75. State briefly the rule relative to wash sales.

76. What rules cover the computation and deduction of net losses?

77. To what organizations may deductible contributions be made by individuals? By corporations?

78. Summarize the rules relating to the deduction of traveling expenses under the 1918 and 1921 acts.

79. What two conditions must compensation for personal service meet in order to constitute an allowable deduction? Show the relationship of such compensation to dividends and gifts.

80. How should taxes paid by a lessee for a lessor in lieu of rent be reported?

81. Are the additions to a reserve for damages deductible? 82. How long has the Department recognized the validity of inventory valuation at the lower of cost or market? 83. What constitutes: (a) Cost? (b) Market?

84. What basis may be followed in arriving at the market price of work in process?

85. What credits for normal tax purposes are allowed: (a) Individuals? (b) Corporations? (c) For excess profits tax?

86. What individuals and corporations must file a tax return?

87. What are the principal features of a partnership tax return?

88. Name the six features which distinguished a personal service corporation from other corporations.

89. When is the income of an estate taxed to

(a) Its beneficiaries,

(b) The estate itself, and

(c) Both?

90. What characteristics must an association have to be taxed as a corporation?

91. Define, in a general way, invested capital from the tax standpoint.

92. Discount on stock has been charged to surplus. What adjustment of capital stock is necessary? What treatment is accorded stock issued as a bonus in connection with the sale of (a) preferred stock and (b) bonds?

93. May the following items be included in invested capital, capital stock having been issued therefor?

(a) Unpaid stockholders' subscriptions;

(b) Organization expenses;

(c) Stock paid president in lieu of cash salary;
(d) Good-will.

94. What characteristics have accompanied preferred stock which has been ranked as a liability?

95. Stock subscriptions were paid in advance. Do these payments constitute invested capital?

96. Are the following items, appearing on a balance sheet, to be regarded as appropriations of earned surplus at January 1, 1921?

(a) Reserve for bad debts, the accrual method having been taken advantage of for the year 1921;

(b) Federal tax liability (for 1920);

(c) Additional Federal tax liability (for 1917-18 on amended return);

(d) Capital surplus from revaluation of assets.

97. What rule applies to patents charged against operations in previous years? Equipment? Costs of developing patents?

98. Discuss several possibilities of paid-in surplus.

99. Name the principal classes of possible additions to

invested capital during the year and describe the method of averaging such additions.

100. What is the theory of the 60-day rule with respect to dividends?

101. How are Federal taxes computed in arriving at available income for dividend and other purposes?

102. Should stock be repurchased during the year, what computation must be followed in determining whether or not it is paid from invested capital?

103. What two kinds of income flow from inadmissible assets and what effect, in general, do these two kinds of income have on invested capital? Why?

104. In general, what effect on the computation does excluded interest paid have?

105. During 1921, $5,000 income was realized from the sale of inadmissibles, while $2,000 interest was received and $1,000 paid on loans secured by the inadmissibles in question. What portion of the inadmissible becomes admissible?

106. Supposing in the above question interest paid was $3,000; compute the portion of the inadmissible which becomes admissible.

107. What ratio is applied in reduction of invested capital because of inadmissible assets?

108. What provisions apply to the invested capital of reorganized corporations?

109. Sections 327-8 of the law apply to "special cases" where the computation of the excess profits tax would be inequitable. What are these special cases which the statute enumerates? What method of computing the tax liability applies to the "special cases"?

110. Name several principles applicable to consolidated

returns.

APPENDIX

REVENUE ACT OF 1926

(Applicable to Income Taxes)

APPROVED BY THE PRESIDENT, FEBRUARY 26, 1926

TITLE I. GENERAL DEFINITIONS

Section 1. This Act may be cited as the "Revenue Act of 1926."

Sec. 2. (a) When used in this Act

(1) The term "person" means an individual, a trust or estate, a partnership, or a corporation.

(2) The term "corporation" includes associations, joint-stock companies, and insurance companies.

(3) The term "domestic" when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State or Territory.

(4) The term "foreign" when applied to a corporation or partnership means a corporation or partnership which is not domestic. (5) The term "United States" when used in a geographical sense includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia.

(6) The term "Secretary" means the Secretary of the Treasury.

(7) The term "Commissioner" means the Commissioner of Internal Revenue.

(8) The term "collector" means collector of internal revenue. (9) The term "taxpayer" means any person subject to a tax imposed by this Act.

(10) The term "military or naval forces of the United States" includes the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female.

(b) The terms "includes" and "including" when used in a definition contained in this Act shall not be deemed to exclude other things otherwise within the meaning of the term defined.