tion, originally organized for the purpose of owning and renting an office building, leased its property for 130 years, its sole authority under its charter thereafter being to hold the title subject to the lease and to receive and distribute the rentals which might accrue under the terms of the lease, or the proceeds of any sale of the land if it should be sold, was not engaged in business within the meaning of that law.11 In another case, it was held that a railroad corporation which had leased its property for a term of years, and parted with its control and management, maintaining, however, its corporate organization, collecting rentals from the lessee, and distributing the same among its stockholders, was not engaged in business.12 Where, however, a corporation was organized to build and lease property, the fact that it had leased all of its property and did nothing except collect and distribute the rents, did not exempt it from the tax, since such collection and distribution of rents from the leased property was the business for which it was organized.13 These and other decisions 14 will be followed by the

11 Zonne v. Minneapolis Syndicate, 220 U. S. 187. In a later case it was held that, although a corporation might have power to do business under its charter, if it had leased all its property and was merely collecting rent it was not engaged in business. U. S. v. Emery, etc. Co., 237 U. S. 28.

12 McCoach v. Mine Hill & Schuylkill Haven R. R. Co., 228 U. S. 295.

13 Rio Grande Junction Ry. Co. v. U. S., 51. Ct. Cls. 274.

14 Other cases arising under the 1909 Law are Anderson v. Morris & Essex R. R. Co., 216 Fed. 83; Cambria Steel Co. v. McCoach, 225 Fed. 278; Jasper, etc. Ry. Co. v. Walker, 238 Fed. 533; Lewellyn v. Pittsburgh, et. R. R. Co., 222 Fed. 177; McCoach v. Continental Passenger Ry. Co., 233 Fed. 976; Miller v. Snake River Valley R. R. Co., 223 Fed. 946; New York Central v. Gill, 219 Fed. 184; New York Mail, etc. Co. v. Anderson, 234 Fed. 590; Philadelphia, etc. R. R. Co. v. Lederer, 242 Fed. 492; Philadelphia

Treasury Department where the decisions are by the United States Supreme Court or, if by the lower courts, have been acquiesced in by the Department. Corporations organized for the purpose of buying, owning, exploring, developing, leasing, improving, selling and dealing in lands, mining properties, tenements, and hereditaments, are considered to be engaged in business if they perform any of their powers. It is not necessary that such a corporation be an operating company in order to be taxable under this law. If a corporation is doing any one of the several things it is authorized to do, by its charter, it is "engaged in business" and subject to this tax.15 Corporations in the possession and control of receivers appointed by a court are not engaged in business during the period of the receivership.16

Engaged in Business During Preceding Taxable Year. A corporation is not subject to tax in any taxable year unless these two conditions co-exist: (a) it must have been carrying on business during some part of the preceding year, and (b) it must be carrying on business in the taxable year. It is not necessary, however, that the corporation should have been engaged in business during the entire preceding year. If it was engaged in business at some time during the preceding year, the length of time has no bearing upon the amount of tax due. A corporation commencing business on the last day of the preceding year is held by the Treasury Department to

Traction Co. v. McCoach, 224 Fed. 800; Public Service Electric Co. v. Herold, 229 Fed. 902; Traction Companies v. Collector of Internal Rev., 223 Fed. 984; Wilkes-Barre, etc. Traction Co. v. Davis, 214 Fed. 551.

15 T. D. 2457.

16 T. D. 2424.

be subject to the tax to the same extent as though it had been engaged in business for the entire year, and the full rate of tax for the taxable year is imposed.17

Inactive Corporations. A corporation not engaged in business at the beginning of the taxable year is not required to file a return or pay a tax, although it may have been engaged in business during a part of the preceding year. If such corporation resumes business at any time. during the taxable year, it will be required, at that time, to make a return and pay the tax for the proportion of the year in which it intends to do business. In such cases the tax is computed proportionately from the first day of the month in which it engages in business to the end of the taxable year. Thus, if a corporation was engaged in business during some part of the taxable year beginning July 1, 1916, and ending June 30, 1917, but was not engaged in business on July 1, 1917, it was required to file no return and pay no tax at that time. If it subsequently engaged in business in September, 1917, the return was required to be filed and the tax be paid at that time, for ten-twelfths of the full year. If an inactive corporation was not engaged in business during any part of the preceding year, it is not taxed in the year it resumes activity, but makes a return and pays the tax at the beginning of the next taxable year.

Corporations Ceasing to Do Business During the Taxable Year. If a corporation has paid this tax at the beginning of a taxable year and ceases to do business before the close of that year, no refund of any amount of the tax is allowed for that portion of the year in which it does no business.1 18

17 T. D. 2417.

18 See § 3237, Rev. Stat.

Basis of Tax. The basis of the tax in the case of all domestic corporations is "the fair average value of the capital stock for the preceding year. The tax is imposed upon the fair value of the entire capital stock of domestic corporations, no deduction being allowed in cases where a part of the capital is invested in foreign countries. 19

Fair Value of Capital Stock. The law provides in the case of domestic corporations, that in estimating the value of capital stock, the surplus and undivided profits shall be included; provided, that in the case of insurance companies such deposits and reserve funds as they are required by law or contract to maintain or hold for the protection of or payment to or apportionment among policyholders shall not be included in estimating the value of the capital stock, surplus and undivided profits.20 The Treasury Department has prescribed three methods by which the fair value of the capital stock may be determined: Case 1, where the stock is listed on an exchange; Case 2, where the stock is not listed on any exchange, but sales thereof have been actually made, and the price paid for the stock is known to the officer making the return, or can be discovered by him, and Case 3, where the stock is not listed and no actual sales have been made, or if the price at which sales have been made is not known to the officer making the return.21 Cases 1

19 T. D. 2417.

20 Act of September 8, 1916, § 407. The methods prescribed by the Treasury Department for ascertaining the fair value of capital stock eliminate such deposits and reserve funds maintained or held in the United States and the amount thereof is not deducted after computing the value of the stock by any one of the three methods described below. (T. D. 2503.)

21 T. D. 2364,

and 2 present comparatively few difficulties and cover a comparatively small number of corporations. Case 3 has more general application. The rules applicable to each of the three cases are discussed below.

INCREASE OR DECREASE OF CAPITAL STOCK. If the corporation has increased or decreased its capital stock during the preceding year, a statement should be attached to the back of its return setting forth the number of shares of stock outstanding each month with the fair average value of the stock for that month computed under one of the three cases.2 22

CAPITAL STOCK OUTSTANDING. In estimating the value of the capital stock outstanding so-called "treasury stock" which has once been issued and thereafter acquired by the company for value is considered as capital outstanding. Preferred stock and common stock are to be considered in estimating the total fair average value.23

Case 1. If the stock is listed on any exchange its fair value is determined by adding the quoted highest bid price for the stock on the last business day of each month during the preceding fiscal year (or if no bid. price was quoted on the last day, then the latest day in the month on which a bid price was quoted), and dividing by twelve, the result being the average bid price per share for that year.24 A corporation may, if it prefers, average the fair value throughout the entire fiscal year by showing on a statement, attached to the back of the return, the highest bid price for stock on each day

22 T. D. 2503.

23 Letter from Treasury Department dated December 19, 1916. 24 T. D. 2364.