"government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive" when applied to a contract of the kind referred to in clause (a) of this subdivision, includes all such contracts which, although entered into during such period, were originally not enforceable, but which have been or may become enforceable by reason of subsequent validation in pursuance of law.

Instalment

Where instalment payments are made, in a transaction upon the whole of which there is a profit, each instalment has in it the elements of capital and profit-the sum of the instalment gains in any year will be accounted for in the year in which the payments made are received.

Inventories

Are taken at either

(a) Cost, or at

(b) Cost or market value, whichever is the lower.

Inventories taken at cost will show the sum of cost prices in the inventory.

When inventories are taken on the alternative basis, only the lowest of the two values, "cost" or "market," is carried into the inventory; as,

If inventory is taken at "cost," the result as shown in column (e) would be used and the inventory schedule would not have columns (f) and (g)

If the inventory is taken on the alternative basis, inventory should be in above form and the value shown in column (g) would be the value of the inventory carried into the balance sheet.

The basis for determining gain or loss of property carried by inventory, is the last inventory value of such property.

Military or Naval Forces of the United States

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, but this shall not be deemed to exclude other units otherwise included within such terms.

Net Loss

The beginning of a period in which a net loss may be claimed is January 1, 1921. It is confined to losses sustained in or resulting from the operation of a trade or business regularly carried on by the taxpayer. In such a case, losses sustained from the sale of capital assets, as real estate, machinery, etc., will be included.

Individuals not engaged in trade or business cannot have the benefit of a net loss.

Individuals engaged in a trade or business may have a net loss in the business, and if they have other taxable income, this net loss may be set-off against such other taxable income. The benefit of this Section is also allowed to members of a partnership and beneficiaries of a trust or estate and to insurance companies.

Where a taxpayer sustaining a net loss has a fiscal year beginning in 1920, the amount of the net loss which can be availed of is that portion of such loss which the portion of the fiscal year falling in 1921 is of the entire fiscal year.

Net loss is computed as follows:

(1) Gross income subject to inclusion in a return of income, say..

Add

. $100,000

500

1,750

Item (3) above would appear to be applicable only in the case of individuals.

Item (4) above would appear to be applicable only in the case of corporations.

A net loss (within the provisions of the statute and regulations) is deductible from the net income of a taxpayer for the succeeding taxable year; and if in excess of the net income of the succeeding taxable year, the amount of such excess shall be allowed as a deduction from the gross income in computing the net income for the next succeeding taxable year. The net loss not recouped from the income of the taxpayer for the two years next succeeding the taxable year in which the net loss was sustained, remains a loss to the taxpayer.

A taxpayer sustaining a net loss should prepare a schedule showing the computation of the net loss and the amount thereof. This schedule should be attached to the return of income for the succeeding taxable year and in the event the amount of any loss shown by such schedule exceeds the net income of such succeeding taxable year, there should be added to the schedule the amount of the net loss used as a set-off against the net income of such succeeding taxable year, and a copy of this schedule should be attached to the return of income of the taxpayer for the next succeeding taxable year.

Ordinary Net Income

The term "ordinary net income" means the net income computed in accordance with the provisions of this title, after excluding all items of capital gain, capital loss, and capital deductions.

Paid

The term "paid" for the purposes of the deductions and credits under this title, means "paid or accrued" or "paid or incurred" and the terms "paid or incurred" and "paid or accrued" shall be construed according to the method of accounting upon the basis of which the net income is computed under section 212. Personal Service Corporation

The term "personal service corporation" means a corporation whose income is to be ascribed primarily to the activities of the principal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital (whether invested or borrowed) is not a material income-producing factor; but does not include any foreign corporation, nor any corporation 50 per centum or more of whose gross income consists either (1) of gains,

profits, or income derived from trading as a principal, or (2) of 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.

Persons

The term "person" includes partnerships and corporations, as well as individuals.

Secretary

The term "secretary" means the Secretary of the Treasury. Taxable Year

The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under section 212 or section 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. The first taxable year, to be called the taxable year 1921, shall be the calendar year 1921, or any fiscal year ending during the calendar year 1921.

Taxpayer

The term "taxpayer" includes any person, trust or estate subject to a tax imposed by this Act.

United States

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.

Withholding Agent

The term "withholding agent" means any person required to deduct and withhold any tax under the provisions of section 221 or section 237.