corporation. The following four classes of transactions have been urged as proper additional exceptions to the general rule laid down in section 202 (b):

1. When the market value of the property received can not be satisfactorily determined.

2. When property is exchanged in return for all or substantially all the stock of a corporation.

3. When property is exchanged between corporations affiliated within the meaning of section 240.

4. When, in connection with the reorganization of a corporation or partnership, one corporation or partnership exchanges property with another corporation or partnership involved in such reorganization, or a person receives in place of stock or securities owned by him new stock or securities.

It has been suggested that these changes could be accomplished by an amendment in substantially the following form:

Amend section 202 by adding at the end thereof the following new subdivision:

(c) When property is exchanged for other property, the property received shall be treated as the equivalent of cash to the amount of its fair market value; but in the exceptional cases enumerated below no gain or loss shall be recognized and the property received shall, for the purpose of determining the allowances for depreciation, depletion, amortization, and other like purposes, be treated as taking the place of the property exchanged when the change is merely in form and not in substance:

(1) The market value of the property received can not in the opinion of the Commissioner be satisfactorily determined;

(2) A person or persons exchange property for not less than 95 per cent of the stock of a corporation;

(3) Property is exchanged between corporations affiliated within the meaning of section 240;

(4) In connection with the reorganization of a corporation or partnership, one corporation or partnership exchanges property with another corporation or partnership involved in such reorganization, or a person receives in place of stock or securities owned by him new stock or securities. The word "reorganization" as used in this paragraph includes a merger, consolidation, or a mere change in the identity or form or organization of a corporation or partnership;

The provisions of this subdivision shall be taken to declare and not to amend subdivision (b) of this section; and nothing herein shall be construed to modify the provisions of sections 330 or 331, or to authorize the direct or indirect exemption of any stock dividend or any capitalization of surplus tantamount thereto lawfully subject to the tax.

Section 204. Net losses.

It has been suggested that section 204, which affords relief in the case of net losses sustained in "any taxable year beginning after October 31, 1918, and ending prior to January 1, 1920," should be made general or permanent, and that the definition of "net losses" contained in this section be amended to resolve in the affirmative the doubt as to whether, if a taxpayer sustains losses both from the operation of his business and from the sale of capital assets other than those constructed or acquired for the production of war essentials, both kinds of losses are to be recognized in computing the net loss.

In support of this suggestion it has been urged that as the legislation is now worded, it gives no benefit to a taxpayer whose business year runs from February, 1919, to February, 1920, although a taxpayer whose business year coincides with the calendar year 1919 and a taxpayer whose year runs from November, 1918, to November, 1919, receives the benefit provided by the law. It is also urged in support of this suggestion that it is desirable to go further than the mere correction of this discrimination, and that the right to spread a loss should be recognized as a permanent policy. It is said that the annual accounting period, the striking of a balance of gain or loss every 12 months, is merely an approximation resting upon convenience and fiscal necessity, and that the result shown is frequently unreal, for if a business concern makes $20,000 in 1918, loses $10,000 in 1919, and makes $5,000 in 1920, it has not earned profits of $25,000 in the three-year period, but only $15,000.

It has been suggested that these changes could be accomplished by an amendment in substantially the following form:

Strike out subdivisions (a) and (b) of section 204 and substitute in lieu thereof the following:

SEC. 204. (a) That as used in this section the term "net loss" refers only to net losses resulting from either (1) the operation of any business regularly carried on by the taxpayer, or (2) the bona fide sale by the taxpayer of plant, buildings, machinery, equipment, or other facilities, constructed, installed, or acquired by the taxpayer on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war; and when so resulting means the excess of the deductions allowed by law (excluding in the ease of corporations-amounts allowed as-a-deduction-under except the deductions authorized by pargraph 6 of subdivision (a) of section 234 and losses of the kind excluded by the limitation hereinbefore prescribed) over the sum of the gross income plus any interest received free from taxation both under this title and under Title III.

(b) If for any taxable year beginning after October 31, 1918, and ending prior to January 1, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount of such net loss shall, under regulations prescribed by the Commissioner with the approval of the Secretary be deducted from the net income of the taxpayer for the preceding taxable year; and the taxes imposed by this title and by Title III for such preceding taxable year shall be redetermined accordingly. Any amount found to be due to the taxpayer upon the basis of such redetermination shall be credited or refunded to the taxpayer in accordance with the provisions of section 252. If such net loss is in excess of the net income for such preceding taxable year, the amount of such excess shall under regulations prescribed by the Commissioner with the approval of the Secretary be allowed as a deduction in computing the net income for the succeeding taxable year.

Section 213 (b) (1). Proceeds of life insurance policies.

This paragraph excludes from gross income "the proceeds of life insurance policies paid upon the death of the insured to individual beneficiaries or to the estate of the insured." It has been suggested that this paragraph be amended so as to omit the limitation resulting from the words "to individual beneficiaries or to the estate of the insured." The adoption of this suggestion would leave no doubt as to the right of a partnership to exclude from gross income the proceeds of any life insurance policy in which the partnership is named as beneficiary and would extend to corporations a similar right.

In support of this suggestion it has been urged that business concerns-partnerships and corporations-are no longer allowed as deductions the amount paid for premiums on policies insuring in their favor the lives of officers and employees, and that such insurance constitutes a reasonable and proper provision against actual losses which business enterprises sustain in the death of responsible officers and employees.

It has been suggested that this change could be accomplished by an amendment in substantially the following form:

Strike out paragraph (1) of subdivision (b) of section 213 and insert in lieu thereof:

(1) The proceeds of life insurance policies paid upon the death of the insured to individual beneficiaries or to the estate of the insured;

Section 213 (b) (3). Value of property acquired by gift, bequest, devise, or descent.

Under this paragraph of the law the owner of property acquired by gift, bequest, devise, or descent takes over such property at its market value when he acquires it and thereafter depreciation, depletion, and

gain or loss are computed on the basis of this value which is often higher than the value when the property was originally acquired.

It has been suggested that, although transfers of property by gift, bequest, devise, or descent should not be treated as giving rise to realized gain or loss, whenever thereafter gain or loss is realized by actual sale, the gain or loss at that time should be measured as the difference between the price received and the cost to the original owner who acquired the property for value.

It is urged in support of this suggestion that the effect of the present legislation is to permit realized gains due to appreciation taking place during the previous ownership to escape taxation.

It has been suggested that it is desirable also to clear from doubt the status of life interests or estates. Life tenants have made claim for an obsolescence allowance based upon shrinkage due to the mere passage of time in the so-called capital value of the life interest. Certain State statutes and the decisions thereunder give color to the claim that the value of a life interest at the time received is such a capital value as may serve as the basis of deductions for obsolescence. If these claims be allowed, cases would arise in which a clear income from an unimpared corpus divided between a life tenant and remainderman would entirely escape taxation-the income from the property being wiped out by the annual shrinkage or obsolescence of the so-called capital value of the life estate.

It has been suggested that these changes could be accomplished by an amendment in substantially the following form:

Strike out paragraph (3) of subdivision (b) of section 213 and insert in lieu thereof:

(3) The value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included in gross income, and such property shall be valued for the purposes of computing invested capital, depreciation, depletion, gain or loss, under Title II and III, as if in the possession of the previous owner; and the income from such property shall be included in the gross income without deduction for any shrinkage in the so-called value of a life interest due to the mere lapse of time);

Section 213 (c) and Section 233 (b). Gross income of nonresident aliens and foreign corporations.

These paragraphs of the law provide that in the case of nonresident alien individuals and foreign corporations gross income shall include "the gross income from sources within the United States."

It has been suggested that these paragraphs be amended to exempt or exclude from gross income interest on deposits in banks, banking associations, and trust companies received by alien individuals or

foreign corporations not engaged in trade or business within the United States and not having any office or any place of business therein.

It is urged in support of this suggestion that the loss of revenue which would result if this deduction were allowed would be relatively small in amount, while the exemption of such interest from taxation would be in keeping with the action of other countries and would encourage nonresident alien individuals and foreign corporations to transact financial business through institutions located in the United States.

It has been further suggested in connection with these paragraphs of the law that the gross income of nonresident alien individuals and foreign corporations be so defined as to exclude profits attributable to the manufacture or production of goods by nonresident aliens or foreign corporations outside the United States, and that such profits be determined by processes of allocation or apportionment under administrative regulations.

It has been urged in support of this suggestion that under the present language of the law foreign producers or manufacturers who sell from an established office in the United States are subject to taxation on the entire profit derived from the goods sold within this country, although the greater part of this profit may be attributable to manufacture or production abroad, whereas foreign producers or manufacturers may escape all taxation by establishing their selling agency as well as their factories and plants outside the United States. It is also urged that the present rule is inconsistent because in the case of a factory of a foreign corporation located in the United States and making sales abroad the entire profit is taxed on the ground that this income is derived from sources (that is, manufacture or production) within the United States, whereas if the factory of a foreign corporation is located abroad and sales are made through an office in the United States, the entire profit is again taxed on the ground that the income is derived from sources (that is, sale) within the United States.

It has been suggested that these changes could be accomplished by amendments in substantially the following form:

Strike out subdivision (c) of section 213 and insert in lieu thereof:

(c) In the case of nonresident alien individuals, gross income includes only the gross income from sources within the United States, including

(1) Interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, except interest on deposits in banks, banking associations, and trust companies received by nonresident alien individuals not engaged in trade or business within the United States or not having an office or place of business therein;