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conversions of the capital. On the other hand, it has been held that such leases do not constitute a sale of any part of the land and further, that ores or other materials derived from the usual operation of open mines or quarries, constitute the rents and profits of the land. The United States Supreme Court in a case arising under the 1909 Law reviewed the conflicting authorities, and held that under the language of that law royalties received under mining leases were income.3 Under the present law such royalties are treated as income, against which the owner of the property may claim an allowance for depletion of the natural resource.

Royalties from Patents and Copyrights. Taxpayers receiving royalties from patents, copyrights, or other similar forms of property, may deduct from each payment a proportionate part of the cost thereof as representing, a return of capital. This is more fully discussed in a subsequent chapter. 4

3 Von Baumbach v. Sargent Land Company, 242 U. S. 503. 4 See p. 294.

CHAPTER 25

INCOME FROM MISCELLANEOUS SOURCES

After specifying a number of sources of income, the act provides that the net income of the taxpayer shall include gains or profits and income derived from any source whatever. In this chapter are set forth the rulings on income from sources not covered by the preceding chapters.

Alimony. Alimony is not income, as it does not arise from any business transaction, and is not founded on any contract, but on the natural and legal duty of the husband to support the wife. It follows that the husband cannot deduct the amount he pays as alimony from his income for the purpose of the tax.

Accident Insurance. Money paid to a person insured by an accident insurance policy, on account of accident sustained, is income to the extent that the amount exceeds the aggregate premiums paid) but amounts received from a railroad company, by way of reimbursement for expenses incident to an accident, are not considered income. The proceeds of accident insurance policies paid to an individual beneficiary, upon the

1 Gould v. Gould, U. S. Supreme Court, Case No. 41, October Term, 1917, not yet officially reported. This decision reversed the ruling of the Treasury Department.

death of the person insured, are not income to the beneficiary.2

Assessments on Stock. Assessments paid by stockholders on stock are not income of the corporation, nor is a voluntary contribution on the part of the stockholders, to make good a deficit of the corporation.3

Damages. An amount received as the result of a suit or compromise for “pain and suffering” is held to be income. The law imposes the tax on income from all sources, but it seems unjust to tax one who receives in a lump sum an amount as damages to compensate him for a period of years on account of disability resulting from injury. In other words, he receives several years' income at one time and the supertax takes more than a just portion thereof, while the law does not even permit him to deduct the expenses of surgical and medical attendance from the gross amount of damages he may receive.

Increment to Sinking Funds. Where a sinking fund is set aside for the purpose of meeting obligations at a future date, all increment to that fund as a result of investments is income to the creator of the fund. Where a sinking fund, controlled by trustees, has been invested in the bonds of the corporation which created the fund, and the corporation pays the trustees interest on such bonds, the amount of interest may be deducted, the same as payment to any other bondholders, and within the limitation fixed by law, but the same amount must be included as income to the corporation from the sinking fund.5

2 T. D. 2135.

3 Letter from Treasury Department dated February 21, 1916; I. T. S. 1917, 11196.

4 T. D. 2135.

Legacies. A legacy is a gift and the value thereof is not considered income to the recipient, but all income created by the legacy is taxable. Unless clearly inconsistent with the intention of the testator, a legacy is held to be vested rather than contigent, and where there is a vested interest the income therefrom, whether distributed or not by the executor or administrator, is subject to the tax from the time of death of the testator, as income of the legatee..

Pensions. Pensions paid by the United States Government are subject to the income tax," as also are pensions paid by any other government, or by any private interest, under any contract express or implied. If, however, a so-called "pension” is a mere gratuity or gift it is not taxable as income to the recipient.

Proceeds of Life Insurance Paid to Individual Beneficiaries. When the proceeds of a life insurance policy are paid to an individual beneficiary upon the death of the insured, the amount of the policy is exempt and need not be included as gross income of the indi. vidual, and this is true whether the payments of such proceeds are made in a lump sum at the death of the insured, or in instalments thereafter, or as annuities. If the instalments are not paid in accordance with the terms of the policy, but under agreement made between the insurance company and the beneficiary, any amounts of accretion to the sum payable under the terms of the policy will be taxable as income.

5 T. D. 2161. 6T. D. 2090. 7 T. D. 2090. 8 Act of September 8, 1916, § 4, Reg. 33, Art. 5. 9 Letter dated December 29, 1913; I. T. S. 1917, 1301.

Proceeds of Life Insurance in favor of Corporations. Where a corporation has insured the life of an officer or employee or other person in favor of the corporation it is not allowed to deduct as an annual expense the amount of premium paid, but such annual payments of premium will be considered as investment of capital and, when the policy is paid at maturity, the aggregate amount of the premiums paid during the term of the policy may be deducted from the proceeds of the policy, the remainder being income for the year in which it is received. 10

Property Acquired by Gift. The value of property acquired by gift, bequest, devise or descent (but not the income from such property) is exempt. Such property need not be reported as income by the recipient.11 It was held under the 1913 Law that gifts to corporations were not exempt, but this ruling does not apply under the 1916 Law, since the provision of the former law exempting income of this character was contained in the subdivision applying particularly to individuals, while in the latter it is placed in a section having general reference to all taxpayers. It would seem under the present law that income of this character is exempt from the tax regardless of the status of the recipient.12

10 T. D. 2519. Act of September 8, 1916, $ 32, added by Act of October 3, 1917.

11 Reg. 33, Art. 5.

12 Compare Act of October 3, 1913, 1 B and Act of September 8, 1916, 84.

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