sheriff, or master in chancery in which the mortgagee bid in the property for a sum less than the amount of his mortgage lien, and in many cases he was also obliged to pay the costs of foreclosure proceedings. In such a case the deed executed by the referee, sheriff, or master in chancery conveying the property to the mortgagee is taxable, and the amount of tax should be computed upon the amount bid by the mortgagee, plus the costs, if paid by him. Respectfully, W. H. OSBORN, Mr. Commissioner of Internal Revenue. (T. D. 2160.) Emergency revenue law-Telephones. Reporting messages received from rural or farmers' line associations by commercial companies furnishing service for which a charge of 15 cents is made. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., February 19, 1915. SIR: This office is in receipt of your letter of the 18th instant, requesting a construction of paragraph 2 of T. D. 2058, also printed as paragraph 2 under the head of "Telegraph and telephone messages" in the regulations published as T. D. 2067, and reading in part as follows: Every company shall include in its report all taxable messages originated by it, without regard to the ownership of the toll lines used in transmitting those messages. In reply, you are informed that this ruling does not refer to a rural or farmers' line association, incorporated or otherwise, whose telephone service, other than local, and consequently the service for which a charge of 15 cents or more is made, is furnished by the company operating the exchange to which the stations of such association are connected, even though such association assumes the responsibility for collection from the individual subscribers on its line. In these cases taxable messages which originate at the stations of such rural or farmers' line association, and are recorded and billed by the telephone company operating the exchange to which such stations are connected for service, should be included in the report of the latter company. Taxable messages, however, which originate at the stations of such rural or farmers' line association, and are not recorded and billed by the telephone company operating the exchange to which such stations are connected for service, should be reported by such association. Mr. Respectfully, W. H. OSBORN, Commissioner of Internal Revenue. (T. D. 2161.) Income tax. Synopsis of rulings on questions relating to the income tax imposed by section 2 of the act of October 3, 1913. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., February 19, 1915. The following synopsis of rulings on questions relating to the income tax imposed by section 2 of the act of October 3, 1913, on individuals, corporations, joint-stock companies, associations, and insurance companies is published for the information of internalrevenue officers and others concerned. All rulings or parts of rulings heretofore made which are in conflict herewith are hereby revoked. PART II.-Rulings in relation to corporation income tax. Amortization of bonds—Amending article 135, Regulations No. 33.— That part of article 135 of Regulations No. 33, relative to the amortization of bonds, which ends with the words "become due and payable," has been entirely rescinded and superseded by T. D. 2005 and T. D. 2130. The remaining portion of article 135, beginning with the words "with respect to bond issues," remains in full force and effect and refers entirely to the treatment of bonds discounted in cases wherein corporations sell their bonds at a discount. The intention of this part of the article is to allow corporations selling their own bonds at a discount to prorate the discount over the life of the bonds and to deduct from gross income each year an aliquot part of the discount determined in accordance with the number of years which the bonds have to run from the date of issue. This clause is not to be considered, however, as permitting corporations which had sold bonds issued prior to 1909 at a discount, and had at that time charged the entire amount of the discount into profit and loss, to take up such discount and prorate it over the life of the bonds for the purpose of deducting an aliquot part of such discount from the income of current years and thus reduce the taxable income. Banks deducting capital stock tax to make amended returns.-The capital stock outstanding of a banking corporation is the personal property of the individual stockholder. Hence any tax paid on the value of this property is a liability of the owner, and the requirement of a State law that a bank shall pay the tax for the stockholder can not be considered as authority under which the bank may deduct from its gross income the taxes so paid. If banking corporations in their returns of annual net income for the year 1913 or prior years actually deducted from gross income the amount of tax paid upon the value of the capital stock outstanding and in the hands of the stockholders, such corporations are required to file amended returns in which the amount of such tax so paid shall be eliminated from the deductions, and additional assessments will be returned accordingly. Capital assets, value of; when.—In cases wherein property was taken over in exchange for the capital stock of a corporation at a par value greatly in excess of the true value of the property, and such property should be later sold, it will be necessary to ascertain as nearly as possible the true value of the property at the time it was taken over, and any excess over this ascertained true value at which the property is sold will be held to be profit or income to the corporation. Similar action may be taken in cases wherein corporations acquire property for a mere nominal sum and which had at the time of its acquirement a value greatly in excess of such sum. A careful estimate of the value of such property at the time it was acquired may be fixed and set up as the value representing the cost of the property, and any excess over such fixed value at which such property may be thereafter disposed of will be treated as income to be accounted for in accordance with the rules of this department in the case of the sale of capital assets. The value of the property fixed in the manner and for the purpose hereinbefore indicated will be subject to the approval of the Internal Revenue Bureau. Error in T. D. 2130.-In the first two lines of the third paragraph of T. D. 2130 the words "for the years 1909 to 1913, inclusive," should read "for the years 1909 to 1912, inclusive." Foreign corporations subject to income tax.-In the case of foreign corporations, section 2, act of October 3, 1913, provides that The normal tax hereinbefore imposed shall be levied, assessed, and paid annually upon the entire net income accruing from business transacted and capital invested within the United States. When a foreign corporation sends a representative to this country to solicit business, the merchandise thus sold to be shipped direct to the consignee, it will be held that such corporation is transacting business in this country. The fact that the solicitor or representative has only a mailing address in this country is immaterial, he is none the less an agent of the foreign corporation. To the extent that he sells in this country goods or merchandise for the foreign corporation, to that extent the foreign corporation is transacting business in the United States, and the net income arising and accruing to the corporation by reason of the business so transacted will be subject to the income tax imposed by section 2, act of October 3, 1913. Any foreign corporation transacting business in this country in the manner herein before indicated will make a return of annual net income to the collector of the district in which its representative has his mailing address, showing in such return the net income accruing to it from the business so transacted. Income from tax-free bonds returnable.—The Federal income tax law specifically provides that corporations subject to the law must return, for the purpose of the tax, all income which they receive from every source, the only exception being income received on account of interest on the obligations of a State or its political subdivisions or the obligations of the United States or its possessions. The act also specifically enumerates the items which they may allowably deduct from the gross income so returned. Under the provisions of this act corporations must return as income the full amount of the interest received on bonds, although such bonds may contain a tax-free covenant-that is, a covenant in which the debtor corporation agrees to pay any tax assessed upon the bonds or income therefrom-and since there is no specific provision in the law for excluding or deducting from gross income interest upon bonds of this character, the receiving corporation can not allowably omit or deduct such interest from its gross income, and the same will necessarily be reflected in the net income upon which the tax is computed. Income of contracting companies.-As this office requires no special system of bookkeeping, neither does it require any specific method by which the net income to be returned by corporations shall be determined. In the case of a large contracting company, which has numerous uncompleted contracts which probably, in some cases, run for periods of several years, there does not appear to be any objection to such corporation preparing its return in such manner that its gross income will be arrived at on the basis of completed work-that is to say, on jobs which have been finally completed and payments made during the year in which the return is made. If the gross income is arrived at in this method, the deductions from gross income should be limited to the expenditures made on account of such completed contracts. Mutual insurance companies subject to tax.-The Federal income tax law provides That mutual fire insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders but shall return as taxable income all income received by them from all other sources plus such portion of the premium deposits as are retained by the company for purposes other than the payment of losses and expenses and reinsurance reserves. It would appear from this provision of the law that all assessments received by a mutual fire insurance company and not returned to the policyholders, but retained for purposes other than paying losses and expenses incurred during the year for which the return is made and for such reinsurance reserves as the laws of the State require, are taxable income. Therefore, if mutual fire insurance companies retain out of moneys received on account of assessments an amount in excess of the losses, expenses, and reinsurance reserves of any particular year, that excess, plus amounts received from interest, dividends, or any other source, will be considered net income, upon which the tax will be assessed. The above quoted provision of the law as construed by this office applies to all mutual fire insurance companies, regardless of the fact that some of them may not be primarily organized for profit. Offers in compromise not acceptable, when.-In cases wherein corporations submit offers in compromise in lieu of the specific penalty imposed by section 38, act of August 5, 1909, or section 2, act of October 3, 1913, it is a condition precedent to the adjustment of the matter involved that the returns of the corporations for the year with respect to which the corporations are delinquent shall be filed. Offers in compromise are acceptable only in cases where the corporations were delinquent in the matter of filing their returns and can not be considered as sufficiently satisfying the requirements of the law in cases wherein corporations fail or refuse to file any returns whatever. Delinquency applies to the neglect of a corporation to file its return within the time prescribed by law and does not apply to the failure of a corporation to make a return at any time. Therefore if returns are not filed, action looking to the enforcement of the specific penalty against corporations failing to file returns will be takon. Sinking fund increment taxable income.-In cases wherein corporations set aside and place in a sinking fund under the control of trustees their own bonds or the bonds of other corporations which they may own, it is held that the fund thus set aside by the corporation is an asset of the corporation, and any increment to that fund as a result of investments made by the trustees having the same in charge is income to the corporation and should be so included and accounted for in its returns of annual net income. If the trustees have invested the amount of the sinking fund reserve or any portion of it in the bonds of the corporation and such corporation pays to the trustees the interest on these bonds, such corporation will be permitted to deduct such interest from its gross income, provided the amount of the interest thus paid, plus the interest on any other outstanding indebtedness which it may have, |