of or interest in such property will not be deductible at all unless they are an incident of, connected with, and grow out of the business of the individual or corporation sustaining the loss, and are ascertained, determined, and fixed as absolute in the above sense within the taxable year in which the deduction is sought to be made. When loss under this heading is ascertained to be deductible, the entire amount of the loss will be deductible except where the property in connection with which the loss occurred was acquired prior to March 1, 1913, in the case of individuals, and prior to January 1, 1909, in the case of corporations, and then and in such event the loss ascertained will be prorated over the whole time the property was held, and that part of the whole loss apportioned to the taxable period will be taken into account in annual returns of income. In prorating, fractional parts of years will not be considered. Loss is the difference between selling price and cost where the selling price is less than cost. Cost of property purchased prior to the incidence of the special excise tax (Jan. 1, 1909), or the incidence of the income tax (Mar. 1, 1913), will be the actual price paid for the property, including the expense incident to the procurement of the property in the first instance and its sale thereafter, together with carrying charges of interest, insurance, and taxes actually paid prior to the incidence of tax (special assessments, if any, "actually paid" as "local benefits" in connection with real estate); provided that where, up to the incidence of the tax, the expense of carrying property has exceeded the income from it, the difference between the expense of carrying and the income from the property shall be added to the purchase price and the sum thus ascertained shall be the cost of the property; and provided further, that in the case of property purchased prior to the incidence of the tax and sale thereof subsequent to the incidence of the tax there shall be excluded from consideration in ascertaining cost any items of income, expense, interest, and taxes previously taken into account in preparing a return of annual net income. The cost of property acquired subsequent to the incidence of the tax will be the actual price paid for it, together with the expense incident to the procurement of the property in the first instance and its sale thereafter and the cost of improvement or development, if any. All existing rulings and regulations in conflict herewith are hereby annulled and superseded. Approved: W. G. McADOO, W. H. OSBORN, Commissioner of Internal Revenue. i.. Secretary of the Treasury. (T. D. 2006.) Income tax. Definition of "foreign corporation" and "fiscal agent" as used in T. D. 1992, and further explanation of method of handling collection of income from bonds of such foreign corporations and foreign countries having fiscal agents in the United States. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To collectors of internal revenue: Washington, D. C., July 16, 1914. Doubt having arisen as to the comprehensiveness of the term "foreign corporation," and the duties under the income-tax law of "fiscal agents," as provided in T. D. 1992, you are advised that "foreign corporations" as used in said decision was intended to include municipal and private corporations holding charters under laws of countries foreign to the United States, and "fiscal agents refers to financial agents in the ordinary sense, upon whom the law casts the same duties with reference to withholding and paying the tax as are imposed upon withholding and paying agents of domestic corporations by appointment. Where a foreign government has a fiscal agent in the United States for the purpose of paying the interest on its obligations, such fiscal agent will be charged with the duty of withholding and paying the tax on such interest payments, except to the extent of exemption claimed. Where such foreign countries or corporations have an issue of bonds payable wholly within the United States or within or without the United States, at the option of the owner of the bonds, and where the coupons from such bonds are presented for payment to the fiscal agent in the United States of such foreign countries or corporations, or for collection to a bank or collecting agency whether licensed or not, with ownership certificate attached, then and in all such cases said coupons shall be treated as domestic items and the aforesaid fiscal agents will be charged with the duties and responsibilities of withholding and paying agents, and will make return on Form 1012, as provided by income tax regulations. Where, however, such coupons are not presented with such ownership certificates attached, they shall be received only by a licensed bank or collecting agency, and when so received shall be considered to be and be treated as foreign items, in accordance with the regulations for the collection of foreign income. This ruling is made in explanation and amendment of T. D. 1992 and other applicable regulations. Approved: W. G. MCADOO, W. H. OSBORN, Commissioner of Internal Revenue. (T. D. 2007.) Substitution. Modification of T. D. 1872 of August 26, 1913. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., July 21, 1914. To collectors of internal revenue, revenue agents, and others concerned: The continued practice of substitution in double-stamp packages, notwithstanding the provisions of T. D. 1872, renders it necessary to modify said decision in order to secure a full compliance with, and a proper enforcement of, the law in that behalf. Notice is therefore hereby given that not only will that decision be strictly adhered to as to seizures made hereafter, but that this office will also recommend criminal prosecution in every case where there is any evidence pointing to the guilty party. Compromises, even when an amount is offered fully equal to what the spirits will bring at forfeiture sale, will not be accepted, as such a course is evidently not sufficient to deter unscrupulous dealers and entirely prevent this continued violation of law. W. H. OSBORN, Commissioner of Internal Revenue. (T. D. 2008.) Equalizing losses of bonded spirits. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., July 24, 1914. To collectors of internal revenue and others concerned: The attention of this office has been recently called to the illegal practice prevailing at many distilleries of concealing excessive losses of bonded spirits by "equalizing" or by refilling packages, thereby enabling the distillers to evade the tax on the spirits so lost. Section 3257, Revised Statutes, provides: Whenever any person engaged in carrying on the business of a distiller defrauds or attempts to defraud the United States of the tax on the spirits distilled by him, or any part thereof, he shall forfeit the distillery and distilling apparatus used by him, and all distilled spirits found in the distillery and on the distillery premises, and shall forfeit not less than five hundred dollars nor more than five thousand dollars and be imprisoned not less than six months nor more than three years. Notice is hereby given that hereafter in every case where equalizing or refilling packages of bonded spirits is discovered the property subject to forfeiture under the above quoted provision of law will be at once seized and that criminal proceedings will be at once instituted against the distiller so offending. Collectors will see that all distillers in their respective districts are furnished with a copy of this circular. Approved: W. H. OSBORN, Commissioner of Internal Revenue. W. G. MCADOO, Secretary of the Treasury. (T. D. 2009.) Stamp tax on marine insurance policies under the war-revenue act— Decision of court. 1. POLICIES OF MARINE. INSURANCE. Insurance policies as documents are not exports. 2. STAMP TAX ON POLICIES OF MARINE INSURANCE. The stamp tax on policies of marine insurance on exported products was not unconstitutional as a tax on exports. The case distinguished from tax on export bills of lading, Fairbanks v. United States (181 U. S., 283; T. D. 339), and on manifests, United States v. New York and Cuba Mail Steamship Co. (220 U. S., 488). TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., July 27, 1914. The appended decision of the United States District Court for the Southern District of New York, in the case of the Thames & Mersey Marine Insurance Co. v. United States, is published for the information of internal-revenue officers and others concerned. W. H. OSBORN, Commissioner of Internal Revenue. UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK, JUNE 17, 1914. The Thames & Mersey Marine Insurance Co. (Ltd.) v. United States of America STATEMENT. This case comes up on a demurrer to a petition under the Tucker Act to recover the sum of $5,500, alleged to have been illegally exacted from the petitioner for the payment of stamp taxes on policies of marine insurance underwritten by it. The tax was levied under the war-revenue act of 1898, which provided that after July 1 of that year there should be levied in respect of the documents thereinafter mentioned taxes as set down in the several schedules. Schedule A provided: * "Insurance (marine, inland, fire): Each policy of insurance or other instrument, by whatever name the same shall be called, by which insurance be made or renewed upon property of any description (including rents or profits), whether against peril by sea * * or other peril, made by any person, association or corporation, upon the amount of the premium charged * The theory of the complaint is that this act is unconstitutional because it violated section 9, Article I, of the Constitution "No tax or duty shall be laid on articles exported from any State." This is the sole question which is raised by this demurrer, for although the United States raises questions of the jurisdiction of this court under the Tucker Act, yet the decision of Judge Noyes in Hvoslef v. United States is conceded to be conclusive in this court at this time. The petition alleges that the plaintiff affixed all the stamps in accordance with the law and the requirements of the collector of internal revenue and canceled them over a period of time therein stated. Each of the policies effected marine insurance of certain exported products or merchandise during their transit by sea from the United States to various ports and the products and merchandise so insured were actually exported from the United States to various ports. The policies themselves were required by the custom and usage of business in the export trade, and they accompanied drafts and bills of lading drawn by the exporter against his consignee. HAND, District Judge: The policies of marine insurance in this case may be viewed from two quite separate aspects-first, as necessary incidents of the business of exporting, and, second, as exports themselves by virtue of the allegation that they were sent along with the bills of lading and the drafts to foreign ports. Fairbanks v. United States (181 U. S., 283) decided that a tax on a bill of lading was within the prohibition, and the same with respect to manifests was conceded in United States v. New York and Cuba Mail Steamship Co. (200 U. S., 488). In Judge Noyes's decision the same ruling was applied to charter parties. Almy v. California (24 How., 169) applied the same rule to the taxation by a State of bills of lading of gold and silver exported from the State. These cases extend the meaning of the clause beyond the taxation of the exported goods themselves to the documents which contain the contracts of carriage or the evidence that they are being carried. A marine policy is neither of these; it is a contract to pay a sum of money in the event of their loss and does not concern their carriage in any respect, except that it presupposes that the exportation will take place. The true rule seems to me to be that the taxation of only such contracts is forbidden as involve in their performance some part of the movement of the exports out of the country or of such documents as record that movement. The goods themselves do not become exports until their movement begins (Cornell v. Coyne, 192 U. S., 418), and it would seem by analogy that documents recording transactions which touch them should not fall within the clause unless the recorded transactions were a part of the same movement or at least called for it in their complete execution if they were promissory in character. I should regret to base the distinction upon whether the transaction directly or indirectly affected exportation, for that involves a kind of casuistry which generally proves very troublesome in application and conceals the real ground of the decisions. Nor can I accept the test of whether the tax burdens exportation, provided that the burden is only a part of what goods of the same class bear while within the country. To this Cornell v. Coyne, supra, is a distinct answer; and shows that any language in Fairbanks v. United States, supra, to the contrary was not meant to apply universally. A tax upon articles generally though some of them may be exported may have a final economic incidence upon the export, but only along with the rest of its class, and is certainly not what the Constitution was aiming at. Whether such a tax as this levied only upon policies insuring exports would be within the clause is quite another matter. To impose burdens upon exports even in such a roundabout way which other goods do not bear may well be within the clause. Coe v. Errol (116 U. S., 517, 526). In passing I may state that I can not regard the cases relied upon by the United States and holding that the usual insurance business is intrastate as at all in point. None of those cases involved the insurance of goods in interstate commerce, and Congress may well have control over such contracts. The grant of power over interstate commerce is not to be confused with the clause here in question. There remains the question of whether the insurance policies as documents are themselves exports. This contention is answered by the second reason given for the decision in Turpin v. Burgess (117 U. S., 504), and by the decision in Cornell v. Coyne, supra, holding that the eventual destination of goods did not make them exports until they began to move. In the case at bar, though the policies were all along destined for export, the stamps were affixed before they were issued. After delivery they were |