upon the net income of every life insurance company a tax as follows:

(1) In the case of a domestic life insurance company, 13 per centum of its net income;

(2) In the case of a foreign life insurance company, 134 per centum of its net income from sources within the United States. (June 6, 1932, c. 209, § 201, 47 Stat. 223.) Sec. 202. Gross income of life insurance companies.-(a) In the case of a life insurance company the term "gross income " means the gross amount of income received during the taxable year from interest, dividends, and rents.

(b) The term "reserve funds required by law" includes, in the case of assessment insurance, sums actually deposited by any company or association with State or Territorial officers pursuant to law as guaranty or reserve funds, and any funds maintained under the charter or articles of incorporation of the company or association exclusively for the payment of claims arising under certificates of membership or policies issued upon the assessment plan and not subject to any other use. (June 6, 1932, c. 209, § 202, 47 Stat. 224.)

Sec. 203. Net income of life insurance companies-(a) General rule. In the case of a life insurance company the term “net income" means the gross income less—

(1) Tax-free interest.-The amount of interest received during the taxable year which under section 22 (b) is exempt from the taxes imposed by this chapter;

(2) Reserve funds.--An amount equal to 4 per centum of the mean of the reserve funds required by law and held at the beginning and end of the taxable year, except that in the case of any such reserve fund which is computed at a lower interest assumption rate, the rate of 34 per centum shall be substituted for 4 per centum. Life insurance companies issuing policies covering life, health, and accident insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, shall be allowed, in addition to the above, a deduction of 34 per centum of the mean of such reserve funds (not required by law) held at the beginning and end of the taxable year, as the Commissioner finds to be necessary for the protection of the holders of such policies only;

(3) Dividends.-The amount received as dividends (A) from a domestic corporation which is subject to taxation under this chapter, other than a corporation entitled to

the benefits of section 251, and other than a corporation organized under the China Trade Act, 1922, 42 Stat. 849, c. 346 (U. S. C., Title 15, c. 4), or (B) from any foreign

corporation when it is shown to the satisfaction of the Commissioner that more than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the foreign corporation has been in existence) was derived from sources within the United States as determined under section 119;

(4) Reserve for dividends.-An amount equal to 2 per centum of any sums held at the end of the taxable year as a reserve for dividends (other than dividends payable during the year following the taxable year) the payment of which is deferred for a period of not less than five years from the date of the policy contract;

(5) Investment expenses.-Investment expenses paid during the taxable year: Provided, That if any general expenses are in part assigned to or included in the investment expenses, the total deduction under this paragraph shall not exceed one-fourth of 1 per centum of the book value of the mean of the invested assets held at the beginning and end of the taxable year;

(6) Real estate expenses.-Taxes and other expenses paid during the taxable year exclusively upon or with respect to the real estate owned by the company, not including taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and not including any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property. The deduction allowed by this paragraph shall be allowed in the case of taxes imposed upon a shareholder of a company upon his interest as shareholder, which are paid by the company without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes;

(7) Depreciation.-A reasonable allowance for the exhaustion, wear and tear of property, including a reasonable allowance for obsolescence; and

(8) Interest.-All interest paid or accrued within the taxable year on its indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this chapter.

(b) Rental value of real estate. The deduction under subsection (a) (6) or (7) of this section on account of any real estate owned and occupied in whole or in part by a life insurance company, shall be limited to an amount which bears the same ratio to such deduction (computed without regard to this subsection) as the rental value of the space not so occupied bears to the rental value of the entire property.

(c) Foreign life insurance companies. In the case of a foreign life insurance company the amount of its net income for any taxable year from sources within the United States shall be the same proportion of its net income for the taxable year from sources within and without the United States, which the reserve funds required by law and held by it at the end of the taxable year upon business transacted within the United States is of the reserve funds held by it at the end

of the taxable year upon all business transacted. (June 6, 1932, c. 209, § 203, 47 Stat. 224.)

Sec. 204. Insurance companies other than life or mutual— (a) Imposition of tax.-In lieu of the tax imposed by section 13 of this chapter, there shall be levied, collected, and paid for each taxable year upon the net income of every insurance company (other than a life or mutual insurance company) a

tax as follows:

(1) In the case of such a domestic insurance company, 13% per centum of its net income;

(2) In the case of such a foreign insurance company, 134 per centum of its net income from sources within the United States.

(b) Definition of income, etc.-In the case of an insurance company subject to the tax imposed by this section

(1) Gross income.-"Gross income" means the sum of (A) the combined gross amount earned during the taxable year, from investment income and from underwriting income as provided in this subsection, computed on the basis of the underwriting and investment exhibit of the annual statement approved by the National Convention of Insurance Commissioners, and (B) gain during the taxable year from the sale or other disposition of property, and (C) all other items constituting gross income under section 22;

(2) Net income.—“ Net income" means the gross income as defined in paragraph (1) of this subsection less the deductions allowed by subsection (c) of this section;

(3) Investment income.-"Investment income" means the gross amount of income earned during the taxable year from interest, dividends, and rents, computed as follows:

To all interest, dividends and rents received during the taxable year, add interest, dividends and rents due and accrued at the end of the taxable year, and deduct all interest, dividends and rents due and accrued at the end of the preceding taxable year;

(4) Underwriting income." Underwriting income" means the premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred;

From the amount of gross premiums written on insurance contracts during the taxable year, deduct return premiums and premiums paid for reinsurance. To the result so obtained add unearned premiums on outstanding business at the end of the preceding taxable year and deduct unearned premiums on outstanding business at the end of the taxable year;

(6) Losses incurred.-"Losses incurred" means losses incurred during the taxable year on insurance contracts, computed as follows:

To losses paid during the taxable year, add salvage and reinsurance recoverable outstanding at the end of the preceding taxable year, and deduct salvage and reinsurance recoverable outstanding at the end of the taxable year. To the result so obtained add all unpaid losses outstanding at the end of the taxable year and deduct unpaid losses outstanding at the end of the preceding taxable year;

(7) Expenses incurred." Expenses incurred" means all expenses shown on the annual statement approved by the National Convention of Insurance Commissioners, and shall be computed as follows:

To all expenses paid during the taxable year add expenses unpaid at the end of the taxable year and deduct expenses unpaid at the end of the preceding taxable year. For the purpose of computing the net income subject to the tax imposed by this section there shall be deducted from expenses incurred as defined in this paragraph all expenses incurred which are not allowed as deductions by subsection (c) of this section.

(c) Deductions allowed.-In computing the net income of an insurance company subject to the tax imposed by this section there shall be allowed as deductions:

(1) All ordinary and necessary expenses incurred, as provided in section 23 (a);

(2) All interest as provided in section 23 (b);
(3) Taxes as provided in section 23 (c);

(4) Losses incurred as defined in subsection (b) (6) of this section;

(5) Losses sustained during the taxable year from the sale or other disposition of property;

(6) Bad debts in the nature of agency balances and bills receivable ascertained to be worthless and charged off within the taxable year;

(7) The amount received as dividends from corporations as provided in section 23 (p) ;

(8) The amount of interest earned during the taxable year which under section 22 (b) (4) is exempt from the taxes imposed by this chapter, and the amount of interest allowed as a credit under section 26;

(9) A reasonable allowance for the exhaustion, wear and tear of property, as provided in section 23 (k).

United States shall be allowed as a credit against the tax of a domestic insurance company subject to the tax imposed by section 201 or 204, to the extent provided in the case of a domestic corporation in section 131, and in such cases "net income" as used in that section means the net income as defined in this Supplement. (June 6, 1932, c. 209, § 206, 47 Stat. 227.)

Sec. 207. Computation of gross income. The gross income of insurance companies subject to the tax imposed by section 201 or 204 shall not be determined in the manner provided in section 119. (June 6, 1932, c. 209, § 207, 47 Stat. 227.)

Sec. 208. Mutual insurance companies other than life(a) Application of chapter.-Mutual insurance companies, other than life insurance companies, shall be taxable in the same manner as other corporations, except as hereinafter provided in this section.

(b) Gross income.-Mutual marine-insurance companies shall include in gross income the gross premiums collected and received by them less amounts paid for reinsurance,

(c) Deductions.—In addition to the deductions allowed to corporations by section 23 the following deductions to insurance companies shall also be allowed, unless otherwise allowed—

(1) Mutual insurance companies other than life insurance. In the case of mutual insurance companies other than life insurance companies

(A) the net addition required by law to be made within the taxable year to reserve funds (including in the case of assessment insurance companies the actual deposit of sums with State or Territorial officers pursuant to law as additions to guarantee or reserve funds); and

(B) the sums other than dividends paid within the taxable year on policy and annuity contracts.

(2) Mutual marine insurance companies. In the case of mutual marine insurance companies, in addition to the deductions allowed in paragraph (1) of this subsection, unless otherwise allowed, amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertainment and the payment thereof;

(3) Mutual insurance companies other than life and marine. In the case of mutual insurance companies (including interinsurers and reciprocal underwriters, but not including mutual life or mutual marine insurance companies) requiring their members to make premium deposits to provide for losses and expenses, the amount of premium deposits returned to their policyholders and the amount of premium deposits retained for the payment of losses, expenses, and reinsurance reserves. (June 6, 1932, c. 209, § 208, 47 Stat. 227.)

SUPPLEMENT H-NONRESIDENT ALIEN INDIVIDUALS Sec. 211. Normal tax-(a) General rule.-In the case of a nonresident alien individual who is not a resident of a con

(b) Aliens resident in contiguous countries. In the case of an alien individual resident in a contiguous country, the normal tax shall be an amount equal to the sum of the following:

(1) 4 per centum of the amount by which the part of the net income attributable to wages, salaries, professional fees, or other amounts received as compensation for personal services actually performed in the United States. exceeds the personal exemption and credit for dependents; but the amount taxable at such 4 per centum rate shall not exceed $4,000; and

(2) 8 per centum of the amount of the net income in excess of the sum of (A) the amount taxed under paragraph (1) of this subsection plus (B) the total credits against net income allowed to such individual.

(c) In lieu of normal tax under section 11.-The tax imposed by this section shall be in lieu of the normal tax imposed by section 11. (June 6, 1932, c. 209, § 211, 47 Stat. 228.)

Sec. 212. Gross income-(a) General rule.--In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States.

(b) Ships under foreign flag.-The income of a nonresident alien individual which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this chapter. (June 6, 1932, c. 209, § 212, 47 Stat. 228.)

Sec. 213. Deductions-(a) General rule.-In the case of a nonresident alien individual the deductions shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined as provided in section 119, under rules and regulations prescribed by the Commissioner with the approval of the Secretary.

(b) Losses.

(1) The deduction, for losses not connected with the trade or business if incurred in transactions entered into for profit, allowed by section 23 (e) (2) shall be allowed whether or not connected with income from sources within the United States, but only if the profit, if such transaction had resulted in a profit, would be taxable under this chapter.

(2) The deduction for losses of property not connected with the trade or business if arising from certain casualties or theft, allowed by section 23 (e) (3), shall be allowed whether or not connected with income from sources within the United States, but only if the loss is of property within the United States.

(c) Charitable, etc., contributions.-The so-called “charitable contribution" deduction allowed by section 23 (n) shall be allowed whether or not connected with income from sources within the United States, but only as to contributions or gifts made to domestic corporations, or to community chests, funds, or foundations, created in the United States, or to the vocational rehabilitation fund. (June 6, 1932, c. 209, § 213, 47 Stat. 228.)

Sec. 214. Credits against net income.-In the case of a nonresident alien individual the personal exemption allowed by section 25 (c) of this chapter shall be only $1,000. The credit for dependents allowed by section 25 (d) shall not be allowed in

Sec. 215. Allowance of deductions and credits-(a) Return to contain information.-A nonresident alien individual shall receive the benefit of the deductions and credits allowed to him in this chapter only by filing or causing to be filed with the collector a true and accurate return of his total income received from all sources in the United States, in the manner prescribed in this chapter; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits.

(b) Tax withheld at source.-The benefit of the personal exemption and credit for dependents, and of the reduced rate of tax provided for in section 211 (b), may, in the discretion of the Commissioner and under regulations prescribed by him with the approval of the Secretary, be received by a nonresident alien individual entitled thereto, by filing a claim therefor with the withholding agent. (June 6, 1932, c. 209, § 215, 47 Stat. 229.)

Sec. 216. Credits against tax.-A nonresident alien individual shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 131. (June 6, 1932, c. 209, § 216, 47 Stat. 229.) Sec. 217. Returns.-In the case of a nonresident alien individual the return, in lieu of the time prescribed in section 53 (a) (1), shall be made on or before the fifteenth day of the sixth month following the close of the fiscal year, or, if the return is made on the basis of the calendar year, then on or before the fifteenth day of June. (June 6, 1932, c. 209, § 217, 47 Stat. 229.)

Sec. 218. Payment of tax-(a) Time of payment. In the case of a nonresident alien individual the total amount of tax imposed by this chapter shall be paid, in lieu of the time prescribed in section 56 (a), on the fifteenth day of June following the close of the calendar year, or, if the return should be made on the basis of a fiscal year, then on the fifteenth day of the sixth month following the close of the fiscal year.

(b) Withholding at source. For withholding at source of tax on income of nonresident aliens, see section 143. (June 6, 1932, c. 209, § 218, 47 Stat. 229.)

SUPPLEMENT I-FOREIGN CORPORATIONS

Sec. 231. Gross income-(a) General rule. In the case of a foreign corporation gross income includes only the gross income from sources within the United States.

(b) Ships under foreign flag.-The income of a foreign corporation, which consists exclusively of earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States, shall not be included in gross income and shall be exempt from taxation under this chapter. (June 6, 1932, c. 209, § 231, 47 Stat. 229.)

Sec. 232. Deductions.-In the case of a foreign corporation the deductions shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources within and without the United States shall be determined as provided in section 119, under rules and regulations prescribed by the Commissioner with the approval of the Secretary. (June 6, 1932, c. 209, § 232, 47 Stat. 230.)

Sec. 233. Allowance of deductions and credits.-A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this chapter only by filing or causing to be filed with the collector a true and accurate return of its

total income received from all sources in the United States, in the manner prescribed in this chapter; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits. (June 6, 1932, c. 209, § 233, 47 Stat. 230.)

Sec. 234. Credits against tax.-Foreign corporations shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 131. (June 6, 1932, c. 209, § 234, 47 Stat. 230.)

Sec. 235. Returns.-In the case of a foreign corporation not having any office or place of business in the United States the return, in lieu of the time prescribed in section 53 (a) (1), shall be made on or before the fifteenth day of the sixth month following the close of the fiscal year, or, if the return is made on the basis of the calendar year then on or before the fifteenth day of June. If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return shall be made by the agent. (June 6, 1932, c. 209, § 235, 47 Stat. 230.)

Sec. 236. Payment of tax-(a) Time of payment. In the case of a foreign corporation not having any office or place of business in the United States the total amount of tax imposed by this chapter shall be paid, in lieu of the time prescribed in section 56 (a), on the fifteenth day of June following the close of the calendar year, or, if the return should be made on the basis of a fiscal year, then on the fifteenth day of the sixth month following the close of the fiscal year.

(b) Withholding at source.-For withholding at source of tax on income of foreign corporations, see section 143. (June 6, 1932, c. 209, § 236, 47 Stat. 230.)

Sec. 237. Foreign insurance companies.-For special provisions relating to foreign insurance companies, see Supplement G. (June 6, 1932, c. 209, § 237, 47 Stat. 230.)

Sec. 238. Affiliation.-A foreign corporation shall not be deemed to be affiliated with any other corporation within the meaning of section 141. (June 6, 1932, c. 209, § 238, 47 Stat. 230.)

SUPPLEMENT J-POSSESSIONS OF THE UNITED
STATES

Sec. 251. Income from sources within possessions of United States (a) General rule. In the case of citizens of the United States or domestic corporations, satisfying the following conditions, gross income means only gross income from sources within the United States

(1) If 80 per centum or more of the gross income of such citizen or domestic corporation (computed without the benefit of this section), for the three-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and

(2) If, in the case of such corporation, 50 per centum or more of its gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States; or

(3) If, in case of such citizen, 50 per centum or more of his gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.

(b) Amounts received in United States.-Notwithstanding the provisions of subsection (a) there shall be included in gross income all amounts received by such citizens or corporations within the United States, whether derived from sources within or without the United States.

(c) Definition.-As used in this section the term "possession of the United States" does not include the Virgin Islands of the United States.

(d) Deductions.—

(1) Citizens of the United States entitled to the benefits of this section shall have the same deductions as are allowed by Supplement H in the case of a nonresident alien individual.

(2) Domestic corporations entitled to the benefits of this section shall have the same deductions as are allowed by Supplement I in the case of a foreign corporation.

(e) Credits against net income.-A citizen of the United States entitled to the benefits of this section shall be allowed a personal exemption of only $1,000 and shall not be allowed the credit for dependents provided in section 25 (d).

(f) Allowance of deductions and credits.-Citizens of the United States and domestic corporations entitled to the benefits of this section shall receive the benefit of the deductions and credits allowed to them in this chapter only by filing or causing to be filed with the collector a true and accurate return of their total income received from all sources in the United States, in the manner prescribed in this chapter; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and credits.

(g) Credits against tax.-Persons entitled to the benefits of this section shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 131.

(h) Affiliation.-A corporation entitled to the benefits of this section shall not be deemed to be affiliated with any other corporation within the meaning of section 141. (June 6, 1932, c. 209, § 251, 47 Stat. 231.)

Sec. 252. Citizens of possessions of United States. (a) Any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States, shall be subject to taxation under this chapter only as to income derived from sources within the United States, and in such case the tax shall be computed and paid in the same manner and subject to the same conditions as in the case of other persons who are taxable only as to income derived from such sources. (b) Nothing in this section shall be construed to alter or amend the provisions of the Act entitled An Act making appropriations for the naval service for the fiscal year ending June 30, 1922, and for other purposes," approved July 12, 1921, c. 44, 42 Stat. 123 (U. S. C. 48: 1397), relating to the imposition of income taxes in the Virgin Islands of the United States.18 (June 6, 1932, c. 209, § 252, 47 Stat. 232.)

SUPPLEMENT K-CHINA TRADE ACT CORPORATIONS

Sec. 261. Credit against net income-(a) Allowance of credit. For the purpose only of the tax imposed by section 13 there shall be allowed, in the case of a corporation organized under the China Trade Act, 1922, 42 Stat. 849, c. 346 (U. S. C., Title 15, c. 4), in addition to the credit provided in section 26, a credit against the net income of an amount equal to the proportion of the net income derived from sources within China (determined in a similar manner to that provided in section 119) which the par value of the shares of stock of the corporation owned on the last day of the taxable year by (1) persons resident in China, the United States, or possessions of the United States, and (2) individual citizens of the United States or China wherever resident, bears to the par value of

16 Section 1 of the Act of July 12, 1921, provides as follows: That the income tax laws now in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds of such taxes shall be paid into the treasuries of said islands.