder of $4,000 (issue price) of savings certificates, Series of 1922, has during the prior four years taken the full benefit of the $5,000 limited exemption with respect to other holdings of bonds or certificates, he will not be able to claim exemption in the fifth year for more than the amount by which the maturity value of the savings certificates exceeds the published redemption price at the beginning of that year.

In the case of a taxpayer reporting on an accrual basis, the interest to be reported for each year is the excess of the published redemption price of the certificates at the end of his accounting year, or of the amount received upon redemption, if redeemed during the year, over the corresponding published price for the beginning of that year; and the interest exempt from taxation, if any, is the proportion of the interest accrued that the portion of the issue price includable in the exemption for each year is of the total issue price.

ART. 81. Liberty bond exemption under Supplement to Second Liberty Bond Act, as amended and supplemented by the Revenue Act of 1924.The Revenue Act of 1924, in effect repeals subdivisions (1) and (2), but retains subdivision (3) of section 1 of the Supplement to the Second Liberty Bond Act, approved September 24, 1918. Subdivision (3) provides:

The interest on an amount of bonds, the principal of which does not exceed $30,000, owned by any individual, partnership, association, or corporation, issued upon conversion of 32 per centum bonds of the first Liberty loan in the exercise of any privilege arising as a consequence of the issue of bonds of the fourth Liberty loan, shall be exempt from such taxes.