20. Co-operative Dairies.-Co-operative dairies not issuing stock and allowing patrons dividends based on butter fat in milk furnished not liable.

21. Foreign Steamship Companies.-Foreign steamship companies. having no office in the United States, whose vessels only occasionally touch at ports in the United States, not regarded as doing business in this country within the meaning of the statute.

22. Companies Organized in Porto Rico.-Companies organized in Porto Rico and not engaged in business in the United States not subject to tax.

23. Corporations Owning Plantations.-Corporations owning sugar or other plantations and disposing of the products thereof not entitled to exemption as agricultural organizations.

24. Corporations Organized to Sell Provisions.-Corporations organized to sell provisions, etc., to stockholders and others not exempted.

25. Corporations Organized for Holding Real Estate.-Corporations organized for the purpose of holding real estate to make return of income derived from the property so held.

26. Final Return by Liquidating Corporation.-Corporations going into liquidation during any tax period may, at the time of such liquidation, prepare a "final return" covering the business done during the fractional part of the year during which they were engaged in business, and immediately file the same with the collector of the district in which the corporation has its principal place of business.

27. Hail, Storm and Lightning Companies.-Corporations organized for the purpose of insuring against death, or injury by accident, or against damage to property by hail, storm, or lightning, however maintained, are held to be insurance companies, and unless they may be properly classed as "fraternal beneficiary organizations operating under the lodge system," must make returns of annual net income. (T. D. 1738.)

28. Agricultural and Horticultural Associations.-Corporations engaged in agricultural or horticultural pursuits for profit are liable under the law to make returns and to pay the special excise tax thereby shown to be due. Agricultural and horticultural associations specifically enumerated as exempt are held to be such associations as county fairs or like organizations, not themselves engaged in such pursuits, but which, by means of awards, etc., are intended to encourage better production, and no part of whose net income inures to the benefit of any private stockholder or individual. (T. D. 1737.)

29. Fruit Growers' Associations.-Fruit growers' associations whose purpose is to promote the mutual benefit of their members in growing, harvesting, and marketing their products, and which are not organized for profit and have no capital stock represented by shares, and whose income is derived wholly from membership fees, dues, and assessments to meet necessary expenses, are not liable.

30. Corporations Growing Fruits, Vegetables, and Like Products.Corporations engaged in growing fruits, vegetables, and like products. for profit, and distributing such profits among their members on the basis of the capital invested, are liable and must make returns and pay taxes, if any are found to be due. (T. D. 1737.)

31. Associations or trusts voluntarily formed by parties at interest and not organized "under the laws of the United States or of any State or Territory thereof, or of the laws applicable to the District of Columbia or Alaska," are not corporations within the meaning and intent of the law, and are not liable. (U. S. Supreme Court opinion in Amory Eliot vs. James G. Freeman et al., No. 448.)

32. National Banks.-National banks do not come within any of the exemptions named in the act.

33. Agricultural Organizations.-"Agricultural organizations" held not to come within the statutory exemption, unless their chief object is the promotion or advancement of agricultural interest, and no part of the net income inures to the benefit of their stockholders.

34. Mutual Hail Association. Mutual hail association regarded as an insurance company and not as an agricultural association, and therefore liable to tax.

35. Mutual Fire Insurance Companies.-Exemption in favor of fraternal beneficiary associations does not apply to mutual fire insurance. companies.

36. Limited Partnerships.-Limited partnerships, if organized for profit and having a capital stock represented by shares, although no "certificates of stock" are issued, are liable to the tax imposed. (Opin. Atty. Gen., Feb. 14, 1910.)

37. Interest Received on Government Bonds.-Interest received on government bonds to be included in gross income. (Opin. Atty. Gen.. Jan. 13, 1910.)

38. Returns Verified by Two Officers Agents for Foreign Steamship Companies.-Returns should be signed and verified by two of the officers designated in the law. Signing of one person holding two such offices not permitted. Agents for foreign steamship companies. may sign the required returns, if so authorized by their companies. 39. Corporate Seal.-Returns not required to have corporate seal affixed.

40. Returns Filed With Deputy Collector.-Returns filed with deputy collector regarded as having been filed with collector.

41. Protest. No form of protest prescribed. Any form of protest sufficient if filed before payment of tax. Right of protest not to be denied.

INVENTORIES, ACCOUNTS, ETC.

42. Supplemental Statement.-Where an inventory or its equivalent was not taken at the close of the year 1908, a supplemental statement showing such inventory approximately must be submitted with

the return on the regular form. Such supplemental statement shall be verified under oath by the treasurer or principal financial officer submitting the same. (T. D. 1578.)

43. Profits on Sale of Real Estate Increase in Value of Unsold Property.-Profits realized on sale of real estate during the year, also increase in value of unsold property, if taken up on the books of the corporation, to be included in income.

44. Cost of Manufactured Articles.-Cost of manufactured articles, or articles in process of manufacture, held to include original cost of materials used plus cost of labor, etc.

45. Mortgaged Real Estate.-Mortgaged real estate should be inventoried at its full value and amount of mortgage reported as indebted

ness.

46. Sale of Patent Rights.-Receipts from sale of patent rights to be included in income.

47. Bookkeeping.-No particular system of bookkeeping or accounting will be required by the department. However, the business transacted by corporations, etc., must be so recorded that each and every item therein set forth may be readily verified by an examination of the books and accounts where such examination is deemed necessary.

48. Increase in Value of Assets. Any increase in the value of the capital assets, as determined by a physical revaluation and taken eognizance of by the corporation in book entries, is gain and must be accounted for as income for the year in which such increase is so recognized and recorded.

DEDUCTIONS, EXPENSES, ETC.

49. Deduction, How Evidenced in Books. It is immaterial whether the deductions are evidenced by actual disbursements in cash or whether evidenced in such other way as to be properly acknowledged by the corporate officers and so entered on the books as to constitute a liability against the assets of the corporation, etc., making the

return.

50. Mortgage Indebtedness.-Mortgage indebtedness on real estate, if assumed by the corporation acquiring such real estate, to be ineluded in the indebtedness of the corporation. But if not so assumed and remains only as a lien on the property, interest paid thereon may be deducted as a charge "made as a condition to the continued use or possession of the property." (Opin. Atty. Gen., Feb. 21, 1910.)

51. Cost of Erecting Building.-Cost of erecting building, if ineluded in lease under which property is held by company, is a proper deduction, to be prorated according to time fixed by lease.

52. General Expenses of Foreign Steamship Companies.-General expenses, such as coal, ship stores, etc., of foreign steamship companies. to be prorated as provided in act for interest deductions.

53. Nursery Companies.-Amount received by nursery companies. from sales of trees, etc., less amount expended for seedlings and young trees, to be included in gross income. Amount expended for labor, salesmen, etc., to be deducted as expenses.

54. Commissions.-Commissions allowed salesmen, paid in stock, may be deducted as expense if so charged on books.

55. Sales of Stock and Bonds.-Sales of stock and bonds are regarded as sales of capital assets and should be so accounted for. (Art. 2, regs. 31.) But proceeds derived from sale of bonds used in defraying ordinary and necessary expenses are a proper deduction in determining the company's net income.

56. Stock Issued-Notes Issued-Notes Paid.-Stock issued in payment of property purchased represents capital investments and notes. issued during the year represent indebtedness. Corporate funds applied to the payment of outstanding notes not a proper deduction in ascertaining net income.

57. Additions and Betterments.-Amounts expended in additions and betterments which constitute an increase in capital investment not a proper deduction.

58. Dividends Received.-Dividends received by corporations on stock of other corporations whose net income does not exceed $5,000 is nevertheless a proper deduction under the law. (Opin. Atty. Gen., Jan. 24, 1910.)

59. Dividends Received on Stock of Foreign Corporations.-Dividends received on stock of foreign corporations not subject to tax not a proper deduction.

60. Dividends Paid Employees.-Dividends paid employees in lien of wages not proper deduction as expenses.

61. Royalties on Patent Rights.-Royalties on patent rights to be reported as income. Allowance for depreciation of patents expiring during year, however, will be allowed.

62. Lands Bought Prior to January 1, 1909. In the case of lands bought prior to January 1, 1909, and sold during any subsequent year, the profits arising from such sale, if no accounting of increased value of land was made in returns for previous years, should be prorated in accordance with the number of years the land was held by the corporation and the number of years the law was in effect.

63. Banks Paying Taxes Assessed Against Stockholders.-Banks paying taxes assessed against their stockholders because of their ownership of the shares of stock issued by such bank cannot deduct the amount of tax so paid in making their return for the special excise tax on corporations.

64. Pensions to Employees-Donations to Charitable Institutions.— Amounts paid for pensions to retired employees, or to their families or others dependent upon them, or on account of injuries received by employees, are proper deductions as "ordinary and necessary ex

penses"; gifts or gratuities to employees in the service of a corporation are not properly deductible in ascertaining net income. Donations made for purposes connected with the operation of the property when limited to charitable institutions, hospitals, or educational institutions, conducted for the benefit of its employees, or their dependents, shall be proper as a deduction under the same head.

65. Excessive Salaries.-Where allowances on account of salaries are deemed excessive and for the purpose of evading the tax due, investigation will be made, and if the facts warrant prosecution will follow.

66. Interest on Deposits.-Interest paid on time deposits and deposits subject to check constitutes a proper deduction from the amount of gross income during the year.

67. Interest on Portions of Bonded Indebtedness.-Interest on portions of bonded or other indebtedness bearing different rates of interest may be deduced from gross income during the year, provided the aggregate amount of such indebtedness does not exceed the paid-up capital stock of the corporation.

68. Interest on Notes Given Prior to January 1, 1909.-Interest paid during the year on notes given prior to January 1, 1909, to be prorated. But interest on notes given in 1909, and payable subsequent to December, 1909, unless charged on the company's books, is not a proper deduction from the income of that year.

69. Deductions Accruing Prior to January 1, 1909.-Interest, taxes, or other items allowable as deductions, accruing prior to January 1, 1909, are not allowable deductions from the gross income of years subsequent thereto.

70. Unearned Premiums.-Unearned premiums set aside by insurance companies as reserve not to be included as income until earned, unless the same shall be entered on the ledger as income during the year in which received.

71. Insurance Fund.-Funds set aside by company for insuring their own property not a proper deduction.

72. Interest on Government Bonds.-As the tax imposed is measured by and is not a tax upon the net receipts of corporations, etc., interest received during the year on Government bonds is not a proper deduction from such income in determining the amount of tax due. (Opin. Atty. Gen., T. D. 1583.)

73. State, County, or Municipal Taxes.-State, county, or municipal taxes paid during the year a proper deduction in ascertaining the net income of corporations.

74. Import Duties or Taxes.-Import duties or taxes if included in arriving at cost of goods are not deductible under the head of taxes paid during the year.

75. Bad Debts.-Bad debts, if so charged off the company's books during the year, are proper deductions. But such debts, if subsequently collected, must be treated as income.