This exemption from surtaxes and profits taxes expired July 2, 1923, and was in addition to the exemption provided in section 7 of the Second Liberty Bond Act (see article 79) in respect to the interest on an amount of bonds and certificates, authorized by such Act and amendments thereto, the principal of which does not exceed in the aggregate $5,000.

ART. 82. Summary of tax exemptions of Liberty bonds, Treasury bonds, Treasury notes, Treasury certificates of indebtedness, and Treasury (war) savings certificates.-Liberty bonds, Treasury bonds, Treasury notes, Treasury certificates of indebtedness, and Treasury (war) savings certificates issued under the authority of the Acts of Congress approved April 24, 1917, September 24, 1917, April 4, 1918, July 9, 1918, September 24, 1918, March 3, 1919, and the Revenue Act of 1921, are entitled to the following exemptions on and after January 1, 1921:

(1) 312 per cent bonds of the first Liberty loan are exempt from all Federal, State, and local taxation, except estate or inheritance taxes.

(2) 4 per cent and 44 per cent Liberty bonds, Treasury bonds, Treasury notes, Treasury certificates of indebtedness, and Treasury (war) savings certificates are exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) surtaxes and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations.

(3) 4 per cent and 414 per cent Liberty bonds, Treasury bonds, Treasury certificates of indebtedness, and Treasury (war) savings certificates are entitled to certain limited exemptions from surtaxes and excess-profits taxes now or hereafter imposed by the United States. For the period from July 3, 1923, to July 2, 1926, the total possible exemption from surtax amounts to $55,000, as follows: Period July 3, 1923, to July 2, 1926:

$5,000 in the aggregate of First 4s, First 44s, First-second 44s, Second 4s and 44s, Third 448, Fourth 44s, Treasury bonds, Treasury certificates of indebtedness, and Treasury (war) savings certificates.

50,000 in the aggregate of First 4s, First 44s, First-second 44s, Second 4s and 44s, Third 44s, and Fourth 414s.

$55,000 total possible exemptions for this period.

ART. 83. Liberty bond exemption in the case of trusts or partnerships. (a) When income is taxable to beneficiaries, as in the case of a trust

the income of which is to be distributed to the beneficiaries periodically, each beneficiary is regarded as the owner of a proportionate part of the bonds held in trust and is entitled to exemption on account of such ownership as if he owned such proportionate part of the bonds directly. When, on the other hand, income is taxable to the trustee, as in the case of a trust the income of which is accumulated for the benefit of unborn or unascertained persons, the trustee is regarded as the owner of all the bonds held in trust and the trust is entitled to exemption on account of such ownership.

(b) As the income of a partnership is taxable to the individual partners, each partner is treated as the owner of a proportionate part of the bonds held by the partnership and is entitled to exemption on account of such ownership as if he owned such proportionate part of the bonds directly. See section 218.

ART. 84. Liberty bond exemption in the case of nonresident aliens.By virtue of section 4 of the Victory Liberty Loan Act of March 3, 1919, amending section 3 of the Fourth Liberty Bond Act of July 9, 1918, the interest received on and after March 3, 1919, on bonds, notes, and certificates of indebtedness of the United States while beneficially owned by a nonresident alien individual, or a foreign corporation, partnership, or association, not engaged in business in the United States, is exempt from income taxes.

ART. 85. Return for fiscal year ending in 1924.-In the case of a return rendered for a fiscal year beginning in 1923 and ending in 1924, the interest received from obligations of the United States issued after September 1, 1917, is, in respect to the amount received prior to January 1, 1924, exempt only if and to the extent provided in the acts authorizing the issue thereof, as amended and supplemented by section 1328 of the Revenue Act of 1921. See article 80, Regulations 62. The interest received on and after January 1, 1924, is exempt in accordance with the acts authorizing the issue thereof as amended and supplemented by section 1028 of the Revenue Act of 1924. See article 78. The provisions of the two statutes being identical in this respect, it follows that the same exemptions apply to interest on obligations of the United States whether received before, or on or after January 1, 1924, except on such interest received before July 3, 1923, as to which see article 83 of Regulations 62. Since the basis of the exemptions is the principal amount of bonds held rather than the amount of interest received, where the holdings are not constant during the taxable period, if at any time the holdings of any issue or issues are less than the maximum exempted principal, then the exempted interest for such time shall be only the amount of interest received or accrued upon the principal actually held.

ART. 86. Income of foreign governments, ambassadors, and consuls.The exemption of the income of foreign governments applies also to their political subdivisions. Any income collected by foreign governments from investments in the United States in stocks, bonds, or other domestic securities, which are not actually owned by but are loaned to such foreign governments, is subject to tax.

Ambassadors and ministers accredited to the United States and the members of their households (including secretaries, attachés, and servants) who are not citizens of the United States, are exempt from the payment of Federal income tax upon their salaries, fees, or wages. The income from investments in the United States in bonds and stocks and from interest on bank balances received by ambassadors and ministers accredited to the United States, who are not citizens of the United States, is exempt from tax, but income from any business carried on by them in the United States is taxable. These provisions are also applicable to the wives and minor children of foreign ambassadors and ministers and the members of their households, including secretaries, attachés, and servants.

All foreign consular officers and employees in foreign consulates in the United States who are nationals of the States appointing them are exempt from Federal income tax with respect to the wages, fees, and salaries received by them in compensation for their consular services, provided the appointing State grants a similar exemption to citizens of the United States who are American consular officers or employees of the American consulates in such State. The income received by foreign consular officers and employees of foreign consulates from investments in the United States in bonds and stocks and from interest on bank balances as well as income from any business carried on by them in the United States is subject to Federal income tax.

The compensation of citizens of the United States who are officers or employees of a foreign government is not exempt from income tax.

ART. 87. Income of States.-Income derived from any public utility or from the exercise of any essential governmental function and aceruing to any State or Territory of the United States, to any political subdivision thereof, or to the District of Columbia, or income accruing to the government of any possession of the United States, or any political subdivision thereof, is exempt from tax. See article 74. The income of State workmen's compensation insurance funds established by State statutes is not taxable.

ART. 88. Compensation of State officers and employees.-Compensation paid its officers and employees by a State or political subdivision thereof, including fees received by notaries public commissioned by

States and the commissions of receivers appointed by State courts, iş not taxable. Compensation received for services rendered to `a State or a political subdivision thereof is included in gross income unless the person receives such compensation as an officer or employee of a State or political subdivision. An officer is a person who occupies a position in the service of the State or political subdivision, the tenure of which is continuous and not temporary and the duties of which are established by law or regulations and not by agreement. An employee is one whose duties consist in the rendition of prescribed services and not the accomplishment of specific objects, and whose services are continuous, not occasional or temporary. Employees of universities receiving salaries paid in part or in whole from funds available under the Smith-Lever Act of May 8, 1914, who are officers or employees of a State, are not required to return as taxable income the salaries so received. This is also true with respect to the Act of August 30, 1890, relating to colleges for the benefit of agriculture and the mechanic arts, and to the Act of March 2, 1887, relating to agricultural experiment stations in such colleges. As to State contracts, see article 37.

ART. 89. Additional exclusions from gross income.-The following additional exclusions from gross income are allowed by the Revenue Act of 1924:

(1) So much of the income from sources within the United States of a nonresident alien individual or of a foreign corporation as consists of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States nonresident in such foreign country and to corporations organized in the United States. (a) The following is an incomplete list of the foreign countries which either impose no income tax, or, in imposing such tax, exempt from taxation so much of the income of a citizen of the United States nonresident in such foreign country and of a corporation organized in the United States as consists of earnings derived from the operation of a ship or ships documented under the laws of the United States: Argentine Republic; Bulgaria; Denmark; Egypt; Iceland; Norway; Paraguay; Persia; St. Lucia; Siam; Sweden; Venezuela. (b) The following is an incomplete list of the foreign countries which, in imposing an income tax upon the income of citizens of the United States nonresident in such countries or of corporations organized in the United States, do not exempt from taxation the earnings derived from the operation of a ship or ships documented under the laws of the United States: Antigua; Belgium; British Honduras; Costa Rica; Dominica; Fiji; Finland; Great Britain; Greece; Grenada; India; Jamaica; Japan; New Zealand; Peru; St. Vincent; Spain; Trinidad; Union of South

Africa. So much of the income from sources within the United States of a nonresident alien individual or of a foreign corporation as consists of earnings derived from the operation of a ship or ships documented under the laws of any of the countries in the first list is not required to be included in the gross income of such nonresident alien individual or foreign corporation for the purpose of Federal income tax. The income from sources within the United States of a nonresident alien individual or of a foreign corporation from earnings derived from the operation of a ship or ships documented under the laws of any of the countries in the second list is required to be included in the gross income of such nonresident alien individual or foreign corporation and is subject to Federal income tax. If a nonresident alien individual or a foreign corporation receives income from sources within the United States consisting of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which is in neither list, the amount so received must be included in gross income unless satisfactory proof is furnished either (a) that such foreign country imposes no income tax, or (b) if an income tax is imposed that the foreign statute grants an equivalent exemption to citizens of the United States nonresident in such country and to corporations organized in the United States;

(2) Dividends or interest received by an individual before January 1, 1927, from domestic building and loan associations, substantially all the business of which is confined to making loans to members, but the amount excluded from gross income under this paragraph shall not exceed $300 in any taxable year;

(3) Rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation; (4) Receipts of shipowners' mutual protection and indemnity associations not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder. Such corporations, however, shall be subject as other taxpayers to the tax upon their net income from interest, dividends, and rents. In other words, they are subject to the taxes imposed by section 230, but only upon net income from interest, dividends, and rents;

(5) Under section 234 (a) (3) any tax paid by a corporation pursuant to a tax-free covenant clause need not be included in the gross income of the bondholder. See article 565;

(6) Amounts distributed as dividends by a corporation organized under the China Trade Act, 1922, to or for the benefit of an individual, if at the time of such distribution he is a citizen of China, resident therein, and the equitable right to the income of the shares of stock of the corporation is in good faith vested in him. See section 263.