which the net income for such year would be reduced if the inventory were redetermined and such goods taken at their market value (ignoring mere temporary fluctuations of value) at the end of the taxable year 1919.

ART. 266. Claims.-Claims in abatement should be filed with the collector on form 47 when the return for the taxable year 1918 is made. Claims for refund should be filed on form 46 not later than 30 days after the close of the taxable year 1919. Each claim shall contain a concise statement of the amount of the loss sustained and the basis upon which it has been computed, together with all pertinent facts necessary to enable the Commissioner to determine the allowability of the claim. The amount allowed by the Commissioner in respect of any such claim shall be deducted from the net income. for the taxable year 1918 and the taxes shall be recomputed accordingly. Any excess paid over the tax due shall be credited or refunded to the taxpayer. See section 252 of the statute and articles 1031-1038. In computing income for the taxable year 1919 the opening inventory must be properly adjusted by the taxpayer in respect of any claim allowed for the year 1918 under this article.

ART. 267. Disposition of claims.-A claim for loss resulting from rebates paid or from actual sales will be decided as soon as practicable after it has been filed. A claim for loss in inventory not realized by sale will be decided only after the close of the taxable year 1919 upon the basis of any permanent reduction in the level of market values which may occur during such year from the inventory values taken at the close of the taxable year 1918. Not later than thirty days after the close of the taxable year 1919 a taxpayer who has filed either a claim in abatement or a claim for refund, or both, shall submit to the Commissioner a descriptive statement showing the quantity and kind of all goods included in the 1918 inventory which have been (a) sold at a loss in the taxable year 1919, (b) sold at a profit during the taxable year 1919, or (c) not sold or otherwise disposed of during the taxable year 1919, together with such other information in respect of such goods as the Commissioner may require. A claim filed with the return for a loss not then realized by sale will be passed upon in the light of any sales thereafter made during the taxable year 1919. A claim filed with the return is authorized for the purpose of allowing the taxpayer to utilize, where justified, a preliminary allowance for inventory losses and not to provide a deduction essentially different from that taken by way of a claim filed at the end of the taxable year 1919.

ART. 268. Effect of claim in abatement.-In the case of a claim in abatement filed with a return payment of the amount of the tax covered thereby shall not be required until the claim is decided, provided the taxpayer files therewith a bond on form 1124 in double the amount

of the tax covered by the claim, conditioned for the payment of any part of such tax found to be due with interest at the rate of 12 per cent per annum. The bond shall be executed by a surety company holding a certificate of authority from the Secretary of the Treasury as an acceptable surety on federal bonds and shall be subject to the approval of the Commissioner. See also section 1320 of the statute. If abatement of any part of the tax covered by such a claim is denied, then such part shall be paid by the taxpayer with interest at the rate of 12 per cent per annum from the original due date of the tax. The bond executed on form 1124, pursuant to this article, together with the abatement claim, should be forwarded by the collector to the Commissioner of Internal Revenue. When it is received by the Commissioner it will be detached from the abatement claim and forwarded to the surety bond section of the Treasury Department for certification as to the sufficiency of the sureties. The surety bond section will, after certification, return the bond to the Commissioner for his approval. When he has approved the bond he will cause it to be attached to the abatement claim.

In case the claimant, in accordance with the provisions contained in section 1320 of the Revenue Act of 1918, elects to offer, in lieu of the surety or sureties provided for on form 1124, United States Liberty bonds or other bonds of the United States as security he should execute in duplicate a bond and agreement on form 1124-A, prescribed below. The original should accompany the United States bonds offered as security; the duplicate should be forwarded by the collector with the abatement claim to the Commissioner. If such bond and agreement is executed by a corporation a duly certified copy of the resolution of the board of directors, authorizing the execution should be attached. The United States Liberty bonds or other bonds of the United States, offered as security, shall at their par value be not less than the amount of the penal sum of the bond executed on form 1124-A, which shall be in double the amount of the tax covered by the abatement claim. The bonds so offered as security must be delivered to the Commissioner of Internal Revenue at the obligor's risk and expense. Coupon bonds can not safely be forwarded by registered mail unless insured by the obligor against risk of loss in transit. Registered bonds so offered as security must be registered in the name of the obligor and duly assigned to the Commissioner of Internal Revenue at or before the date of deposit with the Commissioner and need not be insured when forwarded by registered mail, unless the obligor so elects. In connection with effecting insurance of bonds shipped reference is made to article 187 (a) of Regulations No. 2 (Revised).

The Commissioner of Internal Revenue will issue a receipt in duplicate for United States bonds so deposited with him as security,

the original of the receipt to be given to the obligor and the duplicate to be retained by the Commissioner for his files. Upon receipt by the Commissioner of the United States bonds so offered as security and upon satisfying himself as to their ownership and as to the sufficiency of the agreement for him to collect or sell, and in case of registered bonds as to the regularity of the assignments, he will approve the bond executed on form 1124-A, and deposit the United States bonds offered as security with the Treasurer of the United States, as provided in paragraph 7 of Department Circular No. 154 (1919), dated June 30, 1919, and the Treasurer of the United States. will, as provided in said circular, give receipt there for in duplicate describing the bonds so deposited, the original to be delivered to the Commissioner of Internal Revenue and the duplicate to be retained by the Treasurer for his files.

Bonds of the United States shall be returned to the obligor as soon as the security for the performance of such penal bond is no longer necessary. Registered bonds shall be reassigned to the owner when the liability is canceled.

These special instructions are prescribed for the guidance of collectors of internal revenue pursuant to the provisions of Treasury Department Circular No. 154 as to the acceptance of United States bonds in lieu of surety or sureties on penal bonds.

DEDUCTIONS ALLOWED: NONRESIDENT ALIEN

INDIVIDUAL.

[SEC. 214.] (b) In the case of a nonresident alien individual the deductions allowed in paragraphs (1), (4), (7), (8), (9), (10), and (12), and clause (e) of paragraph (3), of subdivision (a) shall be allowed only if and to the extent that they are connected with income arising from a source within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary.

ART. 271. Deductions allowed nonresident alien individuals. In the case of a nonresident alien individual the deduction for interest paid or accrued is proportionate to, his income from sources within the United States (see paragraph (2) of subdivision (a) of section 214 of the statute); for losses incurred in any transaction entered into for profit, or arising from casualty or theft, is confined to transactions and property within the United States (5), (6); for charitable contributions excludes gifts to foreign corporations (11); and for business expenses, taxes imposed by a foreign country, losses in trade, bad debts, depreciation, amortization, depletion, and loss in inventory (1), (3), (4), (7), (8), (9), (10), and (12) is allowed only if and to the extent that it is connected with income arising from a source within the United States. See articles 91 and 311-316. As to deduc

tions allowed foreign corporations, see section 234 (b) of the statute and article 573.

ITEMS NOT DEDUCTIBLE.

SEC. 215. That in computing net income no deduction shall in any case be allowed in respect of—

(a) Personal, living, or family expenses;

(b) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate;

(c) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or (d) Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy.

ART. 291. Personal and family expenses.-Insurance paid on a dwelling owned and occupied by a taxpayer is a personal expense and not deductible. Premiums paid for life insurance by the insured are not deductible. In the case of a professional man who rents a property for residential purposes, but incidentally receives there clients. patients, or callers in connection with his professional work (his place of business being elsewhere), no part of the rent is deductible as a business expense. If, however, he uses part of the house for his office, such portion of the rent as is properly attributable to such office is deductible. The father is legally entitled to the services of his minor children, and allowances which he gives them, whether said to be in consideration of services or otherwise, are not allowable deductions in his return of income. Alimony and an allowance paid under a separation agreement are not deductible from gross income. See article 73. The cost of the equipment of an army officer to the extent only that it is specially required by his profession and does not merely take the place of articles required in civilian life is deductible. Accordingly, the cost of a sword is an allowable deduction, but the cost of a uniform is not.

ART. 292. Traveling expenses.-Traveling expenses, as ordinarily understood, include railroad fares and meals and lodging. If the trip is undertaken for other than business purposes, such railroad fares are personal expenses and such meals and lodging are living expenses. If the trip is on business, the reasonable and necessary traveling expenses, including railroad fares, and meals and lodging in an amount in excess of any expenditures ordinarily required for such purposes when at home, become business instead of personal expenses. (a) If, then, an individual whose business requires him to travel receives a salary as full compensation for his services, without reimbursement for traveling expenses, or is employed on a commission basis with no expense allowance, his expenses for railroad fares,

and expenses for meals and lodging in an amount in excess of any expenditures ordinarily required for such purposes when at home, are deductible from gross income. (b) If an individual receives a salary and is also repaid his actual traveling expenses, he shall include in gross income an amount thereof equal to the ordinary expenditures required for meals and lodging when at home, as such amount is held to be additional compensation to the taxpayer. (c) If an individual receives a salary and also an allowance for meals and lodging, as, for example, a per diem allowance in lieu of subsistence, any excess of the cost of such meals and lodging over the sum of the allowance and the ordinary expenditures required for such purposes when at home, is deductible, but any excess of the allowance over the difference between such expenses and such ordinary expenditures is taxable income. Congressmen and others who receive a mileage allowance for railroad fares should return as income any excess of such allowance over their actual expenses for such fares. A payment for the use of a sample room at a hotel for the display of goods is a business expense. This contemplates that only such expenses as are reasonable and necessary in the conduct of the business and directly attributable to it may be deducted. A taxpayer claiming the benefit of the deductions referred to herein must attach to his return a statement showing (1) the nature of the business in which engaged; (2) number of days away from home during the calendar year on account of business; (3) number of members in taxpayer's family dependent upon him for support; (4) average monthly expense incident to meals and lodging for entire family, including taxpayer himself when at home; (5) average monthly expense incident to meals and lodging when at home if taxpayer has no family; (6) total amount of expenses incident to meals and lodging while absent from home on business during taxable year; (7) total amount of excess expenditures incident to meals and lodging while traveling on business and claimed as a deduction; (8) total amount of other expenses incident to travel and claimed as a deduction.

Claim for the deductions referred to herein must be substantiated, when required by the Commissioner, by records showing in detail the amount and nature of the expenses incurred.

ART. 293. Capital expenditures.-Amounts paid for increasing the capital value or for restoring the depreciated value of property are not deductible from gross income. See section 214 (a) (8) of the statute and article 161. Amounts expended for securing a copyright and plates, which remain the property of the person making the payments, are investments of capital. The cost of defending or perfecting title to property constitutes a part of the cost of the property and is not a deductible expense. The amount expended for architect's services is part of the cost of the building. Commissions