(T. D. 1932.) Instructions relative to assignment to duty of income-tax appointees. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 13, 1914. Internal-revenue agents, inspectors, and others concerned: Revenue agents in charge of revenue agents' divisions and incometax revenue agents and inspectors are hereby instructed as follows: 1. Income-tax agents and inspectors appointed under the provisions of the act of October 3, 1913, and paid from the appropriation for collecting the income tax will be assigned to duty under the supervision of agents in charge of revenue agents' divisions. 2. Persons appointed either as income-tax agents or income-tax inspectors, when the appointment is sent from this office, will be instructed by letter to report to one of the division revenue agents for duty, and until otherwise ordered may report either in person or by letter, and if by letter await the instructions of the agent in charge of the division to which they are assigned. 3. Officers of this class are expected to perform the duties of their offices where their services are required, but for the present, and until they become somewhat familiar with the duties of their places, they will be assigned to the revenue agent in charge of the division embracing their legal residence. 4. Income-tax agents and inspectors will be expected to confine their operations to income-tax work so long as there is income-tax work to be performed, and division agents are admonished not to employ officers of this class for the general or ordinary work of the bureau except when their services are not required on income-tax work. 5. The duties of officers of this class are to ascertain and report the names of persons who in their opinion are liable to the income tax and who have failed to make return as required by law; to inquire into income-tax returns where there is any suspicion that the return made is erroneous; to examine the books and accounts of persons who have made returns, for the purpose of ascertaining and reporting as to whether the law has been complied with, when so ordered by the agent in charge of the division to which they are assigned; to inquire into the manner in which income-tax employees are discharging their official duties and to report those who have failed in this respect. For the purpose of securing such information as they may desire they may visit the office of any State, county, or municipal officer, and for the general purpose of their employment may confer with any collector or deputy collector of internal revenue within the territory in which they are authorized to operate. 6. The reports of these officers should be made to the agent in charge of the division to which they are assigned, who in turn will report to the Commissioner of Internal Revenue and the collector of the proper district. 7. In the discharge of their official duties officers of this class, as well as all officers of the Internal-Revenue Bureau, in making inquiries and investigations are expected to exercise sound discretion, treat all persons with due courtesy, and, while acting firmly and courageously, to avoid all contention or controversy that would give just ground for complaint. W. H. OSBORN, Commissioner of Internal Revenue. (T. D. 1933.) Income tax. Mutual telephone companies, mutual insurance companies, and like organizations whose status, under the law, is not dependent upon whether or not they are organized for profit, and not being specifically enumerated as exempt, must make returns of annual net income pursuant to the requirements of section 2, act of October 3, 1913. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 12, 1914. SIR: This office is in receipt of your letter of the 31st ultimo, asking advice as to whether or not mutual telephone companies will be required to file returns of annual net income under the provisions of section 2, act of October 3, 1913. In reply you are informed that under the provisions of the act above cited, every corporation, joint-stock company, and every insurance company, no matter how created or organized, is subject to the income tax and will be required to make returns of annual net income, except such as are specifically enumerated in the act as exempt from its provisions. In the list of those so enumerated as exempt do not appear mutual telephone companies or similar organizations. Since under this act no exemption is provided, either express or implied, for mutual telephone and like companies, and liability is not dependent upon whether or not the corporation is organized for profit, it is held that all corporations not specifically enumerated as exempt will be required to make returns of annual net income and to pay any tax that may be assessed upon the net income returned. This ruling will comprehend all telephone companies, local insurance companies, and like corporations whether or not they are organized primarily for the mutual benefit of their members. Respectfully, ROBT. WILLIAMS, Jr., Acting Commissioner of Internal Revenue. COLLECTOR OF INTERNAL REVENUE, Omaha, Nebr. (T. D. 1934.) Income tax. Individuals whose net income from March 1 to December 31, 1913, both dates inclusive, is $2,500 or more must make returns of annual net income for 1913. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Section 2, act of October 3, 1913, provides that on or before the 1st day of March, 1914, and the 1st day of March in each year thereafter, a true and accurate return, under oath or affirmation, shall be made to the collector of internal revenue by each person of lawful age who may be subject to the tax imposed by this section who has a net income of $3,000 or over for the taxable year. It is further provided that for the year ending December 31, 1913, the tax shall be computed on the net income accruing from March 1. to December 31, 1913, both dates inclusive, after deducting fivesixths only of the specific exemption and deductions allowable for an entire taxable year. Since the return of annual net income for the year 1913, as applied to individuals, is for but five-sixths of the calendar year, and as the law provides that returns shall be made on the basis of five-sixths of the year, it is held that individuals whose net income is $2,500 or more for the 10 months constituting the taxable period of 1913 shall make returns of annual net income in accordance with the general provisions of the law covering the 1913 taxable period. Approved: W. G. McADOO, W. H. OSBORN, Commissioner of Internal Revenue. Secretary of the Treasury. (T. D. 1935.) Special tax as rectifier must be paid for the compounding of spurious or imitation liquors, for sale, with the use of alcohol and flavoring extracts, irrespective of quantity. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 17, 1914. SIR: This office is in receipt of your letter of the 12th instant relative to the preparation by retail liquor dealers in your division of spurious or imitation liquors by the addition to alcohol, water, etc., of extracts, essences, etc., furnished by the Co. In reply you are advised that it appears probable that these essences and extracts are similar to those the subject of T. D. 1769, in which it was held that, for the compounding, for personal use only and not for sale, of imitation liquors by the addition of such extracts to alcohol, water, etc., no special-tax liability was incurred, but that special tax would be required for the preparation for sale of a liquor in accordance with the directions for use upon the bottles of extract. The long-standing ruling that a retail liquor dealer may blend or compound spirits and mixed drinks in quantities of less than 5 gallons solely for his own convenience in serving his trade across the bar is not to be construed as authorizing or covering a preparation of spurious or imitation liquors by the addition of flavoring extracts or essences to alcohol. This ruling will be published as a Treasury decision and the widest publicity given to it, and in future all saloon keepers found to be preparing spurious or imitation liquors in this manner shall be reported for special tax as rectifiers. Respectfully, ROBT. WILLIAMS, Jr., Acting Commissioner of Internal Revenue. INTERNAL-REVENUE AGENT, Chicago, Ill. (T. D. 1936.) Special excise tax on corporations-Decision of court. 1. TAXES DUE FROM STOCKHOLDERS. The State tax on capital stock of banks under the Massachusetts statute falls directly on the stockholders, and these taxes can not be legally deducted from gross income in returns made by banks under the corporation tax act. The tax is not upon the banks, and in paying it they act as agents. T. D. 1763 sustained. 2. RETURNS. The Commissioner of Internal Revenue, upon evidence produced before him, is authorized to amend incorrect returns, or make a return, as the case may be. 3. ASSESSMENTS. The Commissioner of Internal Revenue is authorized to make additional assess ments after the taxes have been assessed and paid on the original returns, even though the errors in the original returns were made without any intention to deceive or mislead. 4. THE THREE YEARS' LIMITATION. The statute does not require the additional assessment to be made within the three years' period. The limitation is upon the discovery of the error by the Commissioner of Internal Revenue within three years. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 20, 1914. The appended decision of the United States District Court for the District of Massachusetts in the case of The Eliot National Bank v. James D. Gill, collector of internal revenue, is published for the information of internal-revenue officers and others concerned. W. H. OSBORN, Commissioner of Internal Revenue. Eliot National Bank v. James D. Gill, collector. [December 29, 1913.] BINGHAM, Judge: This action was brought by the Eliot National Bank against James D. Gill, collector of internal revenue for the third district of Massachusetts, in the Superior Court for the County of Suffolk, and was afterwards transferred into this court by writ of certiorari. The declaration contains three counts for money had and received. In the first count plaintiff seeks to recover $338.25, with interest from March 15, 1913; in the second and third counts for $369 and $377.20, respectively, with interest from April 28, 1913. The sums sought to be recovered represent certain taxes paid by the plaintiff for the years 1909, 1910, and 1911, under the provisions of the corporation-tax law of August 5, 1909 (36 Stat. L., c. 6, s. 38, pp. 112–1ï7). The case is here upon an agreed statement of facts with authority in the court to draw such inferences from the facts agreed upon as may be warranted. The plaintiff is a national bank, located and doing business in the city of Boston. On May 1, 1909, and on April 1, 1910 and 1911, the shares of the capital stock of the bank were assessed by the city of Boston, under the provisions of revised laws of Massachusetts (c. 14, ss. 9–18, inclusive) and under the provisions of Massachusetts (Statutes, 909 (c. 490, Part III; secs. 11 to 20). The tax assessed by the city upon the shares of the bank for 1909 was $33,825; for 1910, $36,900; and for 1911, $37,720. Returns were made by the plaintiff to the collector of internal revenue for the three years in question for the assessment of the corporation tax, and taxes based upon such returns were levied and paid. On or before February 27, 1913, the Commissioner of Internal Revenue discovered that in making these returns the bank had deducted from its gross income the amount of taxes stated above and paid by it each year to the city of Boston. Thereupon the commissioner, having made or caused to be made an amended return, assessed an additional tax for each year upon the amounts so deducted, which additional taxes the bank paid under protest. This suit is brought to recover the sums so paid. The Federal statute imposing the tax provides: SEC. 38. First. That every corporation, joint-stock company, or association organized for profit and having a capital stock represented by shares, and every insurance company now or hereafter organized under the laws of the United States or any State or Territory of the United States or under the acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized under the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint-stock company or association, or insurance company, equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of certain amounts therein specified, which may be deducted. Second. Such net income shall be ascertained by deducting from the gross amount of the income of such corporation, joint-stock company or association, or insurance company, received within the year from all sources, * * * Fourth. All sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof, or imposed by the government of any foreign country as a condition to carrying on business therein. The first question presented is whether the bank had the right under this clause to deduct the taxes levied under the provisions of Massachusetts revised laws (c. 14, ss. 9-18) which it had paid to the city of Boston. The revised laws of Massachusetts in c. 14 provide: SEC. 9. All the shares of stock in banks, whether of issue or not, existing by authority of the United States or of the Commonwealth, and located within the Commonwealth, shall be assessed to the owner thereof in the city or town in which such bank is located, and not elsewhere, in the assessment of State, county, and town taxes, whether such owner is a resident of said city or town or not. They shall be assessed |