tion based on the excess of discovery value or the 272% allowance1 over cost (Art. 1621-1626). The exclusion in (c) appears in the 1924 act only, and it is a revival of the 1918 provision.

Net losses for 1922, in excess of net income for 1923, may be carried to 1924; likewise, a net loss for 1923. In such a case the net loss should be computed according to the provisions of the 1921 act. A net loss cannot be carried forward for more than two years.

The 1924 law and regulations further specify that the net loss provisions extend to members of a partnership and to an estate or trust (Sec. 206 (h) and Art. 1625). But they do not extend to the beneficiaries of an estate or trust.

Under the 1918 act, where a taxpayer suffered a net operating loss through floods in 1919, he was permitted to file a claim for refund and apply the net loss against 1918 income (O. D. 367). If a corporation had a net income from Government contracts and a loss from other operations it was permitted to deduct the loss from the income on Government contracts (A. R. M. 5; O. D. 532). A corporation's loss for 1919 could not be deducted from the income of a predecessor sole proprietorship for 1918 (A. R. R. 1597). That part of the net loss resulting from the sale of capital assets by a corporation in 1919 could not be deducted from net income for the year 1918 unless such loss resulted from the sale of assets used in connection with the furnishing of war facilities as described in Section 204 (a) (2) (I. T. 1401, overruling I. T. 1179; 1943; A. R. M. 185); but a net loss could include amortization (I. T. 1986) or loss due to the adoption of the instalment sales method of reporting income (S. R. 1509). A member of a partnership could not amend his return for 1918 for the partnership loss during 1919 unless he sustained a net loss with respect to his entire net income derived from all sources (O. D. 430). Section 204 did not exclude farmers (O. D. 558), foreign corporations (O. D. 611), or individuals devoting their time to a business project (I. T. 1899); but a loss was exIcluded which arose from the sale of land on which an individual had intended erecting a hotel (I. T. 2017). A net operating loss for the year 1919 could not be deducted from the income of a fractional preceding year but could be applied against the full taxable 1 See page 185.

year next preceding such fractional year or against the following full taxable year should the net losses be not fully absorbed (I. T. 1465, modifying I. T. 1423). If the taxable year did not fall entirely between October 31, 1918, and January 1, 1920, no net loss was deductible under Section 204 (O. D. 511). The 1921 law, however, allows corporations with fiscal years to prorate a loss for the year ending in 1921 (Sec. 204 (d)). A net loss sustained for a fractional year falling between October 31, 1918, and January 1, 1920, was deductible (1 B. T. A. 1081, 1113; 4 B. T. A. 585) although a fractional-year loss due to a change in fiscal years could not be deducted (1 B. T. A. 1062). A net loss for the calendar year 1919 was deductible from a full fiscal year ending November 30, 1918, a portion being thus deducted from 1917 income; and where the fiscal year basis was returned to in 1920 the net loss, if unabsorbed, could be deducted from the income of the full fiscal year ending in 1921 (I. T. 1704). If there was no taxable income for 1918, the net loss for the year falling entirely between October 31, 1918, and January 1, 1920, could be applied against the income of 1920 (O. D. 431; 1 B. T. A. 1121) and the tax payable was computed only on the adjusted income for 1920 (O. D. 928), but the net loss section of the 1918 act did not extend to any years other than 1918, 1919, and 1920 (O. D. 860). The 1919 loss must first be applied against the income of 1918 although the statute of limitations may now bar the taxpayer from obtaining a refund (I. T. 2006).

Under the 1921 act, a consolidated return which claimed a loss for 1921 because of a subsidiary now inactive was allowed to use that loss against the consolidated income for 1922 (I. T. 1386). A corporation changed from a fiscal year ending October 31, 1921, to a calendar year; the net operating loss for the fiscal year could not be deducted from the income for the two months' period ending December 31, but could be deducted from the net income of the years 1922 and 1923 (I. T. 1211), and a net loss from November 1, 1921, to June 30, 1922, was deductible from the net income of the fiscal year ending June 30, 1923 (1 B. T. A. 38) but not from the income of a period less than 12 months (4 B. T. A. 151); under the 1924 act, a net loss for the calendar year 1923 was deductible from the net income of the six months' period which ended June 30, 1924 (I. T. 2095). A loss for 1921 or any portion thereof cannot be deducted after 1923 (I. T. 1718). A husband in previous years filed a return on the calendar year basis and his wife on a fiscal year basis; they were not allowed to file a joint return on a fiscal year basis and deduct the net loss to the husband or any portion of it (I. T. 1514). Losses

may include losses from stock if the taxpayer makes a business of speculation (I. T. 1818), and a loss from a factory fire (I. T. 1808); but a loss attributable to one sale of securities in 1921 could not be included in net losses (1 B. T. A. 11). Stockholders of a personal service corporation could deduct in their 1922 and 1923 returns their portion of the net loss of the corporation for 1921 (I. T. 1665). Removing an operating deficit by calling in stock does not bar a corporation from claiming a net loss (I. T. 1935). Net losses of a previous year may appear as an ordinary deduction on the income tax return (e. g., on Line 23 a, Form 1120) (Mim. 3059); on the form for 1926, a special line (22 b) has been provided. A net loss may not be deducted in determining whether the $2,000 exemption may be credited (2 B. T. A. 201; 4 B. T. A. 750).

CONTRIBUTIONS

Deductible contributions from 1918 to 1920, inclusive, were limited to those given by individuals to religious, charitable, scientific, and educational corporations exempt from tax as described in Section 231 (6) of the Revenue Act of 1918 and to the special fund for vocational rehabilitation under an act of Congress dated July 27, 1918. The total deduction with respect to contributions could not exceed 15% of the individual's net income before deducting any contributions. Gifts other than money were at first valued for deduction purposes at cost (or March 1, 1913, value), less accrued depreciation which had or should have been deducted from gross income, but this rule in Regulations 45 has since been changed to fair value at time of gift (T. D. 3490). Funds which had been set aside in trust for future donation to the above classes of corporations were not deductible until actually given to such corporation.

By provision in the 1921 act, contributions may include, in addition to the above, gifts to the United States or any political subdivision if used for public purposes; foundations, funds, trusts, and so forth, organized for purposes of distributing gifts to such corporations; literary organizations; and posts or auxiliaries of the American Legion.

The 1924 law extended the list of donees to include any organization of war veterans, including their auxiliaries; and fraternal orders, operating under the lodge system, provided the contributions are to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals (Sec. 214(a) (11); Art. 251).

Contributions cannot be deducted by corporations unless the expenditure can be shown directly to benefit the corporation, such as a gift to a hospital from which preferential benefits are derived (Art. 562). The cases which follow refer, unless otherwise stated, to the deductibility of contributions by individuals within the 15% limitation.

Donations to religious organizations include pew rents, assessments, church dues, and basket collections (A. R. M. 2).

Contributions to charitable organizations have included donations to a pension fund for a municipal police force, which was in charge of a committee constituted by law (S. 1202); premiums on a life insurance policy where the organization was the beneficiary (O. D. 299); payments to an organization to relieve earthquake sufferers of Porto Rico (O. D. 345); payments to a welfare league with the understanding that the funds were to be used for hospital purposes (I. T. 1217); contributions to a social service corporation (S. M. 2160, overruling I. T. 1800). Contributions to cemetery corporations are, as a rule, excluded (O. D. 217, A. R. R. 1122). Under the 1918 act contributions to a fund invested and disbursed for charitable purposes were not deductible (O. D. 669); under the 1921 and 1924 acts they are deductible provided no profit inures to the donor.

Educational institutions have included associations formed to give musical education to students and the public through concerts (S. 1176); memorial associations whose purpose was to construct a museum and lecture halls (A. R. R. 301, reversing O. D. 649), but not memorial associations organized for the purpose of purchasing and improving lands as a park to serve as a memorial to soldiers and sailors (O. D. 104), nor those erecting monuments and memorials (S. 1246; S. M. 2766); The Community Service (Incorporated) (O. D. 389); the Woodrow Wilson Foundation (I. T. 1579); the Harding Memorial Association (I. T. 1954); the Palestine Foundation (B. T. A. 3); the American Legion Endowment Fund (I. T. 2139), the "Save the Consti

tution" (i. e., the frigate "Constitution") fund (I. T. 2182); onehalf of each Stone Mountain Confederate Memorial dollar (I. T. 2220); National Rifle Association (G. C. M. 443); the New England Grouse fund (I. T. 2282). Educational institutions have not included the National Dry Federation (O. D. 44), a citizens' social club (A. R. R. 379), an association whose purpose was to disseminate certain labor legislation propaganda (S. 1362); the Military Training Camps Association (I. T. 2287), the American Institute of Accountants (1 B. T. A. 1220), the K. of C. War Committee because it was not a corporation (1 B. T. A. 1162).

Gifts to cities, such as an athletic field for a public high school, were not deductible under the 1918 act (O. D. 126 and 607), but would be in 1921 or subsequent years. A contribution to a fund to induce an industrial plant to locate in the city was likewise not deductible (O. D. 39; see A. R. R. 3513 as to the income which the corporation must report). A donation to an improvement association for the purpose of acquiring a right-of-way for a new state road was a deductible contribution (I. T. 2262).

Contributions may be money or property (I. T. 1256) but not services rendered (O. D. 712) unless shown per contra as income; the fair value at the time of gift will govern (T. D. 3491), and any excess over cost is not income (L. O. 1118). A donor who gave a life estate in certain bonds to an individual with a remainder interest to a church, may deduct the cash value at the time of gift (I. T. 1776). Pledges not accompanied by cash payments are not deductible (I. T. 1988). Net income before contributions must be reduced by capital net losses but not by net (operating) losses (I. T. 2104).

Proportionate shares in contributions made by partnerships (0. D. 185) or personal service corporations during 1918-21 (I. T. 1196) are deductible, subject to the 15% limitation, by partners or stockholders.

A corporation could not deduct the amount paid into a pension fund for the benefit of its employees if the corporation constituted itself as trustee and at its discretion selected the employees to be benefited (S. 965). But if the fund was organized entirely separate from the corporation and the corporation retains no control over the fund, donations to it by the corporation are deductible, being looked upon as additional compensation (O. D. 110). Contributions by a corporation to Liberty Loan drives, American Red Cross, United War Workers, and the Salvation Army were not deductible (2 B. T. A. 134), even though the corporation was owned by a single family (A. R. R. 373).