which was established and became effective on January 31, 1947, was held to qualify under section 165 (a) of the Internal Revenue Code. Under the plan's contribution formula, an annual contribution of 50 percent of net income after certain deductions was required. Contributions were made as specified for the taxable years ended January 31, 1948, 1949, and 1950, which amounts exceeded the 15 percent limitation of compensation paid or accrued to its employees for each year as provided by section 23 (p) (1) (C) of the Code. The plan was discontinued as of February 1, 1949, and the trust was liquidated during the taxable year ended January 31, 1950. Section 23 of the Internal Revenue Code provides in part as follows: SEC. 23. DEDUCTIONS FROM GROSS INCOME. In computing net income there shall be allowed as deductions: (p) CONTRIBUTIONS OF AN EMPLOYER TO AN EMPLOYEES' TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A DEFERRED-PAYMENT PLAN. (1) GENERAL RULE.-If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensations shall not be deductible under subsection (a) but shall be deductible, if deductible under subsection (a) without regard to this subsection, under this subsection but only to the following extent: (C) In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 165 (a), in an amount not in excess of 15 per centum of the compensation otherwise paid or accrued during the taxable year to all employees under the stock bonus or profit-sharing plan. *** In addition, any amount paid into the trust in a taxable year beginning after December 31, 1941, in excess of the amount allowable with respect to such year under the preceding provisions of this subparagraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this subparagraph shall not exceed 15 per centum of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan. * * * Section 39.23 (p)-10 of Regulations 118, promulgated with respect to section 23 (p) (1) (C) of the Internal Revenue Code, provides that, in order that contributions carried over may be deducted in a succeeding taxable year of the employer in accordance with the third sentence of section 23 (p) (1) (C) of the Code (the last sentence quoted above), the succeeding year also must end with or within a taxable year of the trust for which it is exempt under Code section 165 (a). The amount deductible under such third sentence, when added to the amount allowable, (if any) under the first sentence, may not exceed 15 per cent of the compensation otherwise paid or accrued during such taxable year to the employees who, in such year, are beneficiaries of the trust funds accumulated under the plan. Inasmuch as the trust in the instant case was liquidated during the taxable year ended January 31, 1950, aside from the fact that it had no taxable year after that date, there was no plan in existence during the succeeding taxable years which can be said to have participants in those succeeding taxable years. Therefore, there can be no compensation otherwise paid or accrued under the plan to persons who qualify as participants in those succeeding taxable years to form the basis for applying the 15-percent limitation. In view of the foregoing, it is held that the taxpayer's contribution carryover, under qualified employees' profit-sharing trust, may not be allowed as a deduction for Federal income tax purposes in any taxable year subsequent to the year in which the employees' trust was liquidated. The amount of such contribution carryover allowable as a deduction for the taxable year in which the trust was liquidated is limited to 15 percent of the compensation otherwise paid or accrued during such year to those employees who were participants of the plan at the beginning or during the taxable year of the trust's liquidation. SECTION 41.-[ACCOUNTING PERIODS AND METHODS OF ACCOUNTING]-GENERAL RULE REGULATIONS 118, SECTION 39.41-4: Accounting period. Rev. Rul. 54-273 A taxpayer who begins a business on a date other than the first day of a calendar month and adopts an accounting period of exactly 12 months beginning with such date and ending on a date other than the last day of a calendar month has failed to establish an annual accounting period within the meaning of section 41 of the Internal Revenue Code. The net income of such taxpayer, for Federal income tax purposes, must be computed on the basis of a calendar year. Advice is requested whether a taxpayer who begins a business on a date other than the first day of a calendar month and adopts an accounting period of exactly 12 months from the date business was begun has established an annual accounting period within the meaning of section 41 of the Internal Revenue Code. Advice is also requested whether such taxpayer is required to obtain the approval of the Internal Revenue Service to change his accounting period from such 12-month period to a calendar year. Section 41 of the Internal Revenue Code, relating to accounting periods and methods of accounting reads as follows: GENERAL RULE. The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 48 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year. Section 48(b) of the Internal Revenue Code defines a fiscal year as follows: FISCAL YEAR.-"Fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. Under the circumstances here stated, the taxpayer has failed to establish an accounting period which may be recognized under the Internal Revenue Code. Under the provisions of section 41 of the Code, the taxpayer is required to make his return on the basis of a calendar year. Accordingly, the approval of the Commissioner is not required to enable the taxpayer to compute his net income on the basis of a calendar year. Since such taxpayer has failed to establish a fiscal year within the meaning of the law, any return filed on the incorrect basis of exactly 12 months from the date business was begun should have been filed on the basis of a calendar year. Park-Chambers, Inc. v. Commissioner, 46 B. T. A. 144, affirmed 131 Fed. (2d) 65. The matter of filing corrected returns should be taken up with the District Director of Internal Revenue for the district in which such returns were filed. SECTION 117(c).-CAPITAL GAINS AND LOSSES: ALTERNATIVE TAXES REGULATIONS 118, SECTION 39.117 (c)-1: Alternative tax in case net long-term capital gain exceeds net short-term capital loss. Rev. Rul. 54-283 Pursuant to the authority of section 3791 (b) of the Internal Revenue Code, the principles set forth in Revenue Ruling 54-28, I. R. B. 1954-3, 8, shall be applicable only with respect to returns of corporations filed for the taxable year ended December 31, 1952, and subsequent taxable years, consistent with the change of instructions, relative to the computation of the alternative tax, first reflected on Schedule D (Form 1120) for the taxable year ended December 31, 1952. SECTION 505.-SUBCHAPTER A NET INCOME REGULATIONS 118, SECTION 39.505-1: Subchapter A net income. T. D. 6079 (Also Section 29.505-1, Regulations 111.) TITLE 26-INTERNAL REVENUE.-CHAPTER I, SUBCHAPTER A, PART 39.INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1951 Regulations 118 amended with respect to deduction of Federal taxes by a cash basis taxpayer in computing subchapter A net income. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington 25, D. C. To Officers and Employees of the Internal Revenue Service and Others Concerned: On December 19, 1953, a notice of proposed rulemaking regarding amendments to Regulations 111 and 118 (26 CFR, pts. 29 and 39), with respect to the deduction of Federal taxes by a cash basis taxpayer in computing subchapter A net income, was published in the Federal Register (18 F. R. 8583). After consideration of all such relevant matter as was presented by interested persons regarding the proposals, the amendments set forth below are hereby adopted: PARAGRAPH 1. Section 39.505-1 of Regulations 118 is hereby amended by adding at the end thereof the following: (f) With respect to the additional deduction allowed in section 505(a)(1), relating to Federal income, war-profits, and excess-profits taxes paid or accrued during the taxable year, a cash basis taxpayer may deduct either the taxes paid or the taxes accrued during the taxable year. However, a taxpayer which in any taxable year deducts the taxes accrued during such year shall in each subsequent taxable year deduct the taxes accrued during such subsequent year. PAR. 2. The amendment to Regulations 118 (covering taxable years beginning after December 31, 1951) made by paragraph 1 of this Treasury Decision is hereby made applicable to taxable years beginning after December 31, 1941, and before January 1, 1952 (such years being covered by Regulations 111). (This Treasury Decision is issued under the authority contained in secs. 62 and 3791 of the Internal Revenue Code (53 Stat. 32, 467; 26 U. S. C. 62, 3791).) Approved July 8, 1954. M. B. FOLSOM, T. COLEMAN ANDREWS, Commissioner of Internal Revenue. Acting Secretary of the Treasury. (Filed with the Division of the Federal Register July 13, 1954, 8:47 a. m.) SECTION 811 (c).-GROSS ESTATE: TRANSFERS IN CONTEMPLATION OF, OR TAKING EFFECT AT, DEATH REGULATIONS 105, SECTION 81.17: Transfers intended to take effect at or after the de cedent's death. Regulations 105 amended. (See T. D. 6078, below.) SECTION 811(f).-GROSS ESTATE: POWERS OF APPOINTMENT REGULATIONS 105, SECTION 81.24: Property subject to power of appointment by decedent. (Also Sections 81.17, 81.47.) T. D. 6078 TITLE 26-INTERNAL REVENUE.-CHAPTER 1, SUBCHAPTER B, PART 81.ESTATE TAX UNDER CHAPTER 3 OF THE INTERNAL REVENUE CODE, AS AMENDED Regulations 105 amended to conform to the Powers of Appointment Act of 1951. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To Officers and Employees of the Internal Revenue Service and Others On August 5, 1953, notice of proposed rulemaking with respect to amendments to conform the estate tax regulations to sections 1 and 2 of the Powers of Appointment Act of 1951, approved June 28, 1951, was published in the Federal Register (18 F. R. 4599). After consideration of such relevant suggestions as were presented by interested persons regarding the proposal, the following amendments to Regulations 105 [26 CFR, pt. 81], are hereby adopted: PARAGRAPH 1. The statutory provisions immediately following section 802 of the Internal Revenue Code and preceding section 302 (f) of the Revenue Act of 1926 (as originally enacted) which precede section 81.24 are deleted. PAR. 2. There is inserted immediately after section 802 of the Internal Revenue Code and preceding section 302(f) of the Revenue Act of 1926 (as originally enacted), as set forth preceding section 81.24 the following: SEC. 403. POWERS OF APPOINTMENT [REVENUE ACT OF 1942, * (4) POWERS WITH RESPECT TO WHICH AMENDMENT NOT APPLICABLE. (2) The amendments made by this section shall not become applicable with respect to a power to appoint created on or before the date of enactment of this Act, which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate, if at such date the donee of such power is under a legal disability to release such power, until six months after the termination of such legal disability. For the purposes of the preceding sentence, an individual in the military or naval forces of the United States shall, until the termination of the present war, be considered under a legal disability to release a power to appoint. PUBLIC LAW 58 (82d CONG.) [C. B. 1951-2, 343] Be it enacted by the Senate and House of Representatives of the SEC. 2. ESTATE TAX-POWERS OF APPOINTMENT. (a) Section 811 (f) of the Internal Revenue Code (relating to powers "(1) PROPERTY WITH RESPECT TO WHICH DECEDENT EXERCISES A "If before November 1, 1951, or within the time limited by paragraph (2) of section 403 (d) of the Revenue Act of 1942, as amended, in cases to which such paragraph is applicable, a general power of appointment created on or before October 21, 1942, shall have been partially released so that it is no longer a general power of appointment, the subsequent exercise of such power shall not be deemed to be the exercise of a general power of appointment. "(2) POWERS CREATED AFTER OCTOBER 21, 1942.-To the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, |