such assets or earnings, or both, otherwise available and necessary for payment of depositors, may be collected therefrom. If, under such an agreement, the depositors have the right also to look to the unsegregated assets of the bank for recovery, in whole or part, the unsegregated assets are likewise, to the extent of the depositors' claims, unavailable for tax collection.

To illustrate the working of the section, assume that depositors agree to forego 30 percent of their deposit claims, that as to 45 percent they will look to segregated assets and 60 percent of the earnings from bank operations, and that as to the remaining 25 percent of the deposit claims the bank remains liable. The segregated assets and 60 percent of the earnings from bank operations are immune from tax collection until the total realizations from such source are sufficient to meet the percentage of the depositors' claims payable from that source. When the realization from such source is sufficient to satisfy the percentage of the depositors' claims chargeable thereto, any balance of the segregated assets, and the stated percentage of bank earnings, will be available for tax collection. The unsegregated assets and the other 40 percent of bank earnings will be available for tax collection to the extent that collection therefrom will not diminish the amount necessary for payment of outstanding depositors' claims other than those allocated to the segregated assets. See article 11.

For the purposes of the section, depositors' claims include bona fide interest, either on the deposits as such, or on the claims accepted in lieu of deposits as such.

The section is not intended for the relief of banks as such, and does not prevent collection of tax from assets not necessary, or not available, for payment of depositors. The section is not for the relief of creditors other than depositors, although it may incidentally operate for their benefit. See article 11.

ART. 5. Segregated or transferred assets. In a case involving segregated or transferred assets, it is not necessary, for application of the section, that the assets shall technically constitute a trust fund. It is sufficient that segregated assets be definitely separated from other assets of the bank and that transferred assets be definitely separated both from other assets of the bank and from other assets held or owned by the trustee or agent to whom assets of the bank have been transferred; that the bank be wholly or partially released from liability for repayment of deposits made with it as such; and that the depositors have claims against the separated assets. Any excess of separated assets over the amount necessary for payment of such depositors will be available for tax collection.

Where the segregated assets are transferred to a separate corporate trustee or corporate agent the assets are within the protection of the section no matter by whom the stock of such corporation is held.

However, property of a separate corporation not conveyed by the bank pursuant to an insolvency agreement with depositors, is not

within the immunity of the section, even though the corporation's stock is owned by the bank. Tax due from a separate corporation to which assets of an insolvent bank are conveyed is collectible, even though such tax be due to the property so conveyed, except insofar as tax collection will diminish assets conveyed by the bank for benefit of depositors or the earnings from such assets to which the depositors are entitled, and which are necessary for payment of the depositors' claims. Other assets and earnings of a separate corporation are available for collection of the taxes of such corporation even though the assets and earnings of such corporation if received by the bank would be available for satisfaction of claims of the bank's depositors and such claims cannot otherwise be paid.

ART. 6. Unsegregated assets.—(a) Depositors' claims against assets.Claims of depositors, to the extent that they are to be satisfied out of segregated assets, will not be considered in determining the availability of unsegregated assets for tax collection. If depositors have agreed to accept payment out of segregated assets only, collection of tax from unsegregated assets will not diminish the assets available and necessary for payment of the depositors' claims. Thus, it may be possible to collect taxes from the unsegregated assets of a bank although the segregated assets are immune under the section.

If the unsegregated assets of the bank remain subject to any portion of the depositors' claims, such unscgregated assets will be within the immunity of the section only to the extent necessary to satisfy the claims to which such assets are subject. Taxes will still be collectible from the unsegregated assets to the extent of the amount by which the total value of such assets exceeds the liability to depositors to be satisfied therefrom.

(b) Depositors' claims against earnings.-Even though under a bona fide agreement a bank has been released from depositors' claims as to unsegregated assets, if all or a portion of its earnings are subject to depositors' claims, all assets the earnings from which, in whole or part, are charged with the payment of depositors' claims, will be immune from tax collection. But see article 7.

ART. 7. Income.-(a) Availability for tax collection.-Income, whether from segregated or unsegregated assets, which is necessary for, applicable to, and actually used for, payment of depositors' claims, is within the immunity of the section. If only a portion or percentage of income from segregated or unsegregated assets is available and necessary for payment of depositors' claims, the remaining income is available for tax collection.

(b) Tax liability.--The fact that earnings may be wholly or partly unavailable under the section for collection of taxes does not exempt the income, or any part thereof, from tax liability. The section affects collectibility only, and is not concerned with taxability. Accordingly, the tax on income of a given year shall ordinarily be

determined, even though, under the section, assessment and collection must be postponed. The tax shall be determined with respect to the entire taxable income and not merely with respect to the portion of the earnings out of which tax may be collected.

(c) Example: An agreement between a bank subject to tax under section 14 (d) of the Revenue Act of 1938 and its depositors provides (a) that certain assets are to be segregated for the benefit of the depositors who have waived a percentage of their deposits; (b) that 60 percent of the bank's earnings shall be paid to the depositors until the portion of their claims not waived has been paid; and (c) that the unsegregated capital assets shall not be subject to depositors' claims. The special class net income of the bank for the calendar year 1938 is $10,000, and that amount also constitutes its earnings for that year. The bank has an outstanding tax liability for prior years of $7,000. The income tax liability of the bank for 1938 is 10%1⁄2 percent of $10,000, or $1,650, making a total outstanding tax liability of $8,650. The portion of the earnings of the bank for 1938 available for tax collection after provision for depositors is $4,000 ($10,000 less 60 percent, or $6,000). Of the total outstanding tax liability of $8,650, $4,000 may be assessed and collected immediately, leaving $4,650 to be collected from the 40 percent of future annual earnings not covered by the agreement, from any excess of the segregated assets over the amount due depositors therefrom, and from unsegregated assets to the extent that collection of tax therefrom will not reduce the earnings to which depositors are entitled under the agreement. See article 6 (b).

ART. 8. Abatement and refund.-An assessment or collection, whether made before or after the amendment, contrary to the section when made, is subject to abatement or refund within the applicable statutory period of limitations.

An abatement or refund after the amendment is equally allowable whether assessment or collection was erroneous because collection would diminish assets necessary for payment of depositors, or because the same tax had been properly abated or refunded on or before the effective date of the amendment, and reassessed or collected after such date. See article 12. However, in the absence of prior abatement or refund on or before the date of the amendment, a claim for abatement or refund will not be allowed if, at the time of examination of the claim, collection would not diminish the assets necessary for payment of depositors. If there was a prior proper abatement or refund on or before the effective date of the amendment, a claim for abatement or refund of the same tax reassessed or recollected after the effective date of the amendment may be allowed even though the assets are sufficient to meet claims of depositors.

A tax assessed prior to the effective date of the amendment and in accordance with the section as it then existed is subject to abatement

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where assessment, had it been made after the effective date of the amendment, would have been contrary to the amended section. However, tax properly collected in accordance with the section prior to amendment, may not be refunded thereafter even though collection after the effective date of the amendment would have been contrary to the amended section.

Any abatement or refund is subject to existing statutory periods of limitation, which periods are not suspended or extended by the amended section.

ART. 9. Establishment of immunity. The mere showing of insolvency, or that depositors have claims against segregated or other assets or earnings will not of itself secure immunity from tax collection. It must be affirmatively established to the satisfaction of the Commissioner that collection of tax will diminish the assets necessary for payment of depositors' claims. See also article 10.

Any claim of immunity under the section shall be supported by a statement, under oath or affirmation, which shall show (a) the total of depositors' claims outstanding, and (b) separately and in detail, the amount of each of the following, and the amount of depositors' claims properly chargeable against each-(1) segregated or transferred assets; (2) unsegregated assets; (3) estimated future average annual earnings and profits; (4) amount collectible from shareholders; and (5) any other resources available for payment of depositors' claims. The detail shall show the full amount of depositors' claims chargeable against each of the items (1) to (5), inclusive, even though part or all of the amount chargeable against a particular item is also chargeable against some other item or items. There shall also be filed a copy of any agreement between the bank and its depositors, and any other agreement bearing on the claim of immunity under the section.

ART. 10. Procedure during immunity.-As long as, pursuant to the section, any tax remains unpaid, the bank shall file with each incometax return a statement as required by article 9, in duplicate, and shall also file such additional statements as the Commissioner may require. Whether or not such additional statements shall be required, and the frequency thereof, will depend on the circumstances, including the financial status and apparent prospects of the bank, and the time which is available for assessment and collection after the bank becomes financially able to pay taxes without diminishing the assets necessary for payment of depositors' claims.

ART. 11. Termination of immunity.-Immunity under the section is terminated whenever, within the statutory period of limitations as extended by the section, the tax can be collected without diminishing the assets necessary for payment of depositors' claims, including claims of new depositors secured during the period of immunity from tax collection. For the immunity to end, the assets must be sufficient to cover any remaining balance still due under the agreement and any

outstanding additional deposits made by the same or other depositors subsequent to the agreement. In other words, the bar of the section, when once in force, is terminated only as, and to the extent that, collection may be made without diminishing assets available for satisfaction of all outstanding depositors' claims, regardless of when their deposits were made.

While the immunity from tax collection is for protection of depositors only, in some cases the immunity will not end until the assets are sufficient to cover indebtedness of creditors generally. This situation will exist where under applicable law the claims of general creditors are on a parity with those of depositors, so that to pay depositors in full it is necessary to pay all creditors in full.

In determining the sufficiency of the assets to satisfy the depositors' claims, shareholders' liability to the extent collectible shall be treated as available assets. See article 9. Deposit insurance payable to depositors shall not be treated as an asset of the bank and shall be disregarded in determining the sufficiency of the assets to meet the claims of depositors.

ART. 12. Collection of tax after termination of immunity.— (a) General. If assets in excess of those necessary for payment of outstanding deposits become available, such excess assets shall be applied toward satisfaction of accumulated outstanding taxes, collectible under the section, and not barred by the statute of limitations. But see article 5. Where sufficient assets are available, statutory interest shall be collected with the tax. Generally, unless the interests of the United States will be jeopardized thereby, it will be sufficient if the amount available for payment of collectible taxes without diminishing assets necessary for payment of depositors, is determined and paid by the taxpayer each time a Federal income tax return is filed. However, assessments and collections may be made at such other times as the collector or Commissioner shall find appropriate and necessary to protect the interests of the United States.

(b) Tax due before the effective date of the amendment.—The section does not permit assessment or reassessment or collection of tax properly abated or refunded pursuant to the section on or before May 28, 1938. Tax due on or before that date, and not so abated or refunded, and still outstanding on the said date, is within the provisions of the amended section and collectibility is determinable in accordance with the amended section the same as in the case of tax due after such date. Accordingly, a tax due prior to the effective date of the amendment and then collectible under the section may not be assessed or collected thereafter if such assessment or collection would be contrary to the section as amended. See article 8.

If the statutory period for assessment or collection had expired before the effective date of amendment, the section does not revive it.