FEDERAL INCOME TAX PROBLEMS 1922 101

clude... (6) amounts received, through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness;

PROBLEM 75

Illustrating Gross Income-Public Utility Income Accruing to a Political Subdivision

FACTS:

The City of Waterbrook, in 1921, derived a net income of $50,000 from the operation of its street-car system.

QUESTION:

Is the above amount to be reported for Federal income tax purposes?

ANSWER:
No.

REFERENCE:

66

Sec. 213: the term 'gross income'. . . (b) does not include . . . (7) Income derived from any public utility or the exercise of any essential governmental function and accruing to any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, or income accruing to the Government of any possession of the United States, or any political subdivision thereof.

"Whenever any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, prior to September 8, 1916, entered in good faith into a contract with any person, the object and purpose of which is to acquire, construct, operate, or maintain a public utility, no tax shall be levied under the provisions of this title upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such State, Territory, District of Columbia, or political subdivision; but this provision is not intended and shall not be construed to confer upon such person any financial gain or exemption or to relieve such person from the payment of a tax as provided for in this title upon the part or portion of such income to which such person is entitled under such contract; . . .

PROBLEM 76

Illustrating Gross Income-Income from Ships Documented Under Laws of a Foreign Country

FACTS:

A. Lienskiviet, a nonresident alien, derives his income from the operation of ships documented under the laws of a certain foreign country. This particular foreign country exempts from income taxes the income of citizens of the United States, or of corporations organized in the United States, derived from the operation of ships documented under the laws of the United States.

QUESTION:

Is the income of A. Lienskiveit to be reported as taxable net income?

ANSWER:
No.

REFERENCE:

Sec. 213: "... the term 'gross income'. . . (b) does not include (8) The income of a nonresident alien or foreign corporation which consists exclusively 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 and to corporations organized in the United States."

NOTE:

While this problem illustrates the case of a nonresident alien individual the rule enunciated applies with equal propriety to foreign corporations.

PROBLEM 77

Illustrating Gross Income-War Pension and Bonus

FACTS:

S. S. Stone receives in 1921 disability insurance of $960 under

the War Risk Insurance Act and a State bonus of $60 for military service.

QUESTION:

Are these amounts subject to the Federal income tax?

ANSWER:
No.

REFERENCES:

Sec. 213: "... the term 'gross income'. . . (b) does not include (9) Amounts received as compensation, family allotments and allowances under the provisions of the War Risk Insurance and the Vocational Rehabilitation Acts, 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.

Bul. 22-19-533; 0. D. 286: "A bonus paid by a State to its residents who served in the military or naval forces during the war with Germany does not constitute taxable income to the recipient."

PROBLEM 78

Illustrating Gross Income-Interest Received From Domestw Building and Loan Association

FACTS:

S. Smith in 1922 received interest amounting to $700, from a domestic building and loan association which was operated exclusively for the purpose of making loans to its members.

QUESTION:

Is the above interest to be returned by Mr. Smith for income tax purposes?

ANSWER:

Only $400 of the $700 received is subject to tax.

REFERENCE:

Sec. 213: "... the term 'gross income'

(b) does not include

(10) So much of the amount received by an individual after December 31, 1921, and before January 1, 1927, as dividends or in

terest from domestic building and loan associations, operated exclusively for the purpose of making loans to members, as does not exceed $300."

PROBLEM 79

Illustrating Gross Income-Use of Dwelling House Furnished to Minister of Gospel as Part of His Compensation

FACTS:

The Reverend Paul H. Wilson, a minister of the gospel, received in 1921 a stipulated salary of $12,000, and in addition was furnished, as part of his compensation, a dwelling house and garage. The rental value of the house was $3,000 per year, and the rental value of the garage was $240 per year.

QUESTION:

Is the rental value of the house and of the garage to be returned as taxable net income?

ANSWER:
No.

REFERENCE:

Sec. 213: "... the term 'gross income' . . . (b) does not include (11) The rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation."

PROBLEM 80

Illustrating Gross Income-Receipts of Shipowners' Mutual Protection and Indemnity Association

FACTS:

The Hoboken Shipowners' Protective Association in the calendar year 1921 had receipts (not including income from interest, dividends, and rents) amounting to $200,000, composed exclusively of assessments, the association having been

organized not for profit to itself or any of its members but for mutual protection to all its members.

QUESTION:

Is the above amount to be included in gross income for Federal tax purposes?

ANSWER:

No; the full amount is exempt.

REFERENCE:

...

Sec. 213: "That for the purposes of this title. . . the term 'gross income' (b) Does not include the following items, which shall be exempt from taxation under this title: ... (12) The 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 stockholder or member, but such corporation shall be subject as other persons to the tax upon their net incomes from interest, dividends, and rents."

PROBLEM 81

Illustrating Gross Income of Nonresident Alien Individual

FACTS:

Jens Pind, a nonresident alien individual, has income from sources within the United States as well as income from his native country and other sources.

QUESTION:

Is Mr. Pind required to include in his gross income reported for U. S. Federal income taxes the full amount received by him from all sources?

ANSWER:

No. He must include only so much of his gross income as is derived from sources within the United States.

REFERENCE:

Sec. 213 (c): "In the case of a nonresident alien individual, gross