of Land Management of the Department of the Interior of the United States. See Rev. Rul. 67-135, 20. Amounts paid by a corporation to qualified religious, charitable, and educational organizations designated by its employees pursuant to a charitable designation plan. See Rev. Rul. 67-137, page 63. Whether refunds by the Dominion of Canada of its Special Refundable Tax on certain corporations and trusts, and interest received in connection with such refunds, are includible in gross income. See Rev. Rul. 67-187, page 185. 26 CFR 1.61-2: Compensation for services, including fees, commissions, and similar items. (Also Section 3401; 31.3401 (a)-1.) Rev. Rul. 67-144 Payments for services performed made to individuals under a State welfare agency work relief program are compensation includable in gross income under section 61(a)(1) of the Internal Revenue Code of 1954 and are "wages" subject to the withholding of income tax under section 3402 of the Code. Cash or payments in kind, such as food and other items, not directly attributable to services performed, are not includable in gross income or subject to the withholding of income tax. Advice has been requested whether, under the circumstances described below, payments made by a State welfare agency under its work relief program are includable in the gross income of the recipients for Federal income tax purposes and are "wages" subject to the withholding of income tax. A State welfare agency adopted a work relief program whereby individuals on a welfare roll who are able to work are required to work on the public roads to repay the State for some of the allowance made to them for food, shelter, and sometimes clothing for themselves and their families. The services are performed under the immediate supervision of public road employees. However, the welfare agency makes the work assignments, determines the number of hours the individuals are to work, has full responsibility for them in case of injury, and makes the only payments they receive in connection with the work. If an individual refuses an assignment, he must submit a medical report indicating he is unable to do the work. If the report is not submitted he receives no welfare payment for the scheduled time. The welfare agency schedules the maximum number of hours an individual can work each month and prescribes a fixed hourly rate. If, under prescribed standards, the welfare needs of the individual exceed payments to him for the maximum work hours scheduled, the welfare agency allows additional payments in cash or in kind, such as food and similar items, to make up the difference. A welfare recipient assigned to a work relief project receives no increase in the relief allowance he and his family are already receiving except in cases where he has transportation expenses to and from work. In those cases an increase in the number of hours is allowed in order to cover the cost of transportation. However, welfare payments continue if the recipient is unable to work, and they continue if no assignment is available. Section 61(a)(1) of the Internal Revenue Code of 1954 provides that, except as otherwise provided, gross income means all income from whatever source derived, including compensation for services. However, disbursements from a general welfare fund in the interest of the general welfare which are not made for services rendered are not includable in gross income. See Rev. Rul. 63–136, C.B. 1963–2, 19, and rulings cited therein. Accordingly, payments made to the welfare recipients in question by the State welfare agency under its work relief program equal to the number of hours actually worked times the applicable hourly rate are compensation for services rendered and are includable in gross income under section 61 (a) (1) of the Code. Furthermore, under section 3401 (a) of the Code (ch. 24, subtitle C), the term "wages" means, with certain exceptions not here material, all remuneration for services performed by an employee for his employer. Since the payments equaling the number of hours worked times the applicable hourly rate represent remuneration for services performed by an employee for his employer, they are "wages" subject to the withholding of income tax under section 3402 of the Code. However, payments in excess of the amount determined by reference to the hours worked times the hourly rate and payments to recipients who perform no work, including cash or the value of food or other items, are not includable in gross income and are not "wages" subject to the withholding of income tax since such payments are in the nature of welfare payments. 26 CFR 1.61-3: Gross income derived from business. Treatment of expenditures for stripping overburden to expose a nineral deposit for extraction on a continuing basis. See Rev. Rul. 67169, page 159. 26 CFR 1.61-4: Gross income of farmers. Rev. Rul. 67-2 Where a farmer's income is computed under the cash receipts and disbursements method of accounting, the amount of the credit allowable to the farmer for gasoline used on a farm for farming purposes after June 30, 1965, as provided by section 39 of the Internal Revenue Code of 1954, added by the Excise Tax Reduction Act of 1965, Public Law 89-44, C.B. 1965-2, 568, should be included in his gross income for the year in which the farmer files a timely return on which the credit is taken. Where a farmer is under the accrual method of accounting, the amount of the credit should be included in his gross income for the taxable year in which the gasoline is used. The foregoing conclusions apply both for purposes of determining a farmer's net farm profit or loss and for determining his net earnings from self-employment under either the regular or the optional method. Advice has been requested concerning the treatment of the amounts payable with respect to gasoline used on a farm for farming purposes which farmers may claim as a credit against their income tax, as provided by the Excise Tax Reduction Act of 1965, Public Law 89-44, C.B. 1965-2, 568, for taxable years beginning after June 30, 1965. Section 39 of the Internal Revenue Code of 1954, added by section 809 of the Excise Tax Reduction Act, provides, in part, as follows: There shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the sum of the amounts payable to the taxpayer * * * under section 6420 with respect to gasoline used during the taxable year on a farm for farming purposes ***. For this purpose, section 39 (b) of the Code provides that a taxpayer's first taxable year beginning after June 30, 1965, shall include the period after that date and before the beginning of such first taxable year. The amount payable to the farmer under section 6420 of the Code is measured by multiplying (1) the number of gallons of gasoline used on his farm for farming purposes by (2) the rate of Federal gasoline tax imposed by section 4081 of the Code which applied on the date he purchased such gasoline. The credit can be allowed only if it is claimed on a timely filed income tax return including any extension of time for filing. Specifically, advice is requested as to the reporting of the above credit, for income tax purposes, on Schedule F, Schedule of Farm Income and Expenses, and for computing farm net earnings from self-employment under either the regular or optional methods available to farmers for reporting such net earnings. A farmer whose income is computed on the cash receipts and disbursements method should include the amount of the credit in his gross income for the taxable year in which he files a timely income tax return on which the credit is taken. For example, if the farmer on Febru-` ary 15, 1967, files his income tax return for the calendar year 1966, he may take on that return a gasoline tax credit based on the quantity of gasoline used on his farm for farming purposes during the period July 1, 1965, through December 31, 1966, and the amount of the credit so taken is to be included in his gross income for the calendar year 1967. A farmer whose income is computed under the accrual method should include the amount of the credit in his gross income for the taxable year in which the gasoline is used. For example, if the farmer using the accrual method files a timely income tax return for the calendar year 1966, he may take on that return a gasoline tax credit based on gasoline used on his farm for farming purposes during the period July 1, 1965 through December 31, 1966. However, the amount of the credit attributable to gasoline used in the period July 1, 1965 through December 31, 1965, should be included in his gross income for 1965; and the amount attributable to the year 1966 should be included in his gross income for 1966. The conclusions set forth in the two preceding paragraphs are applicable both for the purpose of determining a farmer's net farm profit or loss and for determining his net earnings from self-employment under either the regular or the optional method of determining net earnings from self-employment. 26 CFR 1.61-9: Dividends. Conditions under which the Internal Revenue Service will issue rulings on waiver of dividends transactions. See Rev. Proc. 67-14, page 591. 26 CFR 1.61-12: Income from discharge of indebtedness. (Also Sections 108, 111, 1017; 1.108 (a)-1, 1.111-1, 1.1017-1.) Rev. Rul. 67-200 During prior years a taxpayer using the accrual method of accounting deducted on his Federal income tax return interest accrued on his indebtedness. The interest so accrued was not paid. During 1965, the obligation to pay the accrued interest was forgiven resulting in the realization of income by the taxpayer for that year. The taxpayer was solvent both before and after the forgiveness of the interest indebtedness. Held, in computing gross income of the taxpayer for the taxable year of the forgiveness, the amount of interest forgiven shall first be excluded from gross income to the extent of the recovery exclusion, if any, computed under section 111 of the Internal Revenue Code of 1954 and section 1.111-1 of the Income Tax Regulations. Any part of the interest forgiven which is not excluded from gross income under section 111 of the Code, may be excluded from gross income under section 108 of the Code for the taxable year of forgiveness provided there is filed, in accordance with section 1.108 (a)-2 of the regulations, a consent to the adjustment of the basis of the taxpayer's property. The basis of the property shall be reduced in accordance with section 1017 of the Code and section 1.1017-1 of the regulations. However, the amount of the interest forgiven which is excludable under section 108 of the Code cannot exceed the basis of the taxpayer's property which is being adjusted. Thus, any portion of such amount which exceeds the basis is includable in gross income under section 61(a) (12) of the Code. PART II.-ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME SECTION 71.—ALIMONY AND SEPARATE MAINTENANCE PAYMENTS 26 CFR 1.71-1: Alimony and separate maintenance payments; income to wife or former wife. Also Section 215; 1.215-1.) Rev. Rul. 67-11 Where an absolute decree of divorce adopts by reference the provisions of a prior decree for maintenance and support, payments made pursuant to the final decree are within the scope of section 71(a) of the Internal Revenue Code of 1954. Where a lump-sum payment is made to satisfy the obligations under the original decree and the payment is smaller than the aggregate amount due, such payment is arrearages of alimony taxable to the wife and deductible by the husband. Advice has been requested whether a divorce decree adopts a maintenance decree of another court where the divorce decree reserves for future consideration matters respecting maintenance, support, and alimony in the event of the failure of the husband to comply with the earlier maintenance decree, and whether a lump-sum payment made under an agreement to satisfy past, present, and future obligations under the decree is payment of arrearages of alimony. The wife in the instant case was separated from her husband and obtained a judgment and decree on January 19, 1961, under which she was awarded custody of the minor child and 5 dollars per month for maintenance and support, none of which was earmarked for the child. Later the wife obtained an absolute divorce from a court in another jurisdiction. In the final decree the court reserved for future consideration matters respecting the custody of the child, maintenance, support, and alimony in the event of the failure of the husband to comply with the provisions of the decree of the first court. As a result of various differences and disputes, the husband had paid some but had refused to pay the full amounts ordered by the first court, which resulted in arrearages under the order to pay maintenance. Subsequent to the final decree, an agreement was accepted by the wife and approved by the court, wherein the husband agreed to pay the sum of 150x dollars in full settlement of all differences between the parties, including the matters of custody, maintenance, support, and alimony whether past, present, or future. This sum was less than the arrearages in the support payments. Section 71(a)(1) of the Internal Revenue Code of 1954 provides in part that, if a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments received after such decree in discharge of a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation. Under section 71(a) (2) of the Code, if a wife is separated from her husband and there is a written separation agreement executed after August 16, 1954, the wife's gross income includes periodic payments received after such agreement is executed which are made under such agreement and because of the marital or family relationship, except where the husband and wife make a single return jointly. Under section 71(a)(3) of the Code, if a wife is separated from her husband, the wife's gross income includes periodic payments received by her after August 16, 1954, from her husband under a decree entered after March 1, 1954, requiring the husband to make the pay ments for her support or maintenance, except where the husband and wife make a single return jointly. The judgment and decree of the first court provided for maintenanc and support, but was not a decree of divorce or legal separation However, the decree of the second court was an absolute decree o divorce, and this decree adopted by reference the provisions of th prior decree for maintenance. Therefore, payments made subsequen to the divorce decree are within the scope of section 71 (a) of the Code Revenue Ruling 55-457, C.B. 1955-2, 527, holds that the part o the lump-sum payment made to a wife under an agreement with th |