form 109951 amounts of $1,000 or more, paid for salaries, wages, rents, interest, premiums, etc., during the year. In the case of payments of bond interest and collection of foreign dividends the report is not limited to amounts in excess of $1,000. As one person, firm or corporation may find it necessary to fill out more than one form 1099, it will be necessary to accompany the forms with a letter of transmittal which is known as form 1096. The form used for non-resident aliens is form 1098. Article 1074 (h) excepts payments of rents to real estate agents but payments by agents to landlords must be reported. For copies of forms, see Appendix.

Brokers' returns of customers' profits and losses.—

LAW. Section 255. That every individual, corporation, or partnership doing business as a broker shall, when required by the Commissioner, render a correct return duly verified under oath, under such rules and regulations as the Commissioner, with the approval of the Secretary, may prescribe, showing the names of customers for whom such individual, corporation, or partnership has transacted any business, with such details as to the profits, losses, or other information which the Commissioner may require, as to each of such customers, as will enable the Commissioner to determine whether all income tax due on profits or gains of such customers has been paid.

REGULATION. When directed by the Commissioner, either specially or by general regulation, every person doing business as a broker shall render a return on form 1100, showing the names and addresses of customers to whom payments were made or for whom business was transacted during the calendar year or other specified period next preceding and giving the other information called for by the form. (Art. 1061.)

New "government contract" corporations must make separate returns.—

LAW. Section 240. (a) . . . Provided, That there shall be taken out of such consolidated net income and invested capital, the net income and invested capital of any such affiliated corporation organized after August 1, 1914, and not successor to a then existing business, 50 per centum or more of whose gross income consists of

For classes of items to be reported, see page 221.

gains, profits, commissions, or other income, derived from a Government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive. In such case the corporation so taken out shall be separately assessed on the basis of its own invested capital and net income and the remainder of such affiliated group shall be assessed on the basis of the remaining consolidated invested capital and net income.

The intention of this section evidently was to prohibit any relief to a new subsidiary corporation organized by an existing corporation to handle war contracts.

LAW. Section 1408. ... The Commissioner shall (when not violative of the technical military or naval secrets of the Government) have access to all information and data relating to any such contract, undertaking, or agreement, in the possession, control or custody of any department, bureau, board, agency, officer or commission of the United States, and may call upon any such department, bureau, board, agency, officer or commission for a full statement and description of any allowance for amortization, obsolescence, depreciation or loss, or of any valuation, appraisal, adjustment or final settlement, made in pursuance of any such contract, undertaking, or agreement.

COPIES OF GOVERNMENT CONTRACTS.

LAW. Section 1408. That every person who on or after April 6, 1917, has entered into any contract, undertaking, or agreement, with the United States, or with any department, bureau, officer, commission, board, or agency under the United States or acting in its behalf, or with any other person having contract relations with the United States, for the performance of any work or the supplying of any materials or property for the use of or for the account of the United States, shall, within thirty days after a request of the Commissioner therefor, file with the Commissioner a true and correct copy of every such contract, undertaking, or agreement.

Whoever fails to comply with such request of the Commissioner shall be guilty of a misdemeanor and shall be punished by a fine of not more than $1,000, or by imprisonment for not more than one year, or both. . . .

"GOVERNMENT CONTRACTS" DEFINED.52.

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REGULATION. Government contracts may include (a) a tract with the United States, (b) a contract with an agency of the United States, (c) a contract with an agency of such agency, and

62See section 1, and Chapter XIII.

(d) a subcontract with a contractor under any such contract; provided in every case the contract or subcontract is for the benefit of the United States. Unenforceable contracts subsequently ratified are treated as though made when originally executed. . . . . The realization by a corporation of income from a Government contract may affect its status under the consolidated returns provision and the amount of its war profits and excess profits tax. . . . . The agreements for the operation of transportation systems while under federal control and for the just compensation of their owners made pursuant to the Act of March 21, 1918, are not Government contracts within the meaning of this article. (Art. 1510.)

CHAPTER V

RETURNS-AMENDMENT AND EXAMINATION OF, PENALTIES

After returns are made questions arise with regard to their amendment, their examination by the Treasury and inspection. by outsiders, penalties for negligent or fraudulent returns or other shortcomings. These questions are discussed in this chapter.

Amended Returns

The discovery that error exists in returns previously filed may occasion a request for an amended return either from the government or from the taxpayer. In regard to corporations the instructions from the Commissioner to collectors are as follows:

RULING. All returns should be carefully scrutinized, and, if improperly prepared, they should be returned to the taxpayer for correction, with instructions that if a new return be executed, the old one, showing the date of the receipt thereon, should be forwarded. to the collector to avoid the possibility of subjecting the taxpayer to additional tax or penalties for failure to file the return within the period required by law.

A record of each return sent back to the taxpayer for correction should be made in the office of the collector, so that if the taxpayer fails to properly amend and forward same, the collector may take steps to secure the return. (Mim. letter 1160, February 9, 1915.)

In the case of individuals, however, the instructions to collectors state that under these circumstances the amended return will not be required.

RULING. Hereafter, in cases where an individual, a fiduciary or a withholding agent has been found subject to a further tax as a result of the audit of a return in this office, or of an investigation made by a revenue agent, an amended return will not be required. (Mim. letter 1232, June 22, 1915.)

In such cases the demand for additional tax is made in the form of a letter from the Commissioner forwarded to the taxpayer through the collector.

The foregoing instructions do not cover the procedure to be followed when taxpayers on their own initiative desire to file amended returns. The Treasury prefers that a taxpayer desiring to file an amended return should request permission, stating his reasons. It is obvious that when cases come up for examination those that have attached letters from the Commissioner granting such permission will have better consideration than those without such permission, because to some extent at least the changes between original and amended returns will have been already passed upon by the Treasury. But the formal refusal by the Treasury to sanction amended returns should not be deemed to be final in meritorious cases. If the formal consent is withheld it would seem to be proper procedure for the taxpayer to prepare corrected returns1 and file them with his local collector who should not refuse to accept them.

The regulations specifically provide for amended returns in certain contingencies. For example, in the discussion of long-term contracts, the following statement is included:

REGULATION. ... Upon the completion of a contract if it is found that as a result of such estimate or apportionment the income of any year or years has been overstated or understated, the taxpayer should file amended returns for such year or years. (Art. 36.)

....

Again, the regulation in regard to losses points out the taxpayer's privilege to file an amended return.

REGULATION.

If subsequently to its occurrence, however, a taxpayer first ascertains the amount of a loss sustained during a prior taxable year which has not been deducted from gross income, he may render an amended return for such preceding taxable year, including such amount of loss in the deductions from gross income, and may file a claim for refund of the excess tax paid by reason of the failure to deduct such loss in the original return. (Art. 111.)

'When amended returns for 1916 and years prior are filed the form prescribed for the year 1916 should be used.